<PAGE>   1
                                                                     EXHIBIT 2




                      AGREEMENT AND PLAN OF REORGANIZATION

                                  BY AND AMONG

                          PAIRGAIN TECHNOLOGIES, INC.,

                              ABALONE CORPORATION,

                                      AND

                              AVIDIA SYSTEMS, INC.



                               FEBRUARY 19, 1997
<PAGE>   2
                               TABLE OF CONTENTS
<TABLE>
<CAPTION>
                                                                                                                            PAGE
                                                                                                                            ----
<S>                       <C>                                                                                                <C>
SECTION 1.                THE MERGER  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.1      The Merger  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.2      Conversion of Shares  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   2
         Section 1.3      Exchange of Certificates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   3
         Section 1.4      Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 1.5      Lost, Stolen or Destroyed Certificates  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 1.6      Avidia Stock Option Plans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   5
         Section 1.7      Assumption of Warrants  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   6
         Section 1.8      Benefits Arrangements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         Section 1.9      Dissenting Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7
         Section 1.10     Certain Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .   7

SECTION 2.                THE SURVIVING CORPORATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 2.1      Certificate of Incorporation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 2.2      Bylaws  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 2.3      Directors and Officers  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15

SECTION 3.                REPRESENTATIONS AND WARRANTIES OF AVIDIA  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 3.1      Organization and Good Standing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 3.2      Power, Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  15
         Section 3.3      Capitalization  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  16
         Section 3.4      Subsidiaries  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         Section 3.5      No Violation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  17
         Section 3.6      Avidia's Financial Statements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         Section 3.7      Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         Section 3.8      Litigation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         Section 3.9      Undisclosed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         Section 3.10     Absence of Certain Changes  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  18
         Section 3.11     Broker's Fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         Section 3.12     Title to Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  20
         Section 3.13     Legal Compliance  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
         Section 3.14     Tax Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  21
         Section 3.15     Properties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  22
         Section 3.16     Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  23
         Section 3.17     Pooling of Interests  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
         Section 3.18     Selected Contracts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  25
         Section 3.19     Notes and Accounts Receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  26
         Section 3.20     Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
         Section 3.21     Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
         Section 3.22     Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  27
         Section 3.23     Employee Benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  28
</TABLE>





                                       i.
<PAGE>   3
<TABLE>
<S>                       <C>                                                                                                <C>
         Section 3.24     Guaranties  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 3.25     Environment, Health, and Safety . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  30
         Section 3.26     Corporate Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  31
         Section 3.27     Affiliate Agreements; Irrevocable Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
         Section 3.28     Shareholders' Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
         Section 3.29     No Adverse Developments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
         Section 3.30     Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32
         Section 3.31     Information Supplied  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  32

SECTION 4.                REPRESENTATIONS AND WARRANTIES OF PG AND MERGER SUB . . . . . . . . . . . . . . . . . . . . . . .  33
         Section 4.1      Organization and Good Standing  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
         Section 4.2      Power, Authorization and Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  33
         Section 4.3      Capitalization  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         Section 4.4      No Violation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         Section 4.5      SEC Documents; PG Financial Statements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  34
         Section 4.6      No Material Adverse Effect  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         Section 4.7      Charter Documents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         Section 4.8      Full Disclosure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         Section 4.9      Information Supplied  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35
         Section 4.10     Litigation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  35

SECTION 5.                CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE TIME; ADDITIONAL AGREEMENTS . . . . . . . . . . . . .  36
         Section 5.1      Conduct of Business of the Companies  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  36
         Section 5.2      Access to Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
         Section 5.3      Exclusivity; Acquisition Proposals  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  39
         Section 5.4      Breach of Representations and Warranties  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         Section 5.5      Pooling Accounting  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         Section 5.6      Consents  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         Section 5.7      Affiliates Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         Section 5.8      Preparation of Information Statement  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  40
         Section 5.9      Legal Conditions to the Merger  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
         Section 5.10     Expenses  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  41
         Section 5.11     Public Announcements  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         Section 5.12     Stockholder Registration Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         Section 5.13     Optionholder Registration Rights  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         Section 5.14     Avidia's Auditors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         Section 5.15     Stockholder List  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  42
         Section 5.16     Issuance of New Stock Options by PG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
         Section 5.17     Qualification of PG Common Stock  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
         Section 5.18     Infusion of New Capital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
         Section 5.19     Indemnification by Surviving Corporation  . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
         Section 5.20     Consents to Option Assumption . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
         Section 5.21     Efforts and Assurances  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  43
</TABLE>





                                      ii.
<PAGE>   4
<TABLE>
<S>                       <C>                                                                                                <C>
SECTION 6.                INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         Section 6.1      Indemnification by Avidia Stockholders  . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         Section 6.2      Indemnification by PG . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  44
         Section 6.3      Holdback Amount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
         Section 6.4      Minimum Claims  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
         Section 6.5      Maximum Indemnity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
         Section 6.6      Claims for Indemnification  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  45
         Section 6.7      Stockholder Representative Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  47
         Section 6.8      Resolution of Conflicts; Arbitration; Limitation on Damages . . . . . . . . . . . . . . . . . . .  47
         Section 6.9      Avidia Transaction Costs  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48

SECTION 7.                CONDITIONS TO THE MERGER  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  48
         Section 7.1      Conditions to Obligations of Each Party to Effect the Merger  . . . . . . . . . . . . . . . . . .  48
         Section 7.2      Additional Conditions to Obligations of PG  . . . . . . . . . . . . . . . . . . . . . . . . . . .  49
         Section 7.3      Additional Conditions to Obligations of Avidia  . . . . . . . . . . . . . . . . . . . . . . . . .  50

SECTION 8.                TERMINATION, AMENDMENT AND WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  51
         Section 8.1      Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  51
         Section 8.2      Effect of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         Section 8.3      Amendment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         Section 8.4      Extension; Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53

SECTION 9.                GENERAL PROVISIONS  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         Section 9.1      Survival of Representations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         Section 9.2      Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  53
         Section 9.3      Interpretation  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  54
         Section 9.4      Counterparts  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  55
         Section 9.5      Entire Agreement; Nonassignability; Parties in Interest . . . . . . . . . . . . . . . . . . . . .  55
         Section 9.6      Severability  . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  55
         Section 9.7      Remedies Cumulative . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  55
         Section 9.8      Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  55
         Section 9.9      Rules of Construction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .  55
</TABLE>





                                      iii.
<PAGE>   5
                      AGREEMENT AND PLAN OF REORGANIZATION



               THIS AGREEMENT AND PLAN OF REORGANIZATION (this "Agreement") is
entered into as of the 19th day of February, 1997, by and among PairGain
Technologies, Inc., a Delaware corporation ("PG"), Abalone Corporation, a
Delaware corporation and a wholly owned subsidiary of PG ("Merger Sub"), and
AVIDIA Systems, Inc., a Delaware corporation ("Avidia").


                                    RECITALS

               A.         The Boards of Directors of PG, Merger Sub and Avidia
have each determined to engage in the transactions contemplated hereby,
pursuant to which (i) Merger Sub will merge (the "Merger") with and into
Avidia, (ii) (A) each share of common stock, $.001 par value, of Avidia (the
"Avidia Common Stock"), (B) each share of Series A preferred stock, $.001 par
value, of Avidia (the "Series A Preferred Stock"), (C) each share of Series B
preferred stock, $.001 par value, of Avidia (the "Series B Preferred Stock")
and (D) each share of Series B-1 preferred stock, $.001 par value of Avidia
(the "Series B-1 Preferred Stock" and together with the Series A Preferred
Stock and the Series B Preferred Stock, the "Avidia Preferred Stock") (except
in each case for Dissenting Shares (as defined herein) or shares of Avidia
Common Stock owned by Avidia, PG or Merger Sub) shall be converted into the
right to receive a fraction of a share of common stock, par value $.0005 per
share, of PG ("PG Common Stock") in the manner herein described, and (iii) each
outstanding warrant to purchase capital stock of Avidia that is exercisable on
the date hereof (an "Exchangeable Warrant") shall be converted into the right
to receive shares of PG Common Stock in the manner herein described; (iv) the
capital stock of Merger Sub shall be converted into shares of Avidia Common
Stock, all upon the terms and subject to the conditions set forth herein.

               B.         The Board of Directors of Avidia has approved this
Agreement, and the transactions contemplated hereby and has recommended that
the stockholders of Avidia adopt this Agreement and the transactions
contemplated hereby.

               C.         The Boards of Directors of PG and Merger Sub have
approved this Agreement and the transactions contemplated hereby.  PG, as the
sole stockholder of Merger Sub, has adopted this Agreement and the transactions
contemplated hereby.

               NOW, THEREFORE, in consideration of the foregoing and the mutual
representations, warranties, covenants and agreements set forth herein, the
parties agree as follows:





                                       1.
<PAGE>   6
                                   SECTION 1.

                                   THE MERGER

         SECTION 1.1         THE MERGER.

                    (a)      Subject to the terms and conditions of this
Agreement, Merger Sub shall be merged with and into Avidia in accordance with
Delaware Law, whereupon the separate existence of Merger Sub shall cease, and
Avidia shall be the surviving corporation (the "Surviving Corporation").

                    (b)      As soon as practicable after satisfaction or (to
the extent permitted hereunder) waiver of all conditions to the Merger, Avidia
and Merger Sub shall file a Certificate of Merger ("Certificate of Merger"), in
the Office of the Secretary of State of the State of Delaware.  The Merger
shall become effective at such time as the Certificate of Merger is accepted
for filing by the Office of the Secretary of State of the State of Delaware
("Effective Time").

                    (c)      From and after the Effective Time, the Surviving
Corporation shall possess all the rights, privileges, powers and franchises and
be subject to all of the debts, liabilities and duties of Avidia and Merger
Sub, all as provided under Delaware Law.

                    (d)      The parties intend that (i) the transactions
contemplated by this Agreement qualify as a plan of reorganization in
accordance with the provisions of Section 368(a) of the Code, and be accounted
for as a "pooling of interests" pursuant to Opinion No. 16 of the Accounting
Principles Board and (ii) the PG Common Stock to be issued in the Merger will
be issued in a transaction exempt from registration under the Securities Act by
reason of Rule 506 promulgated thereunder and in reliance on the representation
made by each of the holders of Avidia Common Stock, Avidia Preferred Stock and
Exchangeable Warrants that such holder is an "accredited investor" as that term
is defined in Rule 501 promulgated under the Securities Act.

         SECTION 1.2         CONVERSION OF SHARES AND WARRANTS.

                    (a)      At the Effective Time:

                             (i)     each share of common stock of Merger Sub
         outstanding immediately prior to the Effective Time shall,
         automatically and without any action on the part of the holder
         thereof, be converted into one share of common stock, no par value, of
         the Surviving Corporation;

                             (ii)    each share of Avidia Common Stock and each
         share of Avidia Preferred Stock outstanding immediately prior to the
         Effective Time (other than shares ("Dissenting Shares") held by
         persons exercising dissenters' rights in accordance with Delaware Law)
         shall, automatically and without any action on the part of the holder





                                       2.
<PAGE>   7
         thereof, cease to be outstanding and be converted into the right to
         receive that fraction of a share of PG Common Stock as is equal to the
         Exchange Ratio.

                             (iii)   each Exchangeable Warrant shall,
         automatically and without any action on the part of the holder
         thereof, cease to be outstanding and be converted into the right to
         receive that number of shares of PG Common Stock as is equal to (a)
         the shares of Avidia Common Stock purchasable under the terms of the
         Exchangeable Warrant at the Effective Time multiplied by the Exchange
         Ratio less (b) the aggregate purchase price under the Exchangeable
         Warrant divided by the Closing Price.

                    (b)      The Exchange Ratio shall be equal to (x)
$94,000,000 divided by the average of the closing stock prices (the "Closing
Price") of PG Common Stock on the Nasdaq Stock Market as reported in The Wall
Street Journal (or if not so reported, as reported in another authoritative
source acceptable to the Stockholder Representative) during the 20 consecutive
trading days prior to the date of this Agreement, divided by (y) 5,955,448.

         SECTION 1.3         EXCHANGE OF CERTIFICATES.

                    (a)      At the Effective Time, PG shall make available for
exchange in accordance with this Section 1.3, (i) the shares of PG Common Stock
issuable pursuant to Section 1.2 in exchange for outstanding shares of Avidia
Common Stock and Avidia Preferred Stock or Exchangeable Warrants, less that
number of shares of PG Common Stock to be held in escrow as the Holdback Amount
(as defined in Section 6.3) and (ii) an amount of cash sufficient to satisfy
PG's obligations under Section 1.4.

                    (b)      At and after the Effective Time, upon surrender to
PG of certificate(s) representing all of a holder's Avidia Common Stock, Avidia
Preferred Stock (each, a "Certificate"), and Exchangeable Warrants each such
holder shall receive, in exchange therefor, a certificate representing that
number of whole shares of PG Common Stock to which such holder is entitled
pursuant to Section 1.2 hereof less such holder's portion of the Holdback
Amount (such portion to be determined on a pro rata basis among the holders of
Avidia Common Stock, Avidia Preferred Stock, Exchangeable Warrants and
Assumable Warrants, calculated according to the number of shares of Avidia
Common Stock represented by such securities on a fully diluted basis), along
with a check representing the value of any fractional shares as determined
pursuant to Section 1.4 below.  The stockholders of Avidia, by virtue of their
approval of this Agreement, will be deemed to have irrevocably constituted and
appointed, effective as of the Effective Time, Derek Minno (together with his
permitted successors, the "Stockholder Representative"), as their true and
lawful agent and attorney-in-fact to enter into any agreement in connection
with the transactions contemplated by this Agreement and any transactions
contemplated by the Indemnity Escrow Agreement (as defined in Section 6.3), to
exercise all or any of the powers, authority and discretion conferred on him
under any such agreement, to waive any terms and conditions of any such
agreement on behalf of the stockholders of Avidia (other than the terms of
Section 1.2), to give and receive notices on their behalf and to be their
exclusive representative with respect to any matter, suit, claim, action or
proceeding arising with respect to any transaction contemplated by any such
agreement,





                                       3.
<PAGE>   8
including, without limitation, the defense, settlement or compromise of any
claim, action or proceeding for which PG, the Merger Sub, or such Avidia
stockholder may be entitled to indemnification and the Stockholder
Representative agrees to act as, and to undertake the duties and
responsibilities of, such agent and attorney-in-fact.  This power of attorney
is coupled with an interest and is irrevocable.  The Stockholder Representative
shall not be liable for any action taken or not taken by him in connection with
his obligations under this Agreement (i) with the consent of stockholders who,
as of the Effective Time, owned a majority in number of the outstanding shares
of Avidia Common Stock (treating Avidia Preferred Stock on an as-converted
basis) or (ii) in the absence of his own gross negligence or willful
misconduct.  If the Stockholder Representative shall be unable or unwilling to
serve in such capacity, his successor shall be named by those persons holding a
majority of the outstanding shares of Avidia Common Stock (treating Avidia
Preferred Stock on an as-converted basis) at the Effective Time who shall serve
and exercise the powers of the Stockholder Representative hereunder.  The
Certificates so surrendered pursuant to this Section 1.3 shall forthwith be
cancelled.  In the event of a transfer of ownership of Exchangeable Warrants,
Avidia Common Stock or Avidia Preferred Stock which is not registered on the
transfer records of Avidia, the appropriate number of shares of PG Common Stock
may be delivered to a transferee if the Certificate representing such
Exchangeable Warrants, Avidia Common Stock or Avidia Preferred Stock, as the
case may be, is accompanied by all documents required to evidence and effect
such transfer and to evidence that payment of any applicable stock transfer
taxes have been paid.  Until surrendered as contemplated by this Section 1.3,
each Certificate shall be deemed at any time after the Effective Time to
represent solely the right to receive upon such surrender the number of shares
of PG Common Stock as provided by this Section 1.3 and the provisions of
Delaware Law.

                    (c)      As soon as practicable after the Effective Time,
and subject to and in accordance with the provisions of Section 6.3 hereof, PG
shall cause to be delivered to the Indemnity Escrow Agent (as defined in
Section 6.3) a certificate or certificates representing the Holdback Amount.

                    (d)      Any certificates representing shares of PG Common
Stock issued pursuant to this Agreement will bear the following legend:

                    THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                    REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                    AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
                    UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
                    IN EFFECT UNDER SUCH ACT, (2) SUCH TRANSFER IS PURSUANT TO
                    RULE 144 UNDER SUCH ACT OR (3) THE HOLDER HEREOF FURNISHES
                    TO PAIRGAIN TECHNOLOGIES, INC. AN OPINION OF COUNSEL, WHICH
                    COUNSEL AND WHICH OPINION SHALL BE REASONABLY SATISFACTORY
                    TO PAIRGAIN TECHNOLOGIES, INC. THAT REGISTRATION UNDER SUCH
                    ACT IS NOT REQUIRED.





                                       4.
<PAGE>   9
                    (e)      To the extent permitted by applicable law, all PG
Common Stock delivered, and all cash in lieu of any fractional shares of PG
Common Stock paid, upon the surrender for exchange of shares of Avidia Common
Stock or Avidia Preferred Stock, as the case may be, in accordance with the
terms hereof, shall be deemed to have been delivered and paid in full
satisfaction of all rights pertaining to such shares.  After the Effective
Time, there shall be no further registration of transfers on the stock transfer
books of Avidia or its transfer agent of the shares of Avidia Common Stock or
Avidia Preferred Stock that were outstanding immediately prior to the Effective
Time.  If, after the Effective Time, Certificates are presented for any reason,
they shall be cancelled and exchanged as provided in this Section 1.3.

         SECTION 1.4         FRACTIONAL SHARES.  Notwithstanding any other
provision of this Agreement to the contrary, no fractional shares of PG Common
Stock shall be issued in connection with the Merger.  All shares of PG Common
Stock to which a holder of shares of Avidia Common Stock or Avidia Preferred
Stock or Exchangeable Warrants is entitled pursuant to Section 1.2 or the
provisions of the Indemnity Escrow Agreement shall be aggregated at the time
any shares are to be issued pursuant to this Agreement or released pursuant to
the Indemnity Escrow Agreement.  If a fractional share results from such
aggregation, in lieu of any such fractional share, each holder of shares of
Avidia Common Stock or Avidia Preferred Stock or Exchangeable Warrants who
would otherwise have been entitled to receive a fraction of a share of PG
Common Stock shall be entitled to receive a cash payment equal to such fraction
multiplied by the Closing Price.

         SECTION 1.5         LOST, STOLEN OR DESTROYED CERTIFICATES.  In the
event any Certificates shall have been lost, stolen or destroyed, PG shall
issue in exchange for such lost, stolen or destroyed Certificates, upon the
making of an affidavit of that fact by the holder thereof, such shares of PG
Common Stock (and cash in lieu of fractional shares) as the holder of such
lost, stolen or destroyed certificates would have been entitled pursuant to
Section 1.2 had such Certificates not been lost, stolen or destroyed; provided,
however, that PG may, in its discretion and as a condition precedent to the
issuance thereof, require the owner of such lost, stolen or destroyed
Certificates to deliver a bond in such sum as it may reasonably direct as
indemnity against any claim that may be made against PG or the Surviving
Corporation with respect to the Certificates alleged to have been lost, stolen
or destroyed.

         SECTION 1.6         AVIDIA STOCK OPTION PLANS.  Subject to the terms
and conditions of this Agreement, at the Effective Time, PG will assume each
outstanding option to purchase Avidia Common Stock (singularly, an "Avidia
Option" and, collectively, the "Avidia Options") granted under Avidia's 1996
Stock Plan, as amended (the "Avidia Plan"), and each such Avidia Option shall
automatically become an option to purchase shares of PG Common Stock
(singularly, a "PG Option" and, collectively, the "PG Options") for that number
of shares determined by multiplying the number of shares of Avidia Common Stock
subject to such Avidia Option by the Exchange Ratio.  Subject to the foregoing,
the exercise price per share (the "Option Exercise Price") for each such PG
Option will equal the exercise price of the corresponding Avidia Option
immediately prior to the Effective Time divided by the Exchange Ratio, such
that there is no or de minimis change in the aggregate exercise price of each
Avidia Option.  If the foregoing calculation results in a PG Option being
exercisable for a fraction of a share (after





                                       5.
<PAGE>   10
aggregation of all shares subject to such option), then in lieu of receiving
such fractional share, the holder of such option shall receive in cash the fair
market value of the fractional share, net of the applicable exercise price of
such fractional share.  The per share Option Exercise Price of each PG Option
shall be rounded up to the nearest hundredth of a cent ($0.0001).  Vesting time
accrued under the Avidia Option prior to the Effective Time will be credited to
an optionee for the purposes of determining the number of shares subject to
exercise after the Merger.  It is the intention of the parties that to the
extent an Avidia Option was an incentive stock option under Section 422 of the
Code prior to the Merger, the corresponding PG Option shall continue to remain
an incentive stock option.  However, no assumed Avidia Option will entitle the
holder thereof to any additional benefits within the meaning of Section
424(a)(2) of the Code that were not available prior to such assumption.  Unless
the parties hereto and the optionee otherwise agree, the term, exercisability,
vesting schedule and all other terms of the PG Option will be substantially the
same as those of the corresponding Avidia Option.

         SECTION 1.7         ASSUMPTION OF WARRANTS.  Subject to the terms and
conditions of this Agreement, at the Effective Time, PG will assume each
outstanding warrant to purchase capital stock of Avidia other than Exchangeable
Warrants (each, an "Assumed Warrant" and, collectively, the "Assumed Warrants")
and each such Assumed Warrant shall be converted in accordance with its terms
and without any action on the part of the holder thereof into a warrant to
purchase shares of PG Common Stock (each, a "PG Warrant" and, collectively, the
"PG Warrants") for that number of shares determined by multiplying the number
of shares of Avidia capital stock subject to such Assumed Warrant by the
Exchange Ratio.  At and after the Effective Time, upon exercise of an Assumed
Warrant, the holder shall receive, in exchange therefor, a certificate
representing that number of whole shares of PG Common Stock to which such
holder is entitled pursuant to this Section 1.7 less such holder's portion of
the Holdback Amount (such portion to be determined on a pro rata basis among
the holders of Avidia Common Stock, Avidia Preferred Stock, Exchangeable
Warrants and Assumable Warrants, calculated according to the number of shares
of Avidia Common Stock represented by such securities on a fully diluted
basis).  Subject to the foregoing, the exercise price per share (the "Warrant
Exercise Price") for each such PG Warrant will equal the exercise price of the
corresponding Assumed Warrant immediately prior to the Effective Time divided
by the Exchange Ratio, such that there is no or de minimis change in the
aggregate exercise price of each Assumed Warrant.  If the foregoing calculation
results in a PG Warrant being exercisable for a fraction of a share (after
aggregation of all shares subject to such warrant), then in lieu of receiving
such fractional share, the holder of such warrant shall receive in cash the
fair market value of the fractional share, net of the applicable exercise price
of such fractional share.  The per share exercise price of each PG Warrant
shall be rounded up to the nearest hundredth of a cent ($0.0001).  Unless the
parties hereto and the warrantholder otherwise agree, each PG Warrant shall be
enforceable against PG according to its terms and the term, exercisability and
all other terms of each PG Warrant will be substantially the same as those of
the corresponding Assumed Warrant.





                                       6.
<PAGE>   11
         SECTION 1.8         BENEFITS ARRANGEMENTS.  As soon as practicable
after the Effective Time, PG and Avidia each agree to appoint personnel from
their respective human resources departments who will meet and in good faith
negotiate to reach agreement with respect to the manner in which Avidia
employee benefit plans, other than those governed by Section 1.6 above, will be
treated after the Merger.  The parties agree that to the extent practicable PG
will provide benefits for Avidia employees and officers following the Merger
that are substantially identical to the benefits provided to similarly situated
PG employees and officers; provided, further, that the Avidia employees and
officers as of the Effective Time shall receive past service credit for their
years of service (including fractional years) with Avidia.

         SECTION 1.9         DISSENTING SHARES.  If holders of Avidia Common
Stock or Avidia Preferred Stock are entitled to dissenters' rights in
connection with the Merger under Delaware Law, any Dissenting Shares shall not
be converted into the right to receive the consideration set forth in Section
1.2 but shall be converted into the right to receive such consideration as may
be determined to be due with respect to such Dissenting Shares pursuant to
Delaware Law.  Avidia shall give PG prompt notice of any demand for appraisal
or purchase received prior to the Effective Time with respect to Dissenting
Shares, and PG shall have the right to participate in all negotiations and
proceedings with respect to such demand.

         SECTION 1.10        CERTAIN DEFINITIONS.  As used in this Agreement
the following terms have the following meanings (terms defined in the singular
have a correlative meaning when used in the plural and vice versa).  Certain
other terms are defined in the text of this Agreement, the location of which is
set forth herein.

                    (a)      "Action" shall have the meaning set forth in
Section 6.6(a) of this Agreement.

                    (b)      "ADR" shall have the meaning set forth in Section
6.8(b) of this Agreement.

                    (c)      "Affiliate/Stockholder Agreements" shall have the
meaning set forth in Section 3.27 of this Agreement.

                    (d)      "Affiliated Group" shall have the meaning set
forth in Section 3.14(d) of this Agreement.

                    (e)      "Agreement" shall have the meaning set forth in
the Preamble of this Agreement.

                    (f)      "Alternative Acquisition" shall have the meaning
set forth in Section 5.3 of this Agreement.

                    (g)      "Amended Shareholders' Agreement" shall have the
meaning set forth in Section 3.28 of this Agreement.





                                       7.
<PAGE>   12
                    (h)      "Assumed Warrant" shall have the meaning set forth
in Section 1.7 of this Agreement.

                    (i)      "Avidia" means AVIDIA Systems, Inc., a Delaware
corporation.

                    (j)      "Avidia Ancillary Agreements" means the
Affiliate/Stockholder Agreements, the Noncompetition Agreements and the Amended
Shareholders' Agreement.

                    (k)      "Avidia Balance Sheet" shall have the meaning set
forth in Section 3.6 of this Agreement.

                    (l)      "Avidia Certificate" shall have the meaning set
forth in Section 3.3(e) of this Agreement.

                    (m)      "Avidia Common Stock" shall have the meaning set
forth in Recital A of this Agreement.

                    (n)      "Avidia Disclosure Schedule" shall have the
meaning set forth in Section 3 of this Agreement.

                    (o)      "Avidia Founders" shall have the meaning set forth
in Section 3.27 of this Agreement.

                    (p)      "Avidia Option" shall have the meaning set forth
in Section 1.6 of this Agreement.

                    (q)      "Avidia Plan" shall have the meaning set forth in
Section 1.6 of this Agreement.

                    (r)      "Avidia Preferred Stock" shall have the meaning
set forth in Recital A of this Agreement.

                    (s)      "Avidia Stockholder Materials" shall have the
meaning set forth in Section 3.31 of this Agreement.

                    (t)      "Avidia Transaction Costs" shall have the meaning
set forth in Section 5.10(a) of this Agreement.

                    (u)      "Balance Sheet Date" shall have the meaning set
forth in Section 3.6 of this Agreement.

                    (v)      "Basket" shall have the meaning set forth in
Section 6.4 of this Agreement.





                                       8.
<PAGE>   13
                    (w)      "Certificate" shall have the meaning set forth in
Section 1.3(b) of this Agreement.

                    (x)      "Certificate of Merger" shall have the meaning set
forth in Section 1.1(b) of this Agreement.

                    (y)      "Claim" shall have the meaning set forth in
Section 6.6(b) of this Agreement.

                    (z)      "Claim Notice" shall have the meaning set forth in
Section 6.6(b) of this Agreement.

                    (aa)     "Closing Price" shall have the meaning set forth
in Section 1.2(b) of this Agreement.

                    (ab)     "COBRA" shall have the meaning set forth in
Section 3.22(d) of this Agreement.

                    (ac)     "Code" shall mean the Internal Revenue Code of
1986, as amended.

                    (ad)     "Confidential Intellectual Property" means (i) the
Source Code (as hereinafter defined) specified in Section 3.16(f) for the
computer software identified on Schedule 3.16(f) of the Avidia Disclosure
Schedule as owned by Avidia; (ii) all block diagrams, schematic drawings,
technical documentation authored by or for Avidia, design specifications, beta
sheets and project outlines for Avidia's ATM and XDSL system architecture; and
(iii) all schematic drawings, block diagrams and design specifications and
other tangible materials and media for Avidia's parallel interface ADSL modem
and algorithm for transferring ATM cells over a personal computer parallel
interface port, but specifically excluding in the case of each of subsections
(i) through (iii) above any hardware or components supplied by third parties
and any Nonprotectable Code (as hereinafter defined)

                    (ae)     "Confidentiality Agreement" shall have the meaning
set forth in Section 5.2 of this Agreement.

                    (af)     "Consent to Option Assumption" shall have the
meaning set forth in Section 5.20 of this Agreement.

                    (ag)     "Contest Notice" shall have the meaning set forth
in Section 6.6(c) of this Agreement.

                    (ah)     "Controlled Group of Corporations" shall have the
meaning set forth in Section 3.23(b) of this Agreement.

                    (ai)     "Costs Summary" shall have the meaning set forth
in Section 5.10(b) of this Agreement.





                                       9.
<PAGE>   14
                    (aj)     "Defending Party" shall have the meaning set forth
in Section 6.6(c) of this Agreement.

                    (ak)     "Dissenting Shares" shall have the meaning set
forth in Section 1.2(a)(ii) of this Agreement.

                    (al)     "Effective Time" shall have the meaning set forth
in Section 1.1(b) of this Agreement.

                    (am)     "Employee Benefit Plan" means any (a) nonqualified
deferred compensation, retirement plan, severance plan or similar plan or
arrangement; (b) Employee Pension Benefit Plan; (c) Employee Welfare Benefit
Plan; (d) Multiemployer Plan (as set forth in Section 3(37) of ERISA and
Section 414(f) of the Internal Revenue Code of 1986, as amended (the "Code"));
and (e) any other nonqualified plan providing welfare benefits, including but
not limited to medical, dental, life insurance and disability benefits.

                    (an)     "Employee Pension Benefit Plan"  means a plan as 
set forth in Section 3(2) of ERISA.

                    (ao)     "Employee Welfare Benefit Plan" means a plan as
set forth in Section 3(1) of ERISA.

                    (ap)     "Environmental and Safety Laws" shall have the
meaning set forth in Section 3.25(a)(i) of this Agreement.

                    (aq)     "Equity Transaction" shall have the meaning set
forth in Section 5.3 of this Agreement.

                    (ar)     "ERISA"  means the Employee Retirement Income
Security Act of 1974, as amended.

                    (as)     "Exchange Act" shall mean the Securities Exchange
Act of 1934, as amended.

                    (at)     "Exchangeable Warrant" shall have the meaning set
forth in Recital A of this Agreement.

                    (au)     "Existing Shareholders' Agreement" shall have the
meaning set forth in Section 3.28 of this Agreement.

                    (av)     "Fiduciary" shall have the meaning set forth in
Section 3.23(b)(i) of this Agreement.

                    (aw)     "Governmental Authority" shall have the meaning
set forth in Section 3.2(b) of this Agreement.





                                      10.
<PAGE>   15
                    (ax)     "Hazardous Materials" shall have the meaning set
forth in Section 3.25(a)(ii) of this Agreement.

                    (ay)     "Holdback Amount" shall have the meaning set forth
in Section 6.3 of this Agreement.

                    (az)     "Indemnification Damages" shall have the meaning
set forth in Section 6.1 or 6.2 of this Agreement, as applicable.

                    (ba)     "Indemnified Party" shall have the meaning set
forth in Section 6.1 or 6.2 of this Agreement, as applicable.

                    (bb)     "Indemnifying Party" shall have the meaning set
forth in Section 6.1 or 6.2 of this Agreement, as applicable.

                    (bc)     "Indemnity Escrow Agent" shall have the meaning
set forth in Section 6.3 of this Agreement.

                    (bd)     "Indemnity Escrow Agreement" shall have the
meaning set forth in Section 6.3 of this Agreement.

                    (be)     "Indemnity Termination Date" shall have the
meaning set forth in Section 6.1 of this Agreement.

                    (bf)     "Information Statement" shall have the meaning set
forth in Section 5.8 of this Agreement.

                    (bg)     "Intellectual Property"  means all (i) inventions
(whether patentable or unpatentable), all improvements thereto, and all patents
and patent applications, together with all reissues, continuations,
continuations-in-part, divisions, extensions, renewals and re-examinations
thereof, and foreign counterparts thereof; (ii) trade marks, service marks,
trade dress rights, logos, trade names and corporate names and all
applications, registrations, and renewals in connection therewith; (iii)
copyrightable works, copyrights and all applications, registrations and
renewals in connection therewith; (iv) trade secrets and confidential business
information including, without limitation, confidential know-how, formulas,
compositions, drawings, specifications, customer and supplier lists, pricing
and cost information, financial information, and business and marketing plans
and proposals; (v) computer software including, without limitation, data and
documentation owned by Avidia or developed for Avidia by any of its employees
or consultants, (vi) mask work rights and (vii) other proprietary rights
anywhere in the world used by Avidia in connection with its businesses or which
is incorporated into or forms a part of any product licensed, sold, developed
or being developed by or for Avidia as of the Effective Date.

                    (bh)     "Intellectual Property Licenses" shall have the
meaning set forth in Section 3.16(d) of this Agreement.





                                      11.
<PAGE>   16
                    (bi)     "Irrevocable Proxies" shall have the meaning set
forth in Section 3.27 of this Agreement.

                    (bj)     "knowledge" or "best knowledge" means, (i) when
applied to Abalone, the actual knowledge of each of Paul Eaton, David Jenkins,
Charles McCormack and Paul Sun, and (ii) when applied to PG, the actual
knowledge of each of Charles Strauch, Charles McBrayer, Rob Price, Howard Flagg
and Benedict Itri.

                    (bk)     "Material Adverse Effect" means a material adverse
change or effect on the business, financial condition, operations, results of
operations, or future prospects, as such prospects exist at the time of the
applicable representation or covenant, of Avidia or PG, as appropriate;
provided, however, that Material Adverse Effect shall in each instance exclude
any change or effect due to general economic or industry wide conditions.

                    (bl)     "Merger" shall have the meaning set forth in
Recital A of this Agreement.

                    (bm)     "Merger Sub" means Abalone Corporation, a Delaware
corporation and a wholly owned subsidiary of PG.

                    (bn)     "Noncompetition Agreements" means the
Noncompetition Agreements to be entered among PG, Avidia and those employees of
Avidia listed on Schedule 7.2(f).

                    (bo)     "Nonprotectable Code" means non-protectable or
generic elements of computer software.

                    (bp)     "Notice of Action" shall have the meaning set
forth in Section 6.6(a) of this Agreement.

                    (bq)     "Option Exercise Price" shall have the meaning set
forth in Section 1.6 of this Agreement.

                    (br)     "Ordinary Course of Business" means the ordinary
course of business consistent with past custom and practice (including with
respect to quantity and frequency).

                    (bs)     "Person" means an individual, a partnership, a
corporation, an association, a joint stock company, a trust, a joint venture,
an unincorporated organization, or a governmental entity (or any department,
agency, or political subdivision thereof).

                    (bt)     "PG" means Pairgain Technologies, Inc., a Delaware
corporation.

                    (bu)     "PG Ancillary Agreements" means the
Affiliate/Stockholder Agreements, the Noncompetition Agreements, the Amended
Shareholders' Agreement, the Registration Rights Agreement and the Indemnity
Escrow Agreement.





                                      12.
<PAGE>   17
                    (bv)     "PG Common Stock" shall have the meaning set forth
in Recital A of this Agreement.

                    (bw)     "PG Disclosure Schedule" shall have the meaning
set forth in Section 4 of this Agreement.

                    (bx)     "PG Financial Statements" shall have the meaning
set forth in Section 4.5 of this Agreement.

                    (by)     "PG Option" shall have the meaning set forth in
Section 1.6 of this Agreement.

                    (bz)     "PG Preferred Stock" shall have the meaning set
forth in Section 4.3(a) of this Agreement.

                    (ca)     "PG SEC Documents" shall have the meaning set
forth in Section 4.5 of this Agreement.

                    (cb)     "PG Stock Plans" shall have the meaning set forth
in Section 4.3 of this Agreement.

                    (cc)     "PG Transaction Costs" shall have the meaning set
forth in Section 5.10(c) of this Agreement.

                    (cd)     "PG Warrant" shall have the meaning set forth in
Section 1.7 of this Agreement.

                    (ce)     "Pooling Representation Letter" shall have the
meaning set forth in Section 3.17 of this Agreement.

                    (cf)     "Registration Rights Agreement" shall have the
meaning set forth in Section 5.12 of this Agreement.

                    (cg)     "Reimbursable Amount" shall have the meaning set
forth in Section 5.10(b) of this Agreement.

                    (ch)     "Required Avidia Consents" shall have the meaning
set forth in Section 5.6 of this Agreement.

                    (ci)     "Required PG Consents" shall have the meaning set
forth in Section 5.6 of this Agreement.

                    (cj)     "Resolution" shall have the meaning set forth in
Section 6.6(g) of this Agreement.

                    (ck)     "SEC" means the U.S. Securities and Exchange 
Commission.





                                      13.
<PAGE>   18
                    (cl)     "Securities Act" means the Securities Act of 1933,
as amended.

                    (cm)     "Security Interest" means any mortgage, pledge,
lien, encumbrance or other security interest.

                    (cn)     "Series A Preferred Stock" shall have the meaning
set forth in Recital A of this Agreement.

                    (co)     "Series B Preferred Stock" shall have the meaning
set forth in Recital A of this Agreement.

                    (cp)     "Series B-1 Preferred Stock" shall have the
meaning set forth in Recital A of this Agreement.

                    (cq)     "Source Code" means both machine readable and
human readable copies of the software consisting of instructions to be executed
upon a computer in the language used by its programmers (i.e., prior to
compilation or assembly) in a form in which the program logic of the software
is deducible by a human being.

                    (cr)     "Stockholder Representative" shall have the
meaning set forth in Section 1.3(b) of this Agreement.

                    (cs)     "Surviving Corporation" shall have the meaning set
forth in Section 1.1(a) of this Agreement.

                    (ct)     "Taxes" shall have the meaning set forth in
Section 3.14(a) of this Agreement.

                    (cu)     "Tax Returns" shall have the meaning set forth in
Section 3.14(b) of this Agreement.

                    (cv)     "Third Party Licenses" shall have the meaning set
forth in Section 3.16(e) of this Agreement.

                    (cw)     "Warrant Exercise Price" shall have the meaning
set forth in Section 1.7 of this Agreement.





                                      14.
<PAGE>   19
                                   SECTION 2.

                           THE SURVIVING CORPORATION

         SECTION 2.1         CERTIFICATE OF INCORPORATION.  At the Effective
Time the Certificate of Incorporation of the Surviving Corporation shall be
amended in its entirety to conform to the Certificate of Incorporation of
Merger Sub in effect immediately prior to the Effective Time and shall become
the Certificate of Incorporation of the Surviving Corporation.

         SECTION 2.2         BYLAWS.  At the Effective Time, the Bylaws of
Merger Sub, as in effect immediately prior to the Effective Time, shall be the
Bylaws of the Surviving Corporation.

         SECTION 2.3         DIRECTORS AND OFFICERS.  From and after the
Effective Time, until successors are duly elected or appointed and qualified in
accordance with applicable law, the directors of Merger Sub at the Effective
Time shall become directors of the Surviving Corporation, and the officers of
Avidia at the Effective Time shall become the initial officers of the Surviving
Corporation.


                                   SECTION 3.

                    REPRESENTATIONS AND WARRANTIES OF AVIDIA


         Except as set forth in the disclosure schedule attached hereto as
Schedule 3, which disclosure schedule is arranged in schedules corresponding to
the lettered and numbered paragraphs contained in this Section 3 (the "Avidia
Disclosure Schedule"), Avidia hereby represents and warrants to PG and Merger
Sub, as of the date of this Agreement, as follows:

         SECTION 3.1         ORGANIZATION AND GOOD STANDING.  Avidia is (a) a
corporation duly organized, validly existing and in good standing under the
laws of the state of its incorporation; (b) has the requisite corporate power
and authority to own and lease its properties and to carry on its business as
now conducted; and (c) is qualified as a foreign corporation in each U.S.
jurisdiction in which a failure to be so qualified would reasonably be expected
to have a Material Adverse Effect.  Schedule 3.1 of the Avidia Disclosure
Schedule lists the current directors and officers of Avidia.

         SECTION 3.2         POWER, AUTHORIZATION AND VALIDITY.

                    (a)      Except for the stockholder consents set forth in
subparagraph (d), Avidia has the requisite corporate power and authority to
enter into and perform its obligations under this Agreement and the Avidia
Ancillary Agreements.  The execution, delivery and performance of this
Agreement and the Avidia Ancillary Agreements have been duly and validly
approved and authorized by Avidia's Board of Directors.  The operations and
business now being





                                      15.
<PAGE>   20
conducted by Avidia have not been conducted under any other name or entity
except ATM Products, Inc.

                    (b)      No filing with or authorization or approval of any
governmental or regulatory body, court, agency, official or authority (each, a
"Governmental Authority") on behalf of Avidia or any Affiliate of Avidia is
necessary to enable Avidia to enter into, and to perform its obligations under,
this Agreement and the Avidia Ancillary Agreements, except for (a) the filing
of the Certificate of Merger with the Delaware Secretary of State and the
filing of appropriate documents with the relevant authorities of Delaware or
other states in which Avidia is qualified to do business, if any; and (b)
filings, authorizations or approvals where the failure to make or obtain such
filings, authorizations or approvals would not reasonably be expected to have a
Material Adverse Effect or substantially interfere with the ability of Avidia
to consummate the transactions contemplated hereby.

                    (c)      This Agreement and the Avidia Ancillary Agreements
are, or when executed by Avidia will be, valid and binding obligations of
Avidia enforceable in accordance with their respective terms, except as to the
effect, if any, of (a) applicable bankruptcy and other similar laws affecting
the rights of creditors generally, and (b) rules of law governing specific
performance, injunctive relief and other equitable remedies; provided, however,
that the Certificate of Merger will not be effective until filed with the
Delaware Secretary of State.

                    (d)       The requisite vote of Avidia stockholders for the
approval and adoption of this Agreement and the Merger is (i) a majority of the
outstanding shares of Avidia Common Stock and Avidia Preferred Stock voting
together as a single class and (ii) fifty percent (50%) or more of the Series A
Preferred Stock and Series B-1 Preferred Stock voting together as a single
class.

         SECTION 3.3         CAPITALIZATION.

                    (a)      The authorized capital stock of Avidia consists of
7,550,000 shares of Avidia Common Stock, of which 3,000,000 shares are issued
and outstanding as of the date hereof, and 2,710,000 shares of the Avidia
Preferred Stock, of which 650,000 are designated Series A Preferred Stock, all
of which are issued and outstanding as of the date hereof, 266,666 are
designated Series B Preferred Stock, all of which are issued and outstanding as
of the date hereof, and 1,793,334 are designated Series B-1 Preferred Stock,
1,560,718 of which are issued and outstanding as of the date hereof.  No holder
of Avidia Common Stock or Avidia Preferred Stock is obligated to Avidia under
any note (or other instrument evidencing indebtedness) with respect the
purchase of such Avidia Common Stock or Avidia Preferred Stock.  An aggregate
of 1,500,000 shares of Avidia Common Stock are reserved and authorized for
issuance pursuant to the Avidia Plan, of which options to purchase a total of
585,100 shares of Avidia Common Stock are outstanding.  In addition, an
aggregate of 248,064 shares of Avidia Common Stock are reserved for issuance
upon exercise of outstanding warrants to purchase Common Stock and an aggregate
of 230,000 shares of Series B-1 Preferred Stock are reserved for issuance upon
exercise of outstanding warrants to purchase Series B-1 Preferred Stock.  All
issued and outstanding shares of Avidia Common Stock and Avidia Preferred Stock
have been duly





                                      16.
<PAGE>   21
authorized and validly issued, are fully paid and nonassessable, and are held
of record by the respective Avidia stockholders as set forth in Schedule 3.3(a)
of the Avidia Disclosure Schedule.  Avidia does not hold any shares of its
capital stock as treasury stock.

                    (b)      All Avidia Options have been duly authorized and
validly issued and are held of record by the respective Avidia optionholders as
set forth in Schedule 3.3(b) of the Avidia Disclosure Schedule, which schedule
includes the vesting schedule (including vesting commencement date) of and the
exercise price of each Avidia Option and whether the recipient of such Avidia
Option was or is an employee, consultant or director of Avidia.  No Avidia
Option is subject to an acceleration of vesting, nor is any Avidia Option
subject to any other change in vesting as a result of the Merger and the
transactions contemplated hereby.

                    (c)      All Exchangeable Warrants and Assumed Warrants
have been duly authorized and validly issued and are held of record by the
respective Avidia warrantholders as set forth in Schedule 3.3(c) of the Avidia
Disclosure Schedule.  The Assumed Warrants are assumable by PG as set forth in
Section 1.7 of this Agreement according to their terms.

                    (d)      There are no options, warrants, calls,
commitments, conversion privileges or preemptive or other rights or agreements
outstanding to purchase any of Avidia's authorized but unissued capital stock
or any securities convertible into or exchangeable for shares of Avidia Common
Stock or Avidia Preferred Stock, or except for the rights of the holders of
Dissenting Shares, if any, obligating Avidia to grant, extend, or enter into
any such option, warrant, call, commitment, conversion privilege or other right
or agreement, and there is no liability for dividends accrued but unpaid.
Except as contemplated by Section 3.27 hereof, there are no voting agreements,
rights of first refusal or other restrictions (other than normal restrictions
on transfer under applicable federal and state securities laws) applicable to
any of Avidia's outstanding securities.  Avidia is not under any obligation to
register under the Securities Act, any of its presently outstanding securities
or any securities that may be subsequently issued.  All Avidia Common Stock and
Avidia Preferred Stock issued, offered and sold by Avidia was issued, offered
and sold in compliance with federal and state securities laws.

                    (e)      No liquidation preference shall be due with
respect to any share of Avidia Common Stock or Avidia Preferred Stock as a
result of the Merger or the transactions contemplated hereby.  Pursuant to
Avidia's Certificate of Incorporation, as amended (the "Avidia Certificate"),
each share of Avidia Preferred Stock is presently convertible by the holder
thereof into one (1) share of Avidia Common Stock.  Attached hereto as Schedule
3.3(e) is a copy of the Avidia Certificate and the Bylaws of Avidia, each as
currently in effect on the date hereof.

         SECTION 3.4         SUBSIDIARIES.  Avidia does not have any
subsidiaries or any interest, direct or indirect, in any corporation,
partnership, joint venture or other business entity.

         SECTION 3.5         NO VIOLATION.   Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (a) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Authority to which Avidia is subject or any provision of





                                      17.
<PAGE>   22
the Avidia Certificate or the Bylaws of Avidia or (b) (i) conflict with, (ii)
result in a breach of, (iii) constitute a default under, (iv) result in the
acceleration of, (v) create in any party the right to require any notice under,
accelerate, terminate, modify, or (vi) result in the cancellation of any
material agreement, contract, lease, license, instrument, franchise, permit or
other arrangement to which Avidia is a party or by which it is bound or to
which any of its assets is subject.

         SECTION 3.6         AVIDIA'S FINANCIAL STATEMENTS.  Avidia's audited
balance sheet (the "Avidia Balance Sheet") as of December 31, 1996 (the
"Balance Sheet Date"), a copy of which will be delivered to PG by Deloitte &
Touche LLP (a) is in accordance with the books and records of Avidia, (b)
fairly presents the financial condition of Avidia at the date therein indicated
and (c) has been prepared in accordance with generally accepted accounting
principles applied on a consistent basis (except as may be indicated therein).

         SECTION 3.7         BOOKS AND RECORDS.  The books, records and
accounts of Avidia (i) have been maintained in accordance with good business
practices on a consistent basis; (ii) are stated in reasonable detail and
reflect the transactions and dispositions of the assets of Avidia; and (iii)
fairly reflect the basis for the Avidia Balance Sheet.

         SECTION 3.8         LITIGATION.  Avidia has not been and is not a
party to any action, suit, proceeding, hearing, claim, or arbitration,
including without limitation any that may prevent consummation of any of the
transactions contemplated by this Agreement, in or before any court or
administrative agency, nor to Avidia's knowledge has any such action, suit,
proceeding, hearing, claim, arbitration or investigation been threatened.
Neither Avidia nor any of its assets is subject to any outstanding injunction,
judgment, order, decree, ruling or charge.  To Avidia's knowledge, there is no
reasonable basis for any stockholder or former stockholder of Avidia, or any
other person, firm, corporation, or entity, to assert a claim against Avidia or
PG based upon: (i) ownership or rights to ownership of any shares of Avidia
capital stock; (ii) any rights as an Avidia stockholder, including any option
or preemptive rights or rights to notice or to vote; or (iii) any rights under
any agreement among Avidia and its stockholders.  There are no facts or
circumstances which Avidia believes could reasonably form the basis of any
claim against Avidia which could reasonably be expected to have a Material
Adverse Effect.

         SECTION 3.9         UNDISCLOSED LIABILITIES.  Avidia has no liability
(whether asserted or unasserted, whether absolute or contingent, whether
accrued or unaccrued, whether liquidated or unliquidated, and whether due or to
become due, including any liability for taxes), except for liabilities that:
(i) are set forth in the Avidia Balance Sheet or the Avidia Disclosure
Schedule, or (ii) could not reasonably be expected to have a Material Adverse
Effect.

         SECTION 3.10        ABSENCE OF CERTAIN CHANGES.  Except for
transactions contemplated by this Agreement in connection with the Merger (or
otherwise disclosed expressly on any schedule delivered in connection
herewith), since the Balance Sheet Date:

                    (a)      there has not been any Material Adverse Effect on
Avidia;





                                      18.
<PAGE>   23
                    (b)      Avidia has not sold, leased, transferred, or
assigned any assets or properties, tangible or intangible for consideration in
excess of $50,000;

                    (c)      Avidia has not entered into, assumed or become
bound under any agreement, contract, lease, or commitment or extended or
modified the terms of any presently existing agreement, contract, lease or
commitment that involves the payment of more than $50,000 per annum, other than
agreements, contracts, leases or commitments in the Ordinary Course of Business
and those contemplated by this Agreement;

                    (d)      Neither Avidia nor any other party has
accelerated, terminated, made modifications to, or canceled any agreement,
contract, lease, or license that involves the payment or receipt of more than
$50,000 per annum, other than agreements, contracts, leases or licenses in the
Ordinary Course of Business and those contemplated by this Agreement to which
Avidia is a party or by which it is bound, and Avidia has not modified,
canceled, waived or settled any debts or claims held by it in excess of
$50,000;

                    (e)      None of the assets of Avidia, tangible or
intangible, has become subject to any Security Interest other than Security
Interests arising in the Ordinary Course of Business;

                    (f)      Other than in the Ordinary Course of Business,
Avidia has not made any capital expenditures or incurred or paid expenses
exceeding $50,000 in the aggregate of all such capital expenditures or
expenses;

                    (g)      Avidia has not made any capital investment in, or
any loan to, any other Person other than travel loans or other advances in the
Ordinary Course of Business;

                    (h)      Avidia has not created, incurred, assumed, or
guaranteed any indebtedness for borrowed money or capitalized lease
obligations;

                    (i)      except for the filing of a certificate of
correction (a copy of which is attached hereto as part of Schedule 3.3(e)),
there has been no change made or authorized in the Avidia Certificate or the
Bylaws of Avidia;

                    (j)      Avidia has not declared, set aside, or paid any
dividend or made any distribution with respect to its capital stock (whether in
cash or in kind) or redeemed, purchased, or otherwise acquired any of its
capital stock;

                    (k)      Avidia has not experienced any damage,
destruction, or loss (whether or not covered by insurance) to its property
which has had or would reasonably be expected to have a Material Adverse
Effect;

                    (l)      Avidia has not suffered any repeated, recurring or
prolonged shortage, cessation or interruption of inventory shipments, supplies
or utility services which has had or would reasonably be expected to have a
Material Adverse Effect;





                                      19.
<PAGE>   24
                    (m)      Avidia has not made any loan to, entered into any
transaction with, made any changes in employment terms with, or granted any
salary increase, bonus or extraordinary payment to, any of its directors,
officers, or their Affiliates (except in the Ordinary Course of Business), and,
in any event, any such loan, transaction, change, or grant was on fair and
reasonable terms no less favorable to Avidia than would be obtained in a
comparable arm's length transaction with a Person which is not such a director,
officer or an Affiliate thereof;

                    (n)      Avidia has not entered into any collective
bargaining agreement or modified the terms of any such existing agreement;

                    (o)      Avidia has not modified any outstanding Avidia
Option;

                    (p)      Avidia has not suffered any material change or, to
the best of its knowledge, any threat of any material change in its relations
with, or any loss or threat of loss of, any of its major customers,
distributors, dealers or major suppliers which has had or could reasonably be
expected to have a Material Adverse Effect;

                    (q)      Avidia has not received notice or had knowledge of
any actual or threatened labor trouble, other than individual grievances, or
strike, or any other occurrence, event or condition of a similar character;

                    (r)      Avidia has not changed any of the accounting
principles followed by it or the method of applying such principles;

                    (s)      Avidia has not made a change in any of its banking
or safe deposit arrangements;

                    (t)      Avidia has not entered into any transaction other
than in the Ordinary Course of Business; and

                    (u)      Avidia has not committed to any of the foregoing.

         SECTION 3.11        BROKER'S FEES.  Avidia has no liability or
obligation to pay any fees or commissions to any broker, finder, agent or
similar Person with respect to the transactions contemplated by this Agreement,
nor has Avidia entered into any agreement, written or oral, with respect to, or
held any discussions with, any such broker, finder, agent or similar Person
with respect to the transactions contemplated by this Agreement, the result of
which would entitle such broker, finder, agent or similar Person to a fee or
commission in connection therewith.

         SECTION 3.12        TITLE TO ASSETS.  Avidia has good and marketable
title to, or a valid leasehold interest in, the properties and assets used by
it or shown on the Avidia Balance Sheet or acquired after the date thereof
(other than properties and assets sold or otherwise disposed of in the Ordinary
Course of Business), free and clear of all Security Interests other than (a)
those set forth on the search of filings with respect to Avidia under Article 9
of the Uniform





                                      20.
<PAGE>   25
Commercial Code, or any equivalent statute, attached hereto as Schedule 3.12,
(b) Security Interests for current taxes not delinquent or being contested in
good faith by appropriate proceedings, (c) Security Interests in connection
with workers' compensation, unemployment insurance or other social security
obligations, (d) deposits or pledges to secure bids, tenders, contracts (other
than contracts for the payment of money), leases, statutory obligations, surety
and appeal bonds and other obligations of like nature arising in the Ordinary
Course of Business, (e) mechanic's workman's, materialmen's or other like
security interest arising in the Ordinary Course of Business with respect to
obligations which are not due or which are being contested in good faith and
(f) such imperfections of title, Security Interests, easements and
encumbrances, if any, which would not have a Material Adverse Effect.  No
Person other than Avidia or Avidia's lessors owns any assets or properties
currently utilized in or reasonably necessary to the operations or business of
Avidia.  There are no existing contracts, agreements, commitments or
arrangements with any Person to acquire any of the assets or properties of
Avidia (or any interest therein) other than in the Ordinary Course of Business,
except for this Agreement.

         SECTION 3.13        LEGAL COMPLIANCE.  Avidia has complied with all
applicable laws (including rules, regulations, codes, plans, injunctions,
judgments, orders, decrees, rulings, and charges thereunder) of federal, state,
local, and foreign governments (and all agencies thereof), except for
violations that have not had and would not reasonably be expected to have a
Material Adverse Effect.  No action, suit, proceeding, hearing, investigation,
charge, complaint, claim, demand, notice or inquiry has been filed or commenced
against or received by, any governmental body alleging any failure to so
comply.  Avidia has all licenses, permits, approvals, registrations,
qualifications, certificates and other governmental authorizations necessary
for the present operations of Avidia except for licenses, permits, approvals,
registrations, qualifications, certificates or other governmental
authorizations the lack of which have not had and could not reasonably be
expected to have a Material Adverse Effect.

         SECTION 3.14        TAX MATTERS.

                    (a)      For purposes of this Agreement, "Taxes" means all
federal, state, municipal, local or foreign income, gross receipts, windfall
profits, severance, property, production, sales, use, value added, license,
excise, franchise, employment, withholding, capital stock, levies, imposts,
duties, transfer and registration fees or similar taxes or charges imposed on
the income, payroll, properties or operations of Avidia, together with any
interest, additions or penalties, deficiencies or assessments with respect
thereto and any interest in respect of such additions or penalties.

                    (b)      Avidia has filed all federal and state reports and
returns with respect to Taxes based on income and, to its knowledge, has filed
all other reports and returns with respect to all other Taxes that it was
required to file (collectively "Tax Returns").  All such Tax Returns were
correct and complete in all material respects and no such Tax Returns are
currently the subject of audit.  All Taxes owed by Avidia (whether or not shown
on any Tax Return) were paid in full when due.  Any contested Taxes were
contested or are being contested in good faith and, if currently being
contested, are supported by adequate reserves.  Avidia has provided adequate
reserves on the Avidia Balance Sheet for the payment of any Taxes accrued but
not yet





                                      21.
<PAGE>   26
due and payable.  Avidia is not currently the beneficiary of any extension of
time within which to file any Tax Return, and Avidia has not waived any statute
of limitations in respect of Taxes or agreed to any extension of time with
respect to any Tax assessment or deficiency.

                    (c)      There is no dispute or claim concerning any
liability of Avidia for Taxes either (i) claimed or raised by any authority in
writing or (ii) based upon personal contact with any agent of such authority.
There are no tax liens of any kind upon any property or assets of Avidia,
except for inchoate liens for Taxes not yet due and payable.

                    (d)      Avidia has not filed a consent under Section
341(f) of the Code concerning collapsible corporations.  Avidia has not made
any payments, is not obligated to make any payments, and is not a party to any
agreement that under any circumstances could obligate it to make any payments
that will not be deductible under Code Section 280G.  Avidia has not been a
United States real property holding corporation within the meaning of Code
Section 897(c) during the applicable period specified in Code Section
897(c)(1)(A)(ii).  Avidia is not a party to any tax allocation or sharing
agreement.  Avidia (i) has not been a member of any affiliated group within the
meaning of Code Section 1504 or any similar group defined under a similar
provision of state, local, or foreign law (an "Affiliated Group") filing a
consolidated Federal Income Tax Return (other than a group the common parent of
which was Avidia) and (ii) has no liability for the taxes of any Person (other
than Avidia) under Treas. Reg. Section  1.1502-6 (or any similar provision of
state, local, or foreign law), as a transferee or successor, by contract, or
otherwise.

                    (e)      The current and deferred Tax liability set forth
in the Avidia Balance Sheet reflects all current and future Tax liability of
Avidia as of December 31, 1996.

         SECTION 3.15        PROPERTIES.

                    (a)      Avidia owns no real property.

                    (b)      Schedule 3.15 of the Avidia Disclosure Schedule
lists all real or personal property leased or subleased to Avidia.  Avidia has
delivered to PG correct and complete copies of the leases and subleases listed
in Schedule 3.15 of the Avidia Disclosure Schedule.

                    (c)      The equipment and other tangible assets that
Avidia owns and leases are free from material defects, have been maintained in
accordance with normal industry practice, and are in good operating condition
and repair (subject to normal wear and tear) and are usable in the Ordinary
Course of Business except as could not reasonably be expected to have a
Material Adverse Effect.

                    (d)      All of the inventory of Avidia is usable and fit
for the purpose for which it was procured or manufactured, and none of such
inventory is slow-moving, obsolete, damaged or defective, except as could not
reasonably be expected to have a Material Adverse Effect.





                                      22.
<PAGE>   27
         SECTION 3.16        INTELLECTUAL PROPERTY.

                    (a)      Patents, Trademarks and Copyrights.  Schedule
3.16(a) of the Avidia Disclosure Schedule identifies each patent, trademark
registration, service mark registration, copyright registration, mask work
registration, or other registration right with respect to Intellectual Property
owned by Avidia, or application for any of the foregoing, which is owned by
Avidia, has been issued to Avidia or has been submitted by Avidia for issuance
and lists the application and registration number, date of application, date of
registration, names of all assignors and registered owners and the country of
filing for each such right, if applicable.  To the best of Avidia's knowledge,
(i) all applications for registration of such Intellectual Property were true
and accurate at the time of filing, and (ii) all fees to maintain Avidia's
rights in such Intellectual Property due and payable on or before the date of
this Agreement, including, without limitation, registration, maintenance and
prosecution fees, have been paid.  Each item of such Intellectual Property has
been created, conceived of, reduced to practice or developed by employees or
contractors of Avidia who have assigned their rights in such Intellectual
Property to Avidia.  Section 3.16(a) of the Avidia Disclosure Schedule also
identifies each (a) trade name, dba, unregistered trademark or unregistered
service mark used by Avidia in connection with its businesses and (b) each
material unregistered copyrightable work used by Avidia in connection with its
businesses.

                    (b)      Confidential Intellectual Property.  Avidia has
taken reasonable actions to protect the confidentiality of the Confidential
Intellectual Property and the enforceability of any trade secrets with respect
thereto, including without limitation and as appropriate in each instance, the
acquisition of written nondisclosure agreements from those parties to whom
Avidia has made an authorized disclosure and who would not otherwise have a
common law or other legal duty or obligation of non-disclosure.  In addition,
Avidia has taken steps reasonably calculated to protect the confidentiality of
other Intellectual Property owned by Avidia which is not generally available to
the public or customers of Avidia.  Except as disclosed on Schedule 3.16(b),
each employee of Avidia has signed a written proprietary information and
inventions agreement substantially in the form attached to Schedule 3.16(b) and
each consultant of Avidia has signed a written nondisclosure agreement
substantially in the form attached to Schedule 3.16(b).  Except as disclosed on
Schedule 3.16(b), to the best of Avidia's knowledge, no party that has signed a
proprietary information and inventions agreement or nondisclosure agreement is
in violation of the confidentiality provisions of that agreement.

                    (c)      Ownership and Transfer of Intellectual Property.
Except as disclosed on Schedule 3.16(c), with respect to each item of
Confidential Intellectual Property, to the best of Avidia's knowledge, Avidia
possesses, and as of the Effective Time, PG and Avidia will possess, all right,
title and interest in and to the item, free and clear of any Security Interest,
license or other restriction.

                    (d)      Intellectual Property Licenses.  Schedule 3.16(d)
of the Avidia Disclosure Schedule identifies each license, sublicense,
agreement, permission and right to use granted by Avidia to a third party with
respect to any Intellectual Property owned by Avidia ("Intellectual Property
Licenses").  Avidia has provided PG with copies of all Intellectual





                                      23.
<PAGE>   28
Property Licenses.  Except as disclosed on Schedule 3.16(d), Avidia has not
granted any outstanding licenses or other rights to the Intellectual Property
owned by Avidia.

                    (e)      Third Party Licenses.  Schedule 3.16(e) of the
Avidia Disclosure Schedule identifies each license, sublicense, agreement,
permission and right to use granted by a third party to Avidia of any
Intellectual Property, other than end-user licenses related to "off the shelf,"
commercial business or engineering application software products not
incorporated in any way in any product licensed, sold, developed or being
developed by or for Avidia ("Third Party Licenses").  Avidia has provided PG
with copies of all Third Party Licenses.  Except as disclosed on Schedule
3.16(e), Avidia is not contractually liable, nor has it made any contract or
arrangement whereby it may become liable, to any Person for any royalty or
other consideration for the use of any Intellectual Property.

                    (f)      Computer Software.  Except "off the shelf"
commercial business or engineering application software products not
incorporated in any way in any product licensed, sold, developed or being
developed by or for Avidia and third party software subject to end- user
licenses or firmware embedded in hardware or components supplied by third
parties, Schedule 3.16(f) contains a list of all computer software licensed,
sold, developed or being developed by or for Avidia or otherwise used in
Avidia's business.  Except for Third Party Licenses or as otherwise disclosed
on Schedule 3.16(f), to the best of Avidia's knowledge, all right, title and
interest in and to all software (excluding Nonprotectable Code) identified in
Schedule 3.16(f) are owned by Avidia.

                    (g)      Intellectual Property Infringement.  Except as
disclosed on Schedule 3.16(g) of the Avidia Disclosure Schedule, (a) there are
no pending or, to the best of Avidia's knowledge, threatened actions, suits,
litigation, proceedings, hearings, investigations, charges, complaints, claims
or demands (each, a "Claim") by any Person with respect to any of the items of
Intellectual Property, owned by Avidia, or their use, and Avidia is not aware
of any basis for any Claim, (b) to the best of Avidia's knowledge, Avidia has
not received during the past three (3) years any claim, demand or notice
alleging interference with, infringement, misappropriation or violation of any
patent, trademark right, copyright right, mask work right or trade secret of
any third party, (c) to the best of Avidia's knowledge, no item of Intellectual
Property owned by Avidia is subject to any outstanding injunction, judgment,
order, decree or ruling and Avidia has not received any notice stating that any
item of Intellectual Property licensed to Avidia pursuant to a Third Party
License is subject to any outstanding injunction, judgment, order, decree or
ruling, (d) there are no pending or, to the best of Avidia's knowledge,
threatened claims against Avidia by any Person with respect to any of the items
of Intellectual Property licensed to Avidia under a Third Party License, (e) to
the best of Avidia's knowledge, no Person has interfered with, infringed upon,
misappropriated, or violated any rights in Intellectual Property (excluding
Intellectual Property covered by Third Party Licenses) owned by Avidia, (f) to
the best of Avidia's knowledge, none of the past or present employees,
officers, directors, shareholders or consultants of Avidia has any rights in or
to any of the Intellectual Property owned by Avidia, and (g) to the best of
Avidia's knowledge, none of the rights of Avidia in, to and under any
Intellectual Property will be adversely affected by the consummation of the
transactions contemplated hereby.





                                      24.
<PAGE>   29
         SECTION 3.17        POOLING OF INTERESTS.  In order to assist PG in
accounting for the business combination to be effectuated by the Merger as a
pooling of interests, Avidia has delivered a representation letter (the
"Pooling Representation Letter") to PG's and Avidia's independent accountants,
Deloitte & Touche LLP.  All statements made by Avidia in the Pooling
Representation Letter are true and correct (as qualified therein by Avidia's
knowledge), and, to Avidia's knowledge (both as to facts and applicable
accounting principles), there are no factual matters that are not referenced in
the Pooling Representation Letter which would prevent PG from accounting for
the Merger as a pooling of interests transaction.

         SECTION 3.18        SELECTED CONTRACTS.  Schedule 3.18 of the Avidia
Disclosure Schedule lists the following contracts, agreements, commitments and
other arrangements to which Avidia is a party or by which it or any of its
assets is bound:

                    (a)      any agreement (or group of related agreements) for
the lease of personal property to or from any Person having a value in excess
of $50,000;

                    (b)      any material agreement (or group of related
agreements) for the purchase or sale of raw materials, commodities, supplies,
products, or other personal property, or for the furnishing or receipt of
services, the performance of which will extend over a period of more than one
year or involve consideration in excess of $50,000 per annum;

                    (c)      any material agreement for the purchase of
supplies, components, products or services from single source suppliers, custom
manufacturers or subcontractors;

                    (d)      any agreement concerning a partnership or joint
venture;

                    (e)      any agreement (or group of related agreements)
under which it has created, incurred, assumed, or guaranteed any indebtedness
for borrowed money or any capitalized lease obligation or under which it has
imposed a Security Interest on any of its assets, tangible or intangible;

                    (f)      any agreement concerning confidentiality,
noncompetition, assignment of inventions or restraint of trade;

                    (g)      any agreement with any of Avidia's stockholders or
optionholders, or their respective Affiliates (other than Avidia) or with any
Affiliate of Avidia not otherwise disclosed on Schedule 3.18 of the Avidia
Disclosure Schedule;

                    (h)      any profit sharing, stock option, stock purchase,
stock appreciation, deferred compensation, severance, or other similar plan or
arrangement for the benefit of its current or former directors, officers, and
employees;

                    (i)      any collective bargaining agreement;





                                      25.
<PAGE>   30
                    (j)      any written agreement (or, to Avidia's knowledge,
any oral agreement) for the employment of any individual on a full-time,
part-time, consulting, or other basis (but not including so called "offer
letters");

                    (k)      any agreement under which Avidia has advanced or
loaned any amount to any of its directors, officers, and employees other than
travel loans or advances in the Ordinary Course of Business;

                    (l)      any agreement under which a default or termination
would reasonably be expected to have a Material Adverse Effect;

                    (m)      any original equipment manufacturer agreement
entered into or performed by Avidia within the last three years;

                    (n)      any agreement regarding product design,
development, manufacture, delivery, maintenance, support, service or training;

                    (o)      any powers of attorney given by Avidia; and

                    (p)      any other agreement (or group of related
agreements) the performance of which involves consideration in excess of
$50,000 and which is not cancelable without penalty within thirty (30) days.

         Except as otherwise noted, Avidia has made available to PG a correct
and complete copy of each written agreement listed in Schedule 3.18 of the
Avidia Disclosure Schedule and a written summary setting forth the terms and
conditions of each oral agreement referred to in Schedule 3.18 of the Avidia
Disclosure Schedule.  With respect to each such agreement, each lease or
sublease listed on Schedule 3.15, each license listed on Schedule 3.16(c) and
each insurance policy listed on Schedule 3.21: (i) the agreement or other item
is valid, binding, enforceable, and in full force and effect as to Avidia,
except as such enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium and other similar laws and equitable principles
relating to or limiting creditors rights generally; (ii) to the knowledge of
Avidia, no party is in material breach or default, and no event has occurred,
which with notice or lapse of time would constitute a material breach or
default, or permit termination, modification, or acceleration, under the
agreement; (iii) to the knowledge of Avidia, no party has repudiated any
provision thereof; (iv) to the knowledge of Avidia, there are no disputes, oral
agreements, or forbearance programs in effect; (v) Avidia has not assigned,
transferred, mortgaged, deeded in trust or encumbered any interest therein; and
(vi) all approvals of Governmental Authorities (including licenses and permits)
required in connection therewith have been obtained.

         SECTION 3.19        NOTES AND ACCOUNTS RECEIVABLE.  To Avidia's
knowledge, all notes and accounts receivable of Avidia (i) are reflected
properly on the books and records of Avidia, (ii) are not subject to setoffs,
defenses or counterclaims and (iii) arose in the Ordinary Course of Business
and represent the obligations of Avidia's customers.





                                      26.
<PAGE>   31
         SECTION 3.20        BANK ACCOUNTS.  Schedule 3.20 lists all bank
accounts of Avidia, the authorized signatories to the account and the name and
telephone number of a contact person with respect to such account.

         SECTION 3.21        INSURANCE.  Schedule 3.21 of the Avidia Disclosure
Schedule sets forth a true and complete list of its current insurance policies,
including names of carriers, amounts of coverage and premiums therefor.  Avidia
will use its reasonable commercial efforts to maintain such insurance through
the Effective Time.  Avidia has made available to PG true and complete copies
of all insurance policies listed on Schedule 3.21.

         SECTION 3.22        EMPLOYEES.

                    (a)      Avidia does not have any employment contracts or
consulting agreements currently in effect that are not terminable at will
(other than agreements with the sole purpose of providing for the
confidentiality of proprietary information or assignment of inventions).

                    (b)      Schedule 3.22(b), together with Schedule 3.3(b),
Schedule 3.18 and Schedule 3.23, lists each employment, severance or other
similar contract, arrangement or policy and each plan or arrangement (written
or oral) providing insurance coverage (including any self-insured
arrangements), workers' benefits, vacation benefits, severance benefits, fringe
benefits, disability benefits, death benefits, hospitalization benefits,
retirement benefits, deferred compensation, profit-sharing, bonuses, stock
options, stock purchase, phantom stock, stock appreciation or other forms of
incentive compensation or postretirement insurance, compensation or benefits
for employees, consultants or directors which (i) is entered into, maintained
or contributed to, as the case may be, by Avidia and (ii) covers any employee
or former employee of Avidia.

                    (c)      Since the Balance Sheet Date, there has been no
amendment to, written interpretation or announcement (whether or not written)
by Avidia relating to, or change in employee participation or coverage under,
any Employee Benefit Plan that would increase materially the expense of
maintaining such Employee Benefit Plan above the level of the expense incurred
in respect thereof for the fiscal year ended on the Balance Sheet Date.

                    (d)      Avidia has provided, or will have provided prior
to the Effective Time, to individuals entitled thereto all required notices and
coverage, if any, pursuant to Section 4980B of the Code and the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), with respect
to any "qualifying event" (as defined in Section 4980B(f)(3) of the Code)
occurring prior to and including the Effective Time, and no tax payable on
account of Section 4980B of the Code has been incurred with respect to any
current or former employees of Avidia or other qualified beneficiaries (as
defined in Section 4980B(g)(1)(A) of the Code).

                    (e)      No benefit payable or which may become payable by
Avidia pursuant to any Avidia Benefit Arrangement or Employee Benefit Plan or
as a result of or arising under this Agreement shall constitute an "excess
parachute payment" (as defined in Section 280G(b)(1)





                                      27.
<PAGE>   32
of the Code) which is subject to the imposition of an excise tax under Section
4999 of the Code or which would not be deductible by reason of Section 280G of
the Code.

                    (f)      Avidia is in compliance in all material respects
with all applicable laws, agreements and contracts relating to employment,
employment practices, wages, hours, and terms and conditions of employment,
including, but not limited to, employee compensation matters and the Family
Medical Leave Act of 1993, but not including ERISA.  Avidia has no reason to
believe it does not have good labor relations and Avidia has no knowledge that
any of its key employees intends to leave its employ.

                    (g)      To the knowledge of Avidia, no employee of Avidia
is in violation of any term of any employment contract, patent disclosure
agreement, noncompetition agreement, or any other contract or agreement, or any
restrictive covenant relating to the right of any such employee to be employed
thereby, or to use trade secrets or proprietary information of others, and the
employment of such employees does not subject Avidia to any liability.  Avidia
knows of no grievance of any Avidia employee with respect to which the
aggrieved employee, or his or her representative, has threatened legal action
against Avidia.

                    (h)      A list of all employees, officers and consultants
of Avidia and their current compensation (including salary, bonus or commission
arrangements or other contingencies) has previously been delivered to PG.

                    (i)      Avidia is not a party to any (i) agreement with
any executive officer or other key employees thereof (A) the benefits of which
are contingent, or the terms of which are materially altered, upon the
occurrence of a transaction involving Avidia in the nature of any of the
transactions contemplated by this Agreement, (B) providing any term of
employment or compensation guarantee, or (C) providing severance benefits or
other benefits after such termination of employment; (ii) agreement or plan,
including, without limitation, any stock option plan, stock appreciation rights
plan or stock purchase plan, any of the benefits of which will be materially
increased, or the vesting of benefits of which will be materially accelerated,
by the occurrence of any of the transactions contemplated by this Merger or the
value of any of the benefits of which will be calculated on the basis of any of
the transactions contemplated by this Merger; or (iii) loans to any officers or
directors or loans to non-officers in excess of $50,000.

         SECTION 3.23        EMPLOYEE BENEFITS.

                    (a)      Schedule 3.23 of the Avidia Disclosure Schedule
lists each Employee Benefit Plan that Avidia maintains or to which Avidia
contributes or is obligated to contribute.

                             (i)     Each such Employee Benefit Plan (and each
related trust, or fund established or maintained by Avidia) substantially
complies in form and in operation with their terms, the applicable requirements
of ERISA, the Code, and other applicable laws, except where noncompliance would
not have a Materially Adverse Effect.





                                      28.
<PAGE>   33
                             (ii)    All required reports and descriptions
(including Form 5500 Annual Reports, Summary Annual Reports, PBGC-1s, and
Summary Plan Descriptions) have been timely filed with the applicable
Government Authority or distributed to plan participants, as the case may be,
with respect to each such Employee Benefit Plan.  The applicable requirements
of Part 6 of Subtitle B of Title 1 of ERISA and of Code Section 4980B have been
met in all material respects with respect to each such Employee Benefit Plan
which is an Employee Welfare Benefit Plan and to which such requirements apply.
No event has occurred and no condition exists with respect to any Employee
Benefit Plan that would subject Avidia to any liability or penalty under Code
Sections 4972 or 4976 through 4980 or to a fine under ERISA Sections 502(i) or
502(1).

                             (iii)   All contributions, premiums or other
payments (including all employer contributions and employee salary reduction
contributions) which are due have been timely paid to each Employee Benefit
Plan and all contributions, premiums or other payments for any period ending on
or before the Effective Time which are not yet due shall have been paid to each
such Employee Benefit Plan by Avidia prior to the Effective Time or shall be
accrued in accordance with the custom and practice of Avidia.

                             (iv)    Each such Employee Benefit Plan which is
an Employee Pension Benefit Plan and which is intended to qualify under Code
Section 401(a), has received (or an application has been filed to receive) a
favorable determination letter from the Internal Revenue Service with respect
to the qualification of the plan under Code Section 401(a) and the exemption of
any corresponding trust under Code Section 501 pursuant to the Tax Reform Act
of 1986 and subsequent legislation.  Nothing has occurred since the date of the
most recent such determination letter that would cause such Employee Pension
Benefit Plan to lose its ability to rely on such determination letter.

                             (v)     Neither Avidia nor any other Person or
entity under common control with Avidia within the meaning of Section 414(b),
(c) or (m) of the Code and the regulations thereunder has now or at any
previous time, maintained, established, sponsored, participated in, or
contributed to, any Employee Pension Benefit Plan that is subject to Part 3 of
Subtitle B of Title I of ERISA, Title IV of ERISA or Section 412 of the Code.
No Employee Benefit Plan constitutes, or has constituted, a Multiemployer Plan.
No Employee Welfare Benefit Plan or other Employee Benefit Plan providing
welfare benefits is funded with a trust or other funding vehicle, other than
insurance policies or contracts with a health maintenance organization or
similar health care delivery entity.

                             (vi)    Avidia has made available to PG correct
and complete copies of the current plan documents; the most recent summary plan
descriptions; the most recent advisory opinion notification or determination
letter received from the Internal Revenue Service, if any; the Form 5500 Annual
Report for the most recent plan year; and the current version of all related
trust agreements, insurance policies or contracts, and other funding agreements
which implement each maintained Employee Benefit Plan.  The terms of any such
documentation or description permit Avidia to amend or terminate at any time
for any reason any such Employee Benefit Plan without penalty.





                                      29.
<PAGE>   34
                    (b)      With respect to each Employee Benefit Plan that
Avidia, and/or any controlled group of corporations within the meaning of Code
Section 1563 (a "Controlled Group of Corporations") which includes Avidia,
maintains or ever has maintained or to which any of them contributes, ever
contributed, or ever has been required to contribute:

                             (i)     There have been no prohibited transactions
within the meaning of ERISA Section 406 and Code Section 4975 with respect to
any such Employee Benefit Plan.  No fiduciary within the meaning of ERISA
Section 3(21) (a "Fiduciary") has any liability for breach of fiduciary duty or
any other failure to act or comply in connection with the administration or
investment of the assets of any such Employee Benefit Plan.  No action, suit,
proceeding, hearing, or investigation with respect to the administration or the
investment of the assets of any such Employee Benefit Plan (other than routine
claims for benefits) is pending or threatened.

                    (c)      Avidia does not maintain or contribute to, has
never maintained or contributed to, and has never been required to contribute
to, any Employee Welfare Benefit Plan or any other Employee Benefit Plan
providing medical, health, or life insurance or other welfare-type benefits for
current or future retired or terminated employees, their spouses, or their
dependents (other than in accordance with Code Section 4980B or Part 6 of
Subtitle B of Title I of ERISA).

                    (d)      There is no liability in connection with any
Employee Benefit Plan that is not fully disclosed or provided for on the Avidia
Balance Sheet for which disclosure would be required under generally accepted
accounting principles.

                    (e)      No Employee Benefit Plan or Avidia has any
liability to any plan participant, beneficiary or other person by reason of the
payment of benefits or the failure to pay benefits with respect to benefits
under or in connection with any such Employee Benefit Plan, other than claims
in the normal administration of such plans.

                    (f)       Except as provided in this Agreement or the
Ancillary Agreements, the consummation of the transactions contemplated by this
Agreement will not (i) entitle any current or former employee or other service
provider of Avidia to severance benefits or any other payment, or (ii)
increase the amount of compensation due any such employee or service provider,
or accelerate the time of payment or vesting thereof.

         SECTION 3.24        GUARANTIES.  Avidia is not a guarantor or surety
with respect to any liability or obligation (including indebtedness) of any
other Person.

         SECTION 3.25        ENVIRONMENT, HEALTH, AND SAFETY.

                    (a)      For purposes of this Agreement, the following
terms have the following meanings:





                                      30.
<PAGE>   35
                             (i)     "Environmental and Safety Laws" means any
federal, state or local laws, ordinances, codes, regulations, rules, policies
and orders that are intended to assure the protection of the environment, or
that classify, regulate, call for the remediation of, require reporting with
respect to, or list or define air, water, groundwater, solid waste, hazardous
waste, hazardous or toxic substances, materials, wastes, pollutants or
contaminants, or which are intended to assure the safety of employees, workers
or other persons, including the public.

                             (ii)    "Hazardous Materials" means any toxic or
hazardous substance, material or waste or any pollutant or contaminant, or
infectious or radioactive substance or material, including but not limited to
those substances, materials and wastes defined in or regulated under any
Environmental and Safety Laws.

                    (b)      Avidia, to its knowledge, (i) currently complies
with the Environmental and Safety Laws (and no action, suit, proceeding,
hearing, investigation, charge, complaint, claim, demand, directive or notice
has been filed or commenced against it alleging any such failure to comply);
(ii) is in compliance with all of the terms and conditions of all permits,
licenses, certificates and other authorizations that are required under the
Environmental and Safety Laws; and (iii) has complied with all other
limitations, restrictions, conditions, standards, prohibitions, requirements,
obligations, schedules, and timetables which are contained in the Environmental
and Safety Laws.

                    (c)      Avidia has no known liability (whether asserted or
unasserted, whether absolute or contingent, whether accrued or unaccrued,
whether liquidated or unliquidated, and whether due or to become due), and to
its knowledge, Avidia has not generated, handled or disposed of any Hazardous
Materials, arranged for the disposal of any Hazardous Materials, exposed any
employee or other individual to any Hazardous Materials, or owned, leased or
operated any property or facility that could give rise to any liability for
assessment, cleanup or damage to any site, location, surface water,
groundwater, land surface or subsurface strata, for any illness of or personal
injury to any employee or other individual, or for any reason under any
Environmental and Safety Law.

                    (d)      To Avidia's knowledge, no Hazardous Materials are
currently located at, on, in, or about any of the properties or equipment used
in the business of Avidia in a manner that materially violates any
Environmental and Safety Laws or that requires assessment, cleanup or
corrective action of any kind under any Environmental and Safety Laws.

         SECTION 3.26        CORPORATE DOCUMENTS.  Avidia has made available to
PG or its counsel for examination (a) all documents and information listed in
the Avidia Disclosure Schedule, (b) copies of the Avidia Certificate and Bylaws
of Avidia as currently in effect, (c) its Minute Book containing records of
proceedings, consents, actions, and meetings of the stockholders, the Avidia
Board of Directors and any committees thereof that have taken place, (d) its
stock ledger and journal reflecting all stock issuances and transfers, and (e)
all material permits, orders, and consents issued by any regulatory agency with
respect to Avidia, or any securities of Avidia, and all applications for such
permits, orders, and consents.





                                      31.
<PAGE>   36
         SECTION 3.27        AFFILIATE AGREEMENTS; IRREVOCABLE PROXIES.
Schedule 3.27(i) sets forth those persons who have been designated by the
parties hereto as Affiliates of Avidia.  Paul Sun, Paul Eaton, David Jenkins,
and Charles McCormack (collectively, the "Avidia Founders") and the Affiliates
of Avidia listed on Schedule 3.27(i) have each executed an
Affiliate/Stockholder Agreement in the form attached hereto as Exhibit 3.27(ii)
("Affiliate/Stockholder Agreements").  In addition, the requisite number of
Avidia stockholders needed for the approval and adoption of this Agreement and
the Merger have agreed in writing to vote for approval of this Agreement and
the Merger pursuant to the Affiliate/Stockholder Agreements or pursuant to
irrevocable proxies in the form attached hereto as Exhibit 3.27(iii)
("Irrevocable Proxies").

         SECTION 3.28        SHAREHOLDERS' AGREEMENT.  The Amended and Restated
Shareholders' Agreement entered into as of September 19, 1996 by and among
Avidia, the Avidia Founders and certain other stockholders of Avidia (the
"Existing Shareholders' Agreement"), a copy of which is attached hereto as
Exhibit 3.28(i), is in full force and effect and, following the Effective Time,
shall continue in full force and effect except as modified pursuant to that
certain Second Amended and Restated Shareholders' Agreement to be entered into
by and among PG, Avidia, the Avidia Founders and certain other stockholders of
Avidia (the "Amended Shareholders' Agreement"), a copy of which is attached
hereto as Exhibit 3.28(ii).

         SECTION 3.29        NO ADVERSE DEVELOPMENTS.  To Avidia's knowledge
and except as could not reasonably be expected to have a Material Adverse
Effect, there is no existing or threatened development (exclusive of general
economic factors affecting business in general) affecting Avidia (or affecting
customers, suppliers, employees, and other Persons which have relationships
with Avidia) that would prevent PG from conducting the business of Avidia
following the Effective Time in the manner in which it was conducted or planned
to be conducted by Avidia prior to the Effective Time.

         SECTION 3.30        FULL DISCLOSURE.  No statement by Avidia contained
in this Agreement and the exhibits and schedules attached hereto (when read
together) contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein or
therein not misleading in light of the circumstances under which they were
made.

         SECTION 3.31        INFORMATION SUPPLIED.  None of the information
provided or to be provided by Avidia in writing specifically for inclusion in
the materials to be supplied to the Avidia stockholders (the "Avidia
Stockholder Materials") relating to the Merger, at the date such information is
supplied, at the Effective Time and at the time of the meeting or solicitation
of the Avidia stockholders to approve the Merger, contains or will contain any
statement which, at such time, is false or misleading with respect to any
material fact, or omits or will omit to state any material fact necessary in
order to make the statements made therein, in light of the circumstances under
which they are made, not false or misleading.





                                      32.
<PAGE>   37
                                   SECTION 4.

              REPRESENTATIONS AND WARRANTIES OF PG AND MERGER SUB

                    Except as set forth in the disclosure schedule attached
hereto as Schedule 4, which disclosure schedule is arranged in schedules
corresponding to the lettered and numbered paragraphs contained in this Section
4 (the "PG Disclosure Schedule"), PG and Merger Sub represent and warrant to
Avidia and the stockholders, warrantholders and optionholders of Avidia, as of
the date of this Agreement, as follows:

         SECTION 4.1         ORGANIZATION AND GOOD STANDING.  Each of PG and
Merger Sub is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware, and has the requisite
corporate power and authority to own and lease its properties and to carry on
its business as now conducted; and is qualified as a foreign corporation in
each U.S. jurisdiction where the failure to be so qualified would reasonably be
expected to have a Material Adverse Effect.

         SECTION 4.2         POWER, AUTHORIZATION AND VALIDITY.

                    (a)      Each of PG and Merger Sub has the requisite
corporate power and authority to enter into and perform its obligations under
this Agreement and the PG Ancillary Agreements.  The execution, delivery and
performance of this Agreement and the PG Ancillary Agreements have been duly
and validly approved and authorized by the Board of Directors of PG and/or
Merger Sub, as appropriate.

                    (b)      No filing with or authorization or approval of any
Governmental Authority on behalf of PG or Merger Sub is necessary to enable PG
or Merger Sub to enter into, and to perform their obligations under, this
Agreement and the PG Ancillary Agreements, except for (i) the filing of the
Certificate of Merger with the Delaware Secretary of State, and the filing of
appropriate documents with the relevant authorities of other states in which PG
or Merger Sub is qualified to do business, if any; (ii) such filings as may be
required to comply with federal and state securities laws; and (iii) filings,
authorizations or approvals where the failure to make or obtain such filings,
authorizations or approvals would not reasonably be expected to have a Material
Adverse Effect or substantially interfere with the ability of PG or Merger Sub
to consummate the transactions contemplated hereby.

                    (c)      This Agreement and the PG Ancillary Agreements
are, or when executed by PG and Merger Sub will be, valid and binding
obligations of PG and Merger Sub, as appropriate, enforceable in accordance
with their respective terms, except as to the effect, if any, of (i) applicable
bankruptcy and other similar laws affecting the rights of creditors generally,
(ii) rules of law governing specific performance, injunctive relief and other
equitable remedies and (iii) the enforceability of provisions requiring
indemnification in connection with the offering, issuance or sale of
securities; provided, however, that the Certificate of Merger will not be
effective until filed with the Delaware Secretary of State.





                                      33.
<PAGE>   38
         SECTION 4.3         CAPITALIZATION

                    (a)      The authorized capital stock of PG consists of (i)
175,000,000 shares of PG Common Stock, $.0005 par value, of which 64,635,540
shares are issued and outstanding as of February 17, 1997, and (ii) 2,000,000
shares of preferred stock, $.001 par value (the "PG Preferred Stock"), of which
no shares are issued and outstanding as of the date hereof.  As of December 31,
1996, 14,887,948 shares of PG Common Stock were reserved for issuance under
PG's 1993 Employee Stock Option Plan, PG's 1996 Non-Employee Director Plan,
PG's Employee Stock Purchase Plan (collectively, the "PG Stock Plans") and
outstanding options granted outside of the PG Stock Plans.  As of December 31,
1996, 10,850,165 shares of PG Common Stock were subject to outstanding options
granted under the PG Stock Plans and 1,832,396 shares of PG Common Stock were
subject to outstanding options granted outside of the PG Stock Plans.  As of
December 31, 1996, 40,000 shares of PG Common Stock were reserved for issuance
pursuant to outstanding warrants issued by PG.  As of December 31, 1996, PG did
not hold any shares of PG Common Stock in its treasury.  All of the outstanding
shares of PG Common Stock and PG Preferred Stock are duly authorized, validly
issued, fully paid, nonassessable and free of preemptive rights.  All of the
shares of PG Common Stock to be issued in connection with the Merger have been
duly authorized and, upon consummation of the Merger, will be validly issued,
fully paid, nonassessable and free of preemptive rights.

                    (b)      Merger Sub is a wholly owned subsidiary of PG.

         SECTION 4.4         NO VIOLATION.  Neither the execution and the
delivery of this Agreement, nor the consummation of the transactions
contemplated hereby, will (a) violate any constitution, statute, regulation,
rule, injunction, judgment, order, decree, ruling, charge, or other restriction
of any Governmental Authority to which either of PG or Merger Sub is subject or
any provision of the respective Certificates of Incorporation or Bylaws of PG
or Merger Sub or (b) (i) conflict with, (ii) result in a breach of, (iii)
constitute a default under, (iv) result in the acceleration of, (v) create in
any party the right to require any notice under, accelerate, terminate, modify,
or (vi) result in the cancellation of any material agreement, contract, lease,
license, instrument, franchise, permit or other arrangement to which PG is a
party or by which it is bound or to which any of its assets is subject.

         SECTION 4.5         SEC DOCUMENTS; PG FINANCIAL STATEMENTS.  PG has
furnished Avidia with a true and complete copy of each statement, quarterly and
other report pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") filed by PG with the SEC since January 1,
1994 (the "PG SEC Documents"), which are all the documents (other than
preliminary material) that PG was required to file with the SEC under the
Exchange Act since such date.  As of their respective filing dates, the PG SEC
Documents complied in all materials respects with the requirements of the
Exchange Act and none of the PG SEC Documents contained any untrue statement of
a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements made therein, in light of the
circumstances in which they were made, not misleading, except to the extent
corrected by a subsequently filed PG SEC Document provided to Avidia prior to
the Effective Time.  The financial statements of PG included in the PG SEC
Documents (the "PG Financial





                                      34.
<PAGE>   39
Statements") comply as to form in all material respects with applicable
accounting requirements and with the published rules and regulations of the SEC
with respect thereto, have been prepared in accordance with generally accepted
accounting principles consistently applied (except as may be indicated in the
notes thereto or, in the case of unaudited statements, as permitted by Form
10-Q of the SEC) and fairly present the consolidated financial position of PG
and its consolidated subsidiaries at the dates thereof and the consolidated
results of their operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal, recurring audit adjustments).
There has been no change in PG's accounting policies except as described in the
notes to the PG Financial Statements.

         SECTION 4.6         NO MATERIAL ADVERSE EFFECT.  Since the date of the
most recent PG Financial Statement, PG has conducted its business in the
Ordinary Course of Business and there has not occurred any Material Adverse
Effect on PG.

         SECTION 4.7         CHARTER DOCUMENTS.  Attached hereto as Schedule
4.7 are copies of (i) PG's Certificate of Incorporation and Bylaws, each as
currently in effect on the date hereof and (ii) Merger Sub's Certificate of
Incorporation and Bylaws, each as currently in effect on the date hereof.

         SECTION 4.8         FULL DISCLOSURE.  No statement by PG or Merger Sub
contained in this Agreement and the exhibits and schedules attached hereto
(when read together) contains any untrue statement of a material fact or omits
to state a material fact necessary in order to make the statements contained
herein or therein not misleading in light of the circumstances under which they
were made.

         SECTION 4.9         INFORMATION SUPPLIED.  None of the information
provided or to be provided by PG in writing specifically for inclusion in the
Avidia Stockholder Materials, at the date such information is supplied, at the
Effective Time and at the time of the meeting or solicitation of the Avidia
stockholders to approve the Merger, contains or will contain any statement
which, at such time, is false or misleading with respect to any material fact,
or omits or will omit to state any material fact necessary in order to make the
statements made therein, in light of the circumstances under which they are
made, not false or misleading.

         SECTION 4.10        LITIGATION.  PG and Merger Sub have not been and
are not parties to any action, suit, proceeding, hearing, claim, arbitration or
investigation that may prevent consummation of any of the transactions
contemplated by this Agreement, in or before any court or administrative
agency, nor to the knowledge of PG and Merger Sub has any such action, suit,
proceeding, hearing, claim, arbitration or investigation been threatened.





                                      35.
<PAGE>   40
                                   SECTION 5.

                  CONDUCT AND TRANSACTIONS PRIOR TO EFFECTIVE
                          TIME; ADDITIONAL AGREEMENTS

                    During the period from the date of this Agreement and
continuing until the earlier of the termination of this Agreement and the
Effective Time (except as otherwise provided herein), the parties hereto agree
(except to the extent that the other parties hereto shall otherwise consent in
writing) that:

         SECTION 5.1         CONDUCT OF BUSINESS OF THE COMPANIES.

                    (a)      Avidia Conduct.  Avidia shall carry on its
business in the usual, regular and ordinary course in substantially the same
manner as heretofore conducted and, to the extent consistent with such
business, use its reasonable commercial efforts  consistent with past practice
and policies to preserve intact in all material respects its present business
organization, keep available the services of its present officers and key
employees and preserve its relationships with customers, suppliers,
distributors, licensors, licensees, and others having business dealings with
it, to the end that its goodwill and ongoing businesses shall be materially
unimpaired at the Effective Time.  Avidia shall promptly notify PG of (1) any
event or occurrence not in the Ordinary Course of Business or which would
reasonably be expected to have a Material Adverse Effect (even if the
likelihood of such event has previously been disclosed in the Avidia Disclosure
Schedule) and (2) any event or occurrence which would have caused the
representations and warranties of Avidia contained in this Agreement to be
materially untrue if such event or occurrence had occurred prior to the date of
this Agreement.  Avidia shall not, without the prior written consent of PG:

                             (i)  other than in the Ordinary Course of
Business, sell, lease, transfer, or assign any assets or properties, tangible
or intangible, including but not limited to the sale, transfer, assignment or
grant of any licenses or sublicenses of any rights to Intellectual Property;

                             (ii)    enter into, assume or become bound under
any agreement, contract, lease, or commitment or extend or modify the terms of
any presently existing agreement, contract, lease or commitment that involves
the payment, individually or in the aggregate, of more than $50,000 per annum,
extends for more than one year or involves any relationship with an original
equipment manufacturer, distributor or sales representative, except in the
Ordinary Course of Business;

                             (iii)   other than in the Ordinary Course of
Business, violate, accelerate, terminate, modify, or cancel any agreement,
contract, lease, or license to which Avidia is a party or by which it is bound,
and Avidia shall not modify, cancel, waive or settle any debts or claims held
by it or waive or settle any rights or claims of a substantial value;

                             (iv)    subject any of the assets of Avidia,
tangible or intangible, to any Security Interest other than Security Interests
arising in the Ordinary Course of Business;





                                      36.
<PAGE>   41
                             (v)     except for expenses relating to payroll
obligations, inventory financing or facility lease payments, make any capital
expenditures or incur or pay expenses exceeding $50,000 in the aggregate of all
such capital expenditures or expenses;

                             (vi)    make any capital investment in, or any
loan to, any other Person;

                             (vii)   create, incur, assume, or guarantee any
indebtedness for borrowed money or capitalized lease obligations;

                             (viii)  authorize, cause, permit or effect any
change in the Avidia Certificate or the Bylaws of Avidia;

                             (ix)    issue, sell, or otherwise dispose of any
of its capital stock, or grant any options (other than those options granted in
the Ordinary Course of Business to newly-hired employees and listed on Schedule
5.1(ix), which schedule may be updated from time to time by Avidia), warrants,
or other rights to purchase or obtain any of its capital stock other than (A)
the issuance of shares of Avidia Common Stock upon the exercise of Avidia
Options to purchase Avidia Common Stock in existence on the date hereof, (B)
the issuance of shares of Avidia Common Stock or Avidia Preferred Stock upon
the exercise of Assumed Warrants to purchase Avidia Common Stock or Avidia
Preferred Stock, as applicable, in existence on the date hereof and (C) the
conversion of Avidia Preferred Stock into Avidia Common Stock;

                             (x)  except as otherwise permitted by Section
5.1(a)(ix), declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or
issue or authorize the issuance of any other securities in respect of, in lieu
of or in substitution for shares of its capital stock, or repurchase or
otherwise acquire, directly or indirectly, any shares of its capital stock
except from former employees, directors and consultants in accordance with
agreements providing for the repurchase of shares in connection with any
termination of service to Avidia;

                             (xi)    make any loan to, enter into any
transaction with, make any changes in employment terms with, or grant any
salary increase, bonus or extraordinary payment to, any of its directors,
officers, or employees or their Affiliates (except in the Ordinary Course of
Business);

                             (xii)   except as listed in Schedule 5.1(xii)
(which schedule may be updated from time to time by Avidia), enter into any
employment contract or collective bargaining agreement, written or oral, or
modify the terms of any such existing contract or agreement;

                             (xiii)  adopt, amend, modify, or terminate any
bonus, profit sharing, incentive, severance, or other plan, contract, or
commitment for the benefit of any of its directors, officers, or employees (or
take any such action with respect to any other Employee Benefit Plan);





                                      37.
<PAGE>   42
                             (xiv)   modify any outstanding Avidia Option or
authorize cash payments in exchange for any such option;

                             (xv)    change any of the accounting principles
followed by it or the method of applying such principles except upon
recommendation of its independent auditors;

                             (xvi)   effect a change in any of its banking or
safe deposit arrangements;

                             (xvii)  enter into or amend any agreements
pursuant to which any other party is granted manufacturing, marketing,
distribution or similar rights of any type or scope with respect to any
products of Avidia;

                             (xviii) commence a lawsuit other than for the
routine collection of bills or for breach of this Agreement;

                             (xix)   revalue any of its assets, including but
not limited to writing down the value of inventory or writing off notes or
accounts receivable other than in the Ordinary Course of Business;

                             (xx)    pay, discharge or satisfy in an amount in
excess of $25,000 in any one case any claim, liability or obligation (absolute,
accrued, asserted or unasserted, contingent or otherwise), other than the
payment, discharge or satisfaction in the Ordinary Course of Business or
liabilities reflected or reserved against in the Avidia Balance Sheet;

                             (xxi)   acquire or agree to acquire by merging or
consolidating with, or by purchasing a substantial portion of the assets of, or
by any other manner, any business or any corporation, partnership, association
or other business organization or division thereof, or otherwise acquire or
agree to acquire any assets which are material, individually or in the
aggregate, to the business, financial condition, results of operations or
assets of Avidia;

                             (xxii)  alter, or enter into any commitment to
alter, its interest in any corporation, association, joint venture, partnership
or business entity in which Avidia directly or indirectly holds any interest on
the date hereof;

                             (xxiii) make any tax election, change any tax
election, adopt any material tax accounting method, change any tax accounting
method, file any tax return (other than any estimated tax returns, payroll tax
returns or sales tax returns) or any amendment to a tax return, enter into any
closing agreement, settle any tax claim or assessment, or consent to any
extension or waiver of the limitation period applicable to any tax claim or
assessment, without the prior written consent of PG, which consent shall not be
unreasonably withheld;

                             (xxiv)  fail to pay or otherwise satisfy its
monetary obligations as they become due, except such obligations as are being
contested in good faith or as to which PG has failed to consent to such payment
or satisfaction;





                                      38.
<PAGE>   43
                             (xxv)   take any action which, to the best of
Avidia's knowledge, would cause the Merger not to be accounted for as a pooling
of interests by PG; or

                             (xxvi)  take, or agree in writing or otherwise to
take, any of the actions described in Sections 5.1(a) (i) through (xxv) above.

                    (b)      PG Conduct.  PG shall (i) promptly notify Avidia
of any event or occurrence arising prior to the Effective Time which is not in
the Ordinary Course of Business and which could reasonably be expected to have
a Material Adverse Effect, (ii) disclose to Avidia any action arising prior to
the Effective Time which, to the best of PG's knowledge, would cause the Merger
not to be accounted for as a pooling of interests by PG, (iii) not change the
outstanding shares of PG Common Stock into a different number of shares or a
different class prior to the Effective Time, by reason of any stock dividend,
subdivision, reclassification, recapitalization, split-up, combination,
exchange of shares or the like, without first consulting with Avidia and
adjusting the Exchange Ratio in a manner mutually acceptable to the parties.

         SECTION 5.2         ACCESS TO INFORMATION.  Subject to and in
accordance with the terms and conditions of that certain letter agreement dated
January 15, 1997 between Avidia and PG attached hereto as Exhibit 5.2 and any
other agreement respecting the exchange of information between the parties and
related matters (collectively, the "Confidentiality Agreement"), Avidia and PG
shall each afford the other and their respective accountants, counsel and other
representatives, reasonable access during normal business hours during the
period prior to the Effective Time to (i) all of their respective properties,
books, contracts, commitments and records, and (ii) all other information
concerning the business, properties and personnel of Avidia and PG as the other
party may reasonably request, subject, in the case of PG, to reasonable limits
on access to its technical and other nonpublic information.  Avidia and PG
agree to provide to the other and their respective accountants, counsel and
other representatives copies of internal financial statements promptly upon
request.  No information or knowledge obtained in any investigation pursuant to
this Section 5.2 shall affect or be deemed to modify any representation or
warranty contained herein or the conditions to the obligations of the parties
to consummate the Merger.

         SECTION 5.3         EXCLUSIVITY; ACQUISITION PROPOSALS.  Unless and
until this Agreement shall have been terminated by either party pursuant to
Section 8.1 hereof, Avidia shall not, directly or indirectly, through any
officer, director, affiliate, agent or otherwise solicit, initiate or encourage
any proposals or offers from any third party relating to any possible
acquisition of Avidia or any of its subsidiaries (whether by way of merger,
purchase of capital stock, purchase of assets or otherwise) (an "Alternative
Acquisition"), or engage in any sale of equity interests in Avidia (other than
pursuant to the exercise of outstanding options and warrants) (an "Equity
Transaction"); nor will Avidia participate in any negotiations regarding or
furnish to any person any information with respect to, or otherwise cooperate
with, facilitate or encourage any effort to attempt by any person to do or seek
any Alternative Acquisition or Equity Transaction.  Avidia shall immediately
cease and cause to be terminated any such contacts or negotiations with third
parties.  Other than as contemplated under this Agreement, public disclosure by
Avidia of the terms of this Agreement shall be a violation of this Section 5.3.





                                      39.
<PAGE>   44
         SECTION 5.4         BREACH OF REPRESENTATIONS AND WARRANTIES.  Each of
PG, Merger Sub and Avidia shall use its reasonable best efforts to assure that
their respective representations and warranties remain true and correct in all
material respects.  In the event of and promptly after becoming aware of the
occurrence or pending or threatened occurrence of any event which would cause
their respective representations and warranties not to be so true and correct,
each party shall give detailed notice thereof to the other and shall use its
reasonable best efforts to prevent or promptly remedy such pending or
threatened occurrence or event.

         SECTION 5.5         POOLING ACCOUNTING.  PG and Avidia shall each use
reasonable commercial efforts to cause the Merger to be accounted for as a
pooling of interests.  Each of PG and Avidia shall use its reasonable
commercial efforts to cause its Affiliates not to take any action that would
adversely affect the ability of PG to account for the Merger as a pooling of
interests.

         SECTION 5.6         CONSENTS.  Each of PG and Avidia shall promptly
apply for or otherwise seek, and use its reasonable best efforts to obtain, all
consents and approvals required to be obtained by it for the consummation of
the Merger, and Avidia shall use its reasonable best efforts to obtain approval
of its stockholders to the Merger as well as to obtain all necessary consents,
waivers and approvals under any of Avidia's agreements, contracts, licenses or
leases in connection with the Merger (in the case of Avidia, the "Required
Avidia Consents" and in the case of PG, the "Required PG Consents").

         SECTION 5.7         AFFILIATES AGREEMENTS.  Avidia shall provide PG
such information and documents as PG shall reasonably request for purposes of
reviewing the list of Avidia Affiliates set forth in Schedule 3.27(i).  PG and
Merger Sub shall be entitled to place appropriate legends on the certificates
evidencing any PG Common Stock to be received by such Affiliates pursuant to
the terms of the Affiliate/Stockholder Agreements, and to issue appropriate
stop transfer instructions to the transfer agent for PG Common Stock.

         SECTION 5.8         PREPARATION OF INFORMATION STATEMENT.  As soon as
practicable after the execution of this Agreement, PG and Avidia shall prepare
an information statement (the "Information Statement") for the stockholders of
Avidia to approve this Agreement, the Certificate of Merger and the
transactions contemplated hereby and thereby.  Avidia shall use its reasonable
commercial efforts, with the cooperation of PG, to cause such Information
Statement to be distributed to Avidia's stockholders as soon as practicable
after the execution of this Agreement.  Each of PG and Avidia agrees to provide
promptly to the other such information concerning its business and financial
statements and affairs as, in the reasonable judgment of the providing party or
its counsel, may be required or appropriate for inclusion in the Information
Statement, or in any amendments or supplements thereto, and to cause its
counsel and auditors to cooperate with the other's counsel and auditors in the
preparation of the Information Statement.  Avidia will promptly advise PG, and
PG will promptly advise Avidia, in writing if at any time prior to the
Effective Time either Avidia or PG shall obtain knowledge of any facts that
might make it necessary or appropriate to amend or supplement the Information
Statement in order to make the statements contained or incorporated by
reference therein not misleading or to comply with applicable law.  The
Information Statement shall contain the





                                      40.
<PAGE>   45
recommendation of the Board of Directors of Avidia that the Avidia stockholders
approve the Merger and this Agreement and the conclusion of the Board of
Directors of Avidia that the terms and conditions of the Merger are fair and
reasonable to the stockholders of Avidia.  Anything to the contrary contained
herein notwithstanding, Avidia shall not include in the Information Statement
any information with respect to PG or its Affiliates or associates, the form
and content of which information shall not have been approved by PG prior to
such inclusion.

         SECTION 5.9         LEGAL CONDITIONS TO THE MERGER.

                    (a)      Avidia shall take all reasonable actions necessary
to comply promptly with all legal requirements which may be imposed on Avidia
with respect to the Merger and will promptly cooperate with and furnish
information to PG in connection with any such requirements imposed upon PG,
Merger Sub or any other subsidiary of PG in connection with the Merger.  Avidia
shall take all reasonable actions (i) to obtain (and to cooperate with PG and
Merger Sub in obtaining) any consent, authorization, order or approval of, or
any exemption by, any governmental entity, required to be obtained or made by
Avidia (or by PG or Merger Sub) in connection with the Merger or the taking of
any action contemplated thereby, by this Agreement or by the Merger Agreement,
(ii) to effect all necessary registrations and filings and submissions of
information requested by any governmental entity, and (iii) to fulfill all
conditions to this Agreement.

                    (b)      Each of PG and Merger Sub shall take all
reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on them with respect to the Merger and will promptly
cooperate with and furnish information to Avidia in connection with any such
requirements imposed upon Avidia in connection with the Merger.  PG and Merger
Sub shall take all reasonable actions (i) to obtain (and to cooperate with
Avidia in obtaining) any consent, authorization, order or approval of, or
exemption by, any governmental entity required to be obtained or made by PG,
Merger Sub or any of its other subsidiaries (or by Avidia) in connection with
the Merger or the taking of any action contemplated thereby, by this Agreement
or by the Merger Agreement, (ii) to effect all necessary registrations and
filings and submissions of information requested by any governmental entity,
and (iii) to fulfill all conditions to this Agreement.

         SECTION 5.10        EXPENSES.

                    (a)      Subject to paragraph (b), all costs and expenses
incurred by Avidia in connection with this Agreement and the transactions
contemplated hereby, including but not limited to legal, accounting and
investment banking fees and investment banking fees (the "Avidia Transaction
Costs") shall be paid by Avidia.

                    (b)      If the Merger is consummated, the Avidia
Transaction Costs shall be paid by PG on behalf of Avidia and its stockholders
at the Effective Time; provided that Avidia shall deliver to PG, at least two
(2) business days prior to the Effective Time, an officer's certificate
certifying the aggregate amount of Avidia Transaction Costs incurred or to be
incurred (the "Costs Summary").  In such event, PG shall be entitled to
reimbursement from the





                                      41.
<PAGE>   46
Holdback Amount for an amount equal to 100.55% of the Avidia Transaction Costs
(the "Reimbursable Amount").

                    (c)      Except as set forth below, all costs and expenses
incurred by PG in connection with this Agreement and the transactions
contemplated hereby (the "PG Transaction Costs") shall be paid by PG.

                    (d)      In the event that the Merger is not consummated
and this Agreement is terminated by PG pursuant to Section 8.1(c)(i) or Section
8.1(c)(ii) and, within one year of the date of this Agreement, Avidia or its
stockholders enters into an agreement (or binding letter of intent) for the
acquisition of more than fifty percent (50%) of the capital stock or assets of
Avidia by another entity by means of any transaction or series of related
transactions (including, without limitation, any reorganization, merger or
consolidation, or sale of stock or assets), then Avidia shall promptly pay to
PG the sum of the PG Transaction Costs; provided that for purposes of this
Section 5.10(d), the parties have conclusively determined that the PG
Transaction Costs are $2,820,000.

         SECTION 5.11        PUBLIC ANNOUNCEMENTS.  Each party will consult in
advance with the other concerning the timing and content of any announcements,
press releases and public statements concerning the Merger and will not make
any such announcement, release or statement without the other's prior written
consent; provided, however, that PG may make any public statement concerning
the Merger without Avidia's prior written consent if Avidia fails to grant such
consent and, in the opinion of counsel for PG, such statement or announcement
is required to comply with applicable law.

         SECTION 5.12        STOCKHOLDER REGISTRATION RIGHTS.  PG hereby agrees
to grant to the holders of PG Common Stock issued pursuant to this Agreement
and holders of the Assumed Warrants registration rights as set forth in the
Registration Rights Agreement in the form attached hereto as Exhibit 5.12 (the
"Registration Rights Agreement"), and, at the Effective Time, to execute and
deliver to such holders the Registration Rights Agreement.

         SECTION 5.13        OPTIONHOLDER REGISTRATION RIGHTS.  PG agrees to
file, no later than 30 days after the Effective Time, a registration statement
on Form S-8 covering the shares of PG Common Stock issuable pursuant to the PG
Options to be granted to holders of outstanding Avidia Options under Section
1.6 hereof.  Avidia shall cooperate with and assist PG in the preparation of
such registration statement.

         SECTION 5.14        AVIDIA'S AUDITORS.  Avidia will use its reasonable
commercial efforts to cause Avidia's management and its independent auditors,
Deloitte & Touche, to facilitate on a timely basis the preparation of audited
financial statements (including pro forma financial statements if required) as
required by PG to comply with applicable SEC regulations.

         SECTION 5.15        STOCKHOLDER LIST.  At least two (2) days prior to
the Effective Time, Avidia shall deliver to PG a list showing each holder of
record of Certificates whose shares are being converted into PG Common Stock
pursuant to Section 1.2 hereof.





                                      42.
<PAGE>   47
         SECTION 5.16        ISSUANCE OF NEW STOCK OPTIONS BY PG.  In addition
to the PG Options to be granted under Section 1.6, as soon as practicable
following the Effective Time, PG shall issue stock options issued pursuant to a
plan registered on Form S-8 entitling employees of Avidia as of the Effective
Time to purchase an aggregate of 250,000 shares of PG Common Stock.  These
stock options shall be subject to a four year vesting period and certain other
restrictions as shall be set forth in the option documents to be distributed by
PG to such Avidia employees.  Schedule 5.16 contains a list of those employees
of Avidia who are to receive stock options pursuant to this Section 5.16 and
the number of shares of PG Common Stock applicable to each such option.  Each
stock option set forth in Schedule 5.16 shall be consistent (in terms of amount
of shares vesting and any other restrictions) with options customarily granted
by PG to its employees with comparable job responsibilities.

         SECTION 5.17        QUALIFICATION OF PG COMMON STOCK.  PG shall use
its reasonable commercial efforts to cause the shares of PG Common Stock
issuable pursuant to the Merger or upon exercise of Assumed Warrants to be
approved for listing on the Nasdaq Stock Market, subject to official notice of
issuance, on or before the effectiveness of any registration statement to be
filed pursuant to the Registration Rights Agreement.

         SECTION 5.18        INFUSION OF NEW CAPITAL.  Promptly following the
Effective Time, PG will infuse $2,000,000 into Avidia by purchasing an
additional twenty (20) shares of the Surviving Corporation's common stock at a
price of $100,000 per share.

         SECTION 5.19        INDEMNIFICATION BY SURVIVING CORPORATION.  The
Certificate of Incorporation and Bylaws of the Surviving Corporation at the
Effective Time shall not be amended, repealed or otherwise modified for a
period of three (3) years after the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who at any time prior to
the Effective Time were directors or officers of Avidia in respect of actions
or omissions occurring at or prior to the Effective Time (including, without
limitation, the transactions contemplated by this Agreement), unless such
modification is required by law.  Notwithstanding the foregoing or any
provision of the Certificate of Incorporation or Bylaws of the Surviving
Corporation, neither PG, Merger Sub, the Surviving Corporation nor any of their
affiliates, nor any of their respective officers, directors, successors and
assigns, shall indemnify any individual for the loss of shares of PG Common
Stock constituting part of the Holdback Amount.

         SECTION 5.20        CONSENTS TO OPTION ASSUMPTION.    Avidia will use
its reasonable commercial efforts to cause each holder of an Avidia Option to
execute a consent to option assumption and amendment ("Consent to Option
Assumption") in substantially the form attached hereto as Exhibit 5.20.

         SECTION 5.21        EFFORTS AND ASSURANCES.  Each of the parties to
this Agreement shall use all reasonable efforts to effectuate the transactions
contemplated hereby and to fulfill and cause to be fulfilled the conditions to
consummation under this Agreement.  Each party hereto, at the reasonable
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for





                                      43.
<PAGE>   48
effecting completely the consummation of this Agreement and the transactions
contemplated hereby.


                                   SECTION 6.

                                INDEMNIFICATION

         SECTION 6.1         INDEMNIFICATION BY AVIDIA STOCKHOLDERS.  From and
after the Effective Time and continuing until the nine month anniversary of the
Effective Time (such nine month anniversary is referred to herein as the
"Indemnity Termination Date"), by their approval of this Agreement, the holders
of Avidia Common Stock and Avidia Preferred Stock immediately prior to the
Effective Time (each an "Indemnifying Party"), shall severally and not jointly
indemnify and hold harmless PG, Merger Sub, the Surviving Corporation and any
of their affiliates, and their respective officers, directors, successors and
assigns (the "Indemnified Party") in respect of any and all claims, actions,
suits or other proceedings and any and all losses, costs, expenses,
liabilities, obligations and damages (and including reasonable counsel and
accountants' fees and expenses and all other reasonable costs and expenses of
investigation, defense or settlement of claims and amounts paid in settlement)
incurred by, imposed on or borne by any Indemnified Party (collectively the
"Indemnification Damages") resulting from:

                    (a)      the breach or the failure of performance by Avidia
of any of the covenants that it is to perform hereunder; and

                    (b)      the breach or inaccuracy of any of the
representations or warranties made by Avidia in this Agreement or any Avidia
Ancillary Agreement.

         SECTION 6.2         INDEMNIFICATION BY PG.  From and after the
Effective Time and continuing until the Indemnity Termination Date, PG (the
"Indemnifying Party") shall indemnify and hold harmless Avidia and any of its
affiliates, and their respective officers, directors, successors and assigns,
and the holders of Avidia Common Stock and Avidia Preferred Stock (the
"Indemnified Party") in respect of any and all claims, actions, suits or other
proceedings and any and all losses, costs, expenses, liabilities, obligations
and damages (and including reasonable counsel and accountants' fees and
expenses and all other reasonable costs and expenses of investigation, defense
or settlement of claims and amounts paid in settlement) incurred by, imposed on
or borne by any Indemnified Party (collectively the "Indemnification Damages")
resulting from:

                    (a)      the breach or the failure of performance by PG or
Merger Sub of any of the covenants that they are to perform hereunder;

                    (b)      the breach or inaccuracy of any of the
representations or warranties made by PG and Merger Sub in this Agreement, the
PG Ancillary Agreements; and





                                      44.
<PAGE>   49
                    (c)      any claim for brokers' or finders' fees arising
out of this Agreement by any person claiming to have been engaged by PG.

         SECTION 6.3         HOLDBACK AMOUNT.  At the Effective Time, PG shall
deliver to Wells Fargo Bank, N.A. as indemnity escrow agent (the "Indemnity
Escrow Agent") to be held for a period ending on the nine month anniversary of
the Effective Time (or such longer period as is prescribed pursuant to Section
6.6(e) or such shorter period as is prescribed pursuant to Section 6.9) the
following (collectively, the "Holdback Amount"):  (i) 162,466 shares of PG
Common Stock issuable pursuant to Section 1.2, (ii) 9,530 shares of PG Common
Stock issuable upon exercise of the Assumed Warrants, and (iii) a number of
shares of PG Common Stock as is equal to the Reimbursable Amount divided by the
Closing Price (rounded up, if necessary to the next whole share).  PG or any
other Indemnified Party under Section 6.1 may make a claim for any
Indemnification Damages indemnified hereunder by delivery of a Notice of Action
or Claim Notice (as such terms are defined herein) to the Indemnity Escrow
Agent on or prior to the Indemnity Termination Date.  The Holdback Amount shall
be held and disbursed by the Indemnity Escrow Agent in accordance with an
Indemnity Escrow Agreement substantially in the form attached hereto as Exhibit
6.3 (the "Indemnity Escrow Agreement"), with such changes therein as may be
required and approved by the Indemnity Escrow Agent, PG and Avidia.  The sole
and exclusive remedy for any Indemnification Damages incurred by an Indemnified
Party under Section 6.1 of this Agreement shall be to recover shares of PG
Common Stock from the Holdback Amount in accordance with the terms of the
Indemnity Escrow Agreement, and the holders of Avidia Common Stock and Avidia
Preferred Stock shall have no personal liability for any Indemnification
Damages or otherwise under this Agreement except for their pro rata share of
the Holdback Amount.

         SECTION 6.4         MINIMUM CLAIMS.  No claim shall be considered to
be an indemnifiable claim pursuant to this Section 6 by an Indemnified Party
under either Section 6.1 or Section 6.2 unless the amount of such claim exceeds
$7,500.  No claim shall be made under this Section 6 by an Indemnified Party
under either Section 6.1 or Section 6.2 unless and until the amount of all
indemnifiable claims pursuant to Section 6.1 or Section 6.2, as appropriate,
exceeds $200,000 (the "Basket"), in which event all such claims for
Indemnification Damages may be made (including claims included within the
Basket).

         SECTION 6.5         MAXIMUM INDEMNITY.  The maximum indemnification
obligations of the Indemnifying Parties pursuant to Section 6.1 shall be the
Holdback Amount.  The maximum indemnification obligations of the Indemnifying
Party pursuant to Section 6.2 shall be $94,000,000.

         SECTION 6.6         CLAIMS FOR INDEMNIFICATION.

                    (a)      If any lawsuit (an "Action") is filed against a
party entitled to the benefit of indemnification hereunder, written notice
thereof (the "Notice of Action") shall be given by the Indemnified Party within
thirty (30) days after the filing of the Action whether or not the Basket has
been reached.  The Notice of Action shall set forth the identity of the
Indemnifying Party or Parties and of the Indemnified Party or Parties, a brief
description of the facts and





                                      45.
<PAGE>   50
circumstances and the nature of the claim, the amount of the loss, expense,
liability or other damage suffered, or which may be suffered, by the
Indemnified Party, the applicable sections in this Agreement under which the
claim for indemnification arises, and (if the claim is pursuant to Section 6.1)
the number of shares of PG Common Stock included within the Holdback Amount
with a value equal to such amount (determined as provided in this Section
6.6(i)), rounded up to the next number of whole shares.  No Notice of Action
may be given after the Indemnity Termination Date.

                    (b)      If at any time or from time to time, the
Indemnified Party believes in good faith that it is entitled to indemnification
from the Indemnifying Party (other than in connection with an Action), whether
or not the Basket has been reached, the Indemnified Party shall deliver to the
Indemnifying Party a notice (a "Claim Notice") setting forth an estimate of the
amount claimed in respect thereof (the "Claim"), and setting forth the identify
of the Indemnifying Party or Parties and of the Indemnified Party or Parties, a
brief description of the facts and circumstances and the nature of the claim,
the applicable sections of this Agreement under which the claim for indemnity
arises, and (if the claim is pursuant to Section 6.1) the number of shares of
PG Common Stock included within the Holdback Amount with a value equal to the
Claim (determined as provided in this Section 6.6(i)), rounded up to the next
number of whole shares.  No Claim Notice may be given after the Indemnity
Termination Date.

                    (c)      Within thirty (30) days after the date of the
Notice of Action or the Claim Notice, the Indemnifying Party agrees to deliver
to the other party a notice (the "Contest Notice") stating whether or not it
agrees to be responsible for such Action or Claim.  In the case of an Action
for which the Indemnifying Party does not agree to be responsible, the Contest
Notice shall also state the Indemnifying Party's preference as to which party
should defend such action (the "Defending Party").  If the Indemnifying Party
states that it prefers to be the Defending Party, the Indemnified Party shall,
in its reasonable discretion, determine whether the Indemnifying Party or the
Indemnified Party shall be the Defending Party, and shall so notify the
Indemnifying Party of its decision within thirty (30) days after the date of
the Contest Notice.  The Defending Party shall keep the other party fully
apprised at all times of the status of the defense and shall not make any
settlement with respect to any indemnified matter without the prior consent of
the other party, which consent shall not be unreasonably withheld or delayed.
The other party agrees to use reasonable efforts to cooperate with the
Defending Party in connection with its defense of indemnifiable claims and the
settlement thereof.

                    (d)      Except as would otherwise be inconsistent with the
provisions of Section 6.6(c), in the event an Indemnified Party has a claim or
claims against any third party growing out of or connected with the indemnified
matter, then upon receipt of indemnification, the Indemnified Party shall fully
assign to the Indemnifying Party the entire claim or claims to the extent of
the indemnification actually paid by the Indemnifying Party and the
Indemnifying Party shall thereupon be subrogated with respect to such claim or
claims of the Indemnified Party.

                    (e)      Any and all claims for indemnification asserted in
writing in accordance with the procedures specified in this Section 6.6 before
the Indemnity Termination Date shall survive until the one year anniversary of
the Effective Time.





                                      46.
<PAGE>   51
                    (f)      With respect to an undisputed claim made in
accordance with the procedures specified in this Section 6.6, an Indemnifying
Party shall promptly (and in any case within thirty (30) days after the date or
dates that Indemnification Damages are ascertainable) pay such Indemnification
Damages under each such claim as they are incurred.

                    (g)      With respect to a disputed claim made in
accordance with the procedures specified in this Section 6.5, the Indemnifying
Party shall be obligated to reimburse or indemnify the Indemnified Party, if at
all, at such time as a binding arbitration award or judgment finding that the
disputed claim is subject to indemnity under this Section 6 has been entered (a
"Resolution").  If such judgment or arbitration award is entered in favor of an
Indemnified Party, the Indemnifying Party shall promptly (and in any case
within thirty (30) days of such Resolution or, if later, after the date or
dates that the Indemnification Damages are ascertainable), pay such
Indemnification Damages under such claim.

                    (h)      Notices to be given to the holders of Avidia
Common Stock, Avidia Preferred Stock and Exchangeable Warrants pursuant to this
Section 6 shall be given to the Stockholder Representative on their behalf, and
the Stockholder Representative shall otherwise act as agent and
attorney-in-fact for such holders for purposes of administering the Holdback
Amount and resolving all claims for indemnification under this Section 6, all
as further described in the Indemnity Escrow Agreement.  All payments required
to be made by the holders of Exchangeable Warrants, Avidia Common Stock and
Avidia Preferred Stock pursuant to this Section 6 shall be made solely from the
Holdback Amount.

                    (i)      The number of shares of PG Common Stock to be
delivered to the Indemnified Parties in satisfaction of indemnity claims
arising under Section 6.1 shall be determined by dividing the amount of the
Indemnification Damages by the Closing Price.

         SECTION 6.7         STOCKHOLDER REPRESENTATIVE COSTS.  The Stockholder
Representative may utilize up to 6,296 shares of the PG Common Stock included
in the Holdback Amount to pay any fees and expenses of the Stockholder
Representative (including, without limitation, the fees and expenses of counsel
retained by the Stockholder Representative) in connection with defending an
indemnifiable claim or otherwise administering the Holdback Amount pursuant to
this Section 6 or the provisions of the Indemnity Escrow Agreement.  The fees
and expenses paid by the Stockholder Representative pursuant to this Section
6.6 shall not be considered a claim included within the Basket.

         SECTION 6.8         RESOLUTION OF CONFLICTS; ARBITRATION; LIMITATION
ON DAMAGES.

                    (a)      In case an Indemnifying Party shall object in
writing to any claim or claims, the Indemnified Party and the Indemnifying
Party shall attempt in good faith for fifteen (15) days to agree upon the
rights of the respective parties with respect to each of such claims.

                    (b)      If no agreement can be reached after good faith
negotiation during such fifteen (15)-day period, either the Indemnified Party
or the Indemnifying Party may, by written notice to the other party, demand
submission of the matter to arbitration or to some other





                                      47.
<PAGE>   52
mutually-agreeable form of alternative dispute resolution (together or in the
alternative, "ADR") to take place in Orange County, California.  Unless the
parties mutually agree in writing to some alternative form of ADR, arbitration
of the matter shall be conducted in accordance with the commercial rules then
in effect of the American Arbitration Association (except as otherwise
specified in this Section 6 and except for those rules which require using the
American Arbitration Association) using an arbitrator who is an experienced
commercial litigator and admitted before the bar of any state of the United
States.  The dispute shall be determined by one (1) arbitrator acceptable to
both parties, which arbitrator shall be selected within twenty (20) days of
filing by a party of notice of intention to arbitrate.  If, by the end of said
twenty (20) day period, the parties have not agreed on one (1) arbitrator to be
acceptable, then either party may request the American Arbitration Association
to appoint the arbitrator pursuant to this Section 6 and the commercial rules
then in effect of the American Arbitration Association.  Arbitrators shall be
compensated for their services at the standard hourly rate charged in their
private professional activities.  The parties acknowledge that the federal and
state courts situated in California shall have jurisdiction and venue over the
parties for the purpose of enforcing this Section 6.  The Federal Rules of
Civil Procedure shall apply with respect to any arbitration hereunder, and to
the extent practicable any hearing with respect to a single matter shall be
held on consecutive hearing days.  The arbitrator(s) shall follow substantive
rules of law and shall make its award in strict conformity with this Agreement.
All parties agree to be bound by the results of this arbitration; judgment upon
the award so rendered may be entered and enforced in any court of competent
jurisdiction, subject to the final sentence of Section 6.3.

         SECTION 6.9         AVIDIA TRANSACTION COSTS.  Pursuant to the terms
of the Indemnity Escrow Agreement, PG may instruct the Indemnity Escrow Agent
at any time after April 9, 1997 to deliver to it or liquidate on PG's behalf
that number of shares of PG Common Stock held as part of the Holdback Amount as
is equal to the Reimbursable Amount divided by the Closing Price.  The
reimbursement of the Reimbursable Amount pursuant to this Section 6.9 shall not
be considered a claim included within the Basket.


                                   SECTION 7.

                            CONDITIONS TO THE MERGER

         SECTION 7.1         CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT
THE MERGER.  The respective obligations of each party to this Agreement to
consummate and effect this Agreement and the transactions contemplated hereby
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, by
agreement of all the parties hereto:

                    (a)      This Agreement and the Merger shall have been
approved and adopted by the requisite vote of the stockholders of Avidia under
Delaware Law.

                    (b)      No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint





                                      48.
<PAGE>   53
or prohibition preventing the consummation of the Merger shall be in effect,
nor shall any proceeding brought by an administrative agency or commission or
other Governmental Authority or instrumentality, domestic or foreign, seeking
any of the foregoing be pending; nor shall there be any action taken, or any
statute, rule, regulation or order enacted, entered, enforced or deemed
applicable to the Merger, which makes the consummation of the Merger illegal or
prevents or prohibits the Merger.

                    (c)      All material authorizations, consents, orders or
approvals of, or declarations or filings with, or expiration of waiting periods
imposed by, any Governmental Entity necessary for the consummation of the
transactions contemplated by this Agreement and the Certificate of Merger shall
have been filed, expired or been obtained, other than those that, individually
or in the aggregate, the failure to be filed, expired or obtained could not, in
the reasonable opinion of PG or Avidia, as the case may be, reasonably be
expected to have a Material Adverse Effect on Avidia or PG or Merger Sub.

                    (d)      PG shall have received a written opinion from
Shipman & Goodwin LLP, legal counsel to Avidia, in form and substance
acceptable to PG and Avidia shall have received a written opinion from Brobeck,
Phleger & Harrison LLP, legal counsel to PG, in form and substance acceptable
to Avidia.  In rendering such opinions, counsel shall be entitled to rely upon,
among other things, reasonable assumptions as well as representations of PG,
Merger Sub and Avidia and certain stockholders of Avidia.

                    (e)      Each of PG and Avidia shall have received a letter
in substantially the form attached hereto as Exhibit 7.1(e) from Deloitte &
Touche, independent auditors, confirming that the Merger qualifies for pooling
of interests accounting treatment if consummated in accordance with this
Agreement.

                    (f)      The distribution of the Information Statement
(either by overnight mail service or by same day or overnight courier service)
to all of the stockholders of Avidia shall have occurred no later than two (2)
business days prior to the Effective Time.

         SECTION 7.2         ADDITIONAL CONDITIONS TO OBLIGATIONS OF PG.  The
obligations of PG to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, by PG:

                    (a)      The representations and warranties of Avidia
contained in this Agreement shall be true and correct as of the Effective Time,
with the same force and effect as if made on and as of the Effective Time,
except for such inaccuracies as individually or in the aggregate would not
reasonably be expected to have a Material Adverse Effect on Avidia;

                    (b)      Avidia shall have performed or complied in all
material respects with all covenants, obligations, conditions and agreements
required by this Agreement to be performed or complied with by it on or prior
to the Effective Time;





                                      49.
<PAGE>   54
                    (c)      PG shall have been furnished with evidence
satisfactory to it that Avidia shall have obtained the Required Avidia
Consents;

                    (d)      No temporary restraining order, preliminary or
permanent injunction or other order issued by any court of competent
jurisdiction or other legal or regulatory restraint or provision limiting or
restricting PG's conduct or operation of the business of Avidia and its
Subsidiaries following the Merger shall be in effect, nor shall any proceeding
brought by any domestic administrative agency or commission or other
governmental entity, seeking the foregoing be pending;

                    (e)      Avidia shall not have suffered any Material
Adverse Effect since the date of this Agreement;

                    (f)      PG shall have received executed Noncompetition
Agreements in form and substance acceptable to PG from those employees of
Avidia listed on Schedule 7.2(f) hereto (which schedule may be updated from
time to time with the mutual consent of PG and Avidia);

                    (g)      The holders of (i) at least ninety-two and one
half percent (92.5%) of the outstanding shares of Avidia Common Stock and
Avidia Preferred Stock voting together as a single class and (ii) fifty percent
(50%) or more of the Series A Preferred Stock and Series B-1 Preferred Stock
voting together as a single class, shall have consented to the Merger and the
transactions contemplated by this Agreement pursuant to a Stockholder Consent
in substantially the form attached hereto as Exhibit 7.2(g);

                    (h)      PG shall have received the Indemnity Escrow
Agreement executed on behalf of Avidia's stockholders by the Stockholder
Representative;

                    (i)      PG shall have received an executed
Affiliate/Stockholder Agreement from each Affiliate of Avidia and each of the
Avidia Founders; and

                    (j)      PG shall have received executed Irrevocable
Proxies as set forth in Section 3.27;

                    (k)      PG shall have received the resignation of each
director of Avidia, effective as of the Effective Time;

                    (l)      PG shall have received an officer's certificate in
the form attached hereto as Exhibit 7.2(m) signed on behalf of Avidia by an
authorized officer; and

                    (m)      PG shall have received the Costs Summary at least
two (2) business days prior to the Effective Time.

         SECTION 7.3         ADDITIONAL CONDITIONS TO OBLIGATIONS OF AVIDIA.
The obligations of Avidia to consummate and effect this Agreement and the
transactions contemplated hereby shall





                                      50.
<PAGE>   55
be subject to the satisfaction at or prior to the Effective time of each of the
following conditions, any of which may be waived, in writing, by Avidia:

                    (a)      The representations and warranties of PG and
Merger Sub contained in this Agreement shall be true and correct as of the
Effective time, with the same force and effect as if made on and as of the
Effective Time, except for such inaccuracies as individually or in the
aggregate would not reasonably be expected to have a Material Adverse Effect on
PG or Merger Sub;

                    (b)      PG and Merger Sub shall have performed and
complied in all material respects with all covenants, obligations, conditions
and agreements required by this Agreement to be performed or complied with by
them on or prior to the Effective Time;

                    (c)      Avidia shall have been furnished evidence
satisfactory to it that PG shall have obtained the Required PG Consents;

                    (d)      Neither PG nor Merger Sub shall have suffered any
Material Adverse Effect;

                    (e)      PG shall have delivered to the holders of
Exchangeable Warrants, Avidia Common Stock and Avidia Preferred Stock
immediately prior to the Effective Time the Registration Rights Agreement
executed by an appropriate officer of PG;

                    (f)      PG shall have entered into the Noncompetition
Agreements referenced in Section 7.2(f);

                    (g)      Avidia shall have received an officer's
certificate in the form attached hereto as Exhibit 7.3(g) signed on behalf of
PG and Merger Sub by an authorized officer; and

                    (h)      If the conditions contained in Section 7.2 shall
have been met or waived, PG shall have paid the Avidia Transaction Costs.


                                   SECTION 8.

                       TERMINATION, AMENDMENT AND WAIVER

         SECTION 8.1         TERMINATION.  At any time prior to the Effective
Time, whether before or after approval of the matters presented in connection
with the Merger by the stockholders of Avidia and the Board of Directors of PG,
this Agreement may be terminated:

                    (a)      by mutual written consent duly authorized by the
Board of Directors of each of PG and Avidia;





                                      51.
<PAGE>   56
                    (b)      by either PG or Avidia, if, without fault of the
terminating party, the Effective Time shall not have occurred on or before
February 28, 1997 (provided, a later date may be agreed upon in writing by the
parties hereto, and provided further that the right to terminate this Agreement
under this Section 8.1(b) shall not be available to any party whose action or
failure to act has been the cause of or resulted in the failure of the Merger
to occur on or before such date and such action or failure to act constitutes a
breach of this Agreement);

                    (c)      by PG, if (i) a breach of any representation,
warranty, covenant or agreement on the part of Avidia set forth in this
Agreement shall have occurred, or any representation or warranty of Avidia
shall have become untrue, and such inaccuracy in Avidia's representations and
warranties or breach by Avidia shall not have been cured within five business
days of receipt by Avidia of written notice thereof; provided, however, that PG
may terminate this Agreement pursuant to the foregoing only if such breach or
inaccuracy of an Avidia representation or warranty would, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect on
Avidia or substantially interfere with the ability of Avidia to consummate the
transactions contemplated hereby; (ii) the Board of Directors of Avidia shall
have withdrawn or modified its recommendation of this Agreement or the Merger
in a manner adverse to PG or shall have resolved to do any of the foregoing; or
(iii) Avidia shall not, by February 28, 1997, obtain the consent of (a) at
least ninety-two and one half percent (92.5%) of the outstanding shares of
Avidia Common Stock and Avidia Preferred Stock voting together as a single
class and (b) fifty percent (50%) or more of the Series A Preferred Stock and
Series B-1 Preferred Stock voting together as a single class, to the Merger and
the transactions contemplated by this Agreement; provided that the right to
terminate this Agreement by PG under this Section 8.1(c) shall not be available
to PG where PG is at that time in willful breach of this Agreement;

                    (d)      by Avidia upon a breach of any representation,
warranty, covenant or agreement on the part of PG set forth in this Agreement,
or if any representation or warranty of PG shall have become untrue, and such
inaccuracy in PG's representations and warranties or breach by PG shall not
have been cured within five business days of receipt by PG of written notice
thereof; provided, however, that Avidia may terminate this Agreement pursuant
to the foregoing only if such breach or inaccuracy of a PG representation or
warranty would, individually or in the aggregate, reasonably be expected to
have a Material Adverse Effect on PG or substantially interfere with the
ability of PG to consummate the transactions contemplated hereby; provided
further that the right to terminate this Agreement by Avidia under this Section
8.1(d) shall not be available to Avidia where Avidia is at that time in willful
breach of this Agreement;

                    (e)      by either PG or Avidia if (i) any permanent
injunction or other order of a court or other competent authority preventing
the consummation of the Merger shall have been entered or (ii) if any required
approval of the stockholders of Avidia shall not have been obtained by reason
of the failure to obtain the required vote upon a vote held at a duly held
meeting of stockholders or at any adjournment thereof.





                                      52.
<PAGE>   57
         SECTION 8.2         EFFECT OF TERMINATION.  In the event of
termination of this Agreement as provided in Section 8.1, this Agreement shall
forthwith become void and there shall be no liability or obligation on the part
of PG, Merger Sub or Avidia or their respective officers, directors,
stockholders or affiliates, except to the extent that such termination results
from the willful breach by a party hereto of any of its representations,
warranties or covenants set forth in this Agreement; provided that the
Confidentiality Agreement and the provisions of Section 5.10 (Expenses),
Section 5.19 (Indemnification by Surviving Corporation) and Section 8.2 (Effect
of Termination) of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.

         SECTION 8.3         AMENDMENT.  The boards of directors of the parties
hereto may cause this Agreement to be amended at any time by execution of an
instrument in writing signed on behalf of each of the parties hereto; provided
that an amendment made subsequent to adoption of the Agreement by the
stockholders of Avidia or Merger Sub shall not (i) alter or change the amount
or kind of consideration to be received on conversion of the Avidia Common
Stock or Avidia Preferred Stock, (ii) alter or change any term of the
Certificate of Incorporation of the Surviving Corporation to be effected by the
Merger, or (iii) alter or change any of the terms and conditions of the
Agreement if such alteration or change would adversely affect the holders of
Avidia Common Stock, Avidia Preferred Stock or Merger Sub Common Stock.

         SECTION 8.4         EXTENSION; WAIVER.  At any time prior to the
Effective Time any party hereto may, to the extent legally allowed, (i) extend
the time for the performance of any of the obligations or other acts of the
other parties hereto, (ii) waive any inaccuracies in the representations and
warranties made to such party contained herein or in any document delivered
pursuant hereto and (iii) waive compliance with any of the agreements or
conditions for the benefit of such party contained herein.  Any agreement on
the part of a party hereto to any such extension or waiver shall be valid only
if set forth in an instrument in writing signed on behalf of such party.


                                   SECTION 9.

                               GENERAL PROVISIONS

         SECTION 9.1         SURVIVAL OF REPRESENTATIONS.  All representations,
warranties and agreements contained herein shall survive the consummation of
the Merger and shall (except to the extent that survival is necessary to
effectuate the intent of such provisions) terminate as specified in Section 6.

         SECTION 9.2         NOTICES.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by commercial delivery service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with confirmation of receipt)
to the parties at the following address (or at such other address for a party
as shall be specified by like notice):





                                      53.
<PAGE>   58
                    (a)      if to PG or Merger Sub, to:

                             Charles W. McBrayer
                             Chief Financial Officer
                             PairGain Technologies, Inc.
                             14402 Franklin Avenue
                             Tustin, CA 92780

                             with a copy to:

                             Bruce R. Hallett
                             Brobeck, Phleger & Harrison LLP
                             4675 MacArthur Court, Suite 1000
                             Newport Beach, CA 92660

                    (b)      if to Avidia or any of its stockholders, to:

                             Derek Minno
                             Stockholder Representative
                             Point Venture Partners L.P.
                             600 Grant Street
                             USX Tower 2970
                             Pittsburgh, PA 15219

                             with a copy to:

                             Frank J. Marco
                             Shipman & Goodwin LLP
                             One American Row
                             Hartford, CT 06103

                             and a copy to:

                             David M. Schwartzbaum
                             Chadbourne & Parke LLP
                             30 Rockefeller Plaza
                             New York, NY 10112

         SECTION 9.3         INTERPRETATION.  When a reference is made in this
Agreement to exhibits or schedules, such reference shall be to an exhibit or
schedule to this Agreement unless otherwise indicated.  The words "include,"
"includes" and "including" when used herein shall be deemed in each case to be
followed by the words "without limitation."  The phrase "made available" in
this Agreement shall mean that the information referred to has been made
available if requested by the party to whom such information is to be made
available.  The phrases "the date of this Agreement", "the date hereof", and
terms of similar import, unless the context





                                      54.
<PAGE>   59
otherwise requires, shall be deemed to refer to February 19, 1997.  The table
of contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement.

         SECTION 9.4         COUNTERPARTS.  This Agreement may be executed in
one or more counterparts, all of which shall be considered one and the same
agreement and shall become effective when one or more counterparts have been
signed by each of the parties and delivered to the other parties, it being
understood that all parties need not sign the same counterpart.

         SECTION 9.5         ENTIRE AGREEMENT; NONASSIGNABILITY; PARTIES IN
INTEREST.  This Agreement and the documents, instruments and other agreements
specifically referred to herein or delivered pursuant hereto, including the
certificates, exhibits, and schedules, including the Avidia Disclosure Schedule
and the PG Disclosure Schedule (a) constitute the entire agreement among the
parties with respect to the subject matter hereof and supersede all prior
agreements and understandings, both written and oral, among the parties with
respect to the subject matter hereof, except for the Confidentiality Agreement,
which shall continue in full force and effect, and shall survive any
termination of this Agreement or the Effective Time, in accordance with its
terms; (b) are not intended to confer upon any other person any rights or
remedies hereunder, except as set forth in Sections 5.12, 5.13, 5.16, 5.17,
5.19 and 6; and (c) shall not be assigned by operation of law or otherwise
except as otherwise specifically provided.

         SECTION 9.6         SEVERABILITY.  In the event that any provision of
this Agreement, or the application thereof, becomes or is declared by a court
of competent jurisdiction to be illegal, void or unenforceable, the remainder
of this Agreement will continue in full force and effect and the application of
such provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto.  The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.

         SECTION 9.7         REMEDIES CUMULATIVE.  Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy.

         SECTION 9.8         GOVERNING LAW.  This Agreement shall be governed
by and construed in accordance with the laws of the State of Delaware
applicable to agreements made and performed entirely within such state without
regard to any applicable conflicts of law rules.

         SECTION 9.9         RULES OF CONSTRUCTION.  The parties hereto agree
that they have been represented by counsel during the negotiation, preparation
and execution of this Agreement and, therefore, waive the application of any
law, regulation, holding or rule of construction providing that ambiguities in
an agreement or other document will be construed against the party drafting
such agreement or document.





                                      55.
<PAGE>   60
            [Signature Page to Agreement and Plan of Reorganization]

                    IN WITNESS WHEREOF, Avidia, PG and Merger Sub have caused
this Agreement to be executed and delivered by their respective officers
thereunto duly authorized, all as of the date first written above.

                                         AVIDIA SYSTEMS, INC.



                                         By:      \s\ Charles N. McCormack  
                                                  --------------------------
                                                  Name: Charles N. McCormack
                                                  Title: Treasurer


                                         PAIRGAIN TECHNOLOGIES, INC.



                                         By:      \s\ Charles W. McBrayer   
                                                  --------------------------
                                                  Name: Charles W. McBrayer
                                                  Title: Chief Financial Officer


                                             ABALONE CORPORATION



                                         By:      \s\ Charles W. McBrayer   
                                                  --------------------------
                                                  Name: Charles W. McBrayer
                                                  Title: Chief Financial Officer





                                      56.
<PAGE>   61
                                EXHIBIT 3.27(II)

                        AFFILIATE/STOCKHOLDER AGREEMENT


<TABLE>
<S>                                          <C>
AVIDIA Systems, Inc.                         PairGain Technologies, Inc.
Attn: Charles N. McCormack                   Attn: Charles W. McBrayer
10 Fairfield Boulevard                       14402 Franklin Avenue
Wallingford, CT 06492                        Tustin, CA 92780
</TABLE>

                    The undersigned, a stockholder and/or affiliate of AVIDIA
Systems, Inc., a Delaware corporation (the "Company"), understands that
PairGain Technologies, Inc., a Delaware corporation ("PairGain"), has proposed
to enter into an Agreement and Plan of Reorganization with the Company in
substantially the form enclosed herewith (the "Merger Agreement") with respect
to a possible merger (the "Merger") of the Company with Abalone Corporation, a
Delaware corporation and wholly-owned subsidiary of PairGain ("Merger Sub").
Capitalized terms not defined herein shall have the meanings given to such
terms in the Merger Agreement.

                    In order to induce PairGain to enter into the Merger
Agreement and to consummate the Merger, the undersigned agrees as follows:

                    (1)      The undersigned has reviewed and approves of the
terms of the Merger as set forth in the Merger Agreement.

                    (2)      The undersigned agrees not to directly or
indirectly (i) solicit, initiate or encourage the submission of proposals or
offers from any person relating to any acquisition or purchase of all or
substantially all of the assets of, or any equity interest in the Company, or
any merger, consolidation, business combination or similar transaction with the
Company, or (ii) except as required by applicable fiduciary duties, participate
in any discussions or negotiations regarding, or furnish to any other person
any confidential information with respect to, or otherwise cooperate in any way
with, or participate in, facilitate or encourage, any effort or attempt by any
other person to do or seek any of the foregoing.  The undersigned will promptly
notify PairGain if it shall receive any written indications of interest of
offer or request for information with respect to any of the foregoing.

                    (3)      (a)     If the undersigned owns shares of the
Company's stock, the undersigned agrees to vote all shares of the Company's
stock owned beneficially or of record by the undersigned ("Voting Shares"),
whether voting at a stockholders meeting or by written consent, for approval of
the Merger, the Merger Agreement and any related corporate actions on terms
conforming in all material respects to the Merger Agreement and against any
corporate action that, in the reasonable judgment of the PairGain's Board of
Directors, would violate, frustrate the purpose of, prevent or delay
consummation of such Merger (an "Opposing Action").
<PAGE>   62
                             (b)     The undersigned shall execute and deliver
to PairGain within two (2) days after PairGain's written request therefor a
valid and binding irrevocable proxy in any form reasonably proposed by PairGain
granting PairGain (or its designees) the authority to vote its Voting Shares
solely for the following items (i) in favor of approval and adoption of the
Merger Agreement and the Merger and any matter that could reasonably be
expected to facilitate the Merger and (ii) against approval of any Opposing
Action.  The proxy shall not convey authority to vote on any other matter,
including but not limited to the removal or election of any member of the
Company's Board of Directors.

                    (4)      (a)     Except as otherwise required by applicable
law or stock exchange regulations or securities market regulations, the
undersigned shall not issue any press release or, prior to the Effective Time,
make any other public statement concerning the transactions contemplated by
this Agreement or the Merger Agreement without obtaining the prior approval of
PairGain to the contents and the manner of presentation and publication
thereof.

                             (b)     The undersigned agrees to maintain in
strictest confidence information furnished by the Company, PairGain or Merger
Sub in connection with the Merger Agreement and the Merger, and not to disclose
any such information without prior written approval of the Company and
PairGain, except to the extent that such information (i) is or becomes
generally available to the public other than as a result of an act or omission
by the undersigned (or any of its directors, officers, employees, agents or
advisors ("Agents"), (ii) was within the possession of the undersigned prior to
its being furnished to the undersigned by or on behalf of the Company, PairGain
or Merger Sub, provided that the source of such information is not known by the
undersigned to be bound by a confidentiality agreement with or other
contractual, legal or fiduciary obligation of confidentiality to the Company,
PairGain or Merger Sub or any other party with respect to such information,
(iii) becomes available to the undersigned on a non-confidential basis from a
source other than the Company, PairGain or Merger Sub or any of their Agents,
provided that such source is not known by the undersigned to be bound by a
confidentiality agreement with or other contractual, legal or fiduciary
obligation of confidentiality to the Company, PairGain or Merger Sub with
respect to such information or (iv) is required to be disclosed in any document
filed with the U.S. Securities and Exchange Commission or any other U.S.
governmental authority, or by legal proceeding, subpoena, civil investigative
demand or other similar process.

                    (5)      The undersigned will not sell, either publicly or
privately, assign, transfer, convey, encumber or dispose of, directly or
indirectly, or otherwise reduce the undersigned's risk relative to, the shares
of common stock of PairGain that the undersigned will receive upon consummation
of the Merger (the "PairGain Common Stock") in exchange for the undersigned's
shares of Common Stock or Preferred Stock of the Company, until such time as
PairGain has publicly announced financial results covering at least thirty (30)
days of post-closing combined operations of PairGain and the Company.  PairGain
agrees to publicly announce such financial results as soon as practicable
following such 30-day period.  The undersigned has not, during the thirty
(30)-day period prior to the date of this letter, sold, exchanged, transferred,
pledged, disposed of or otherwise reduced the undersigned's risk relative to
shares of the Company's Preferred Stock or Common Stock or any part thereof,
and will not
<PAGE>   63
take any such actions during the thirty (30)-day period prior to the Effective
Time of the Merger.

                    (6)      The undersigned hereby represents and warrants to
PairGain and Merger Sub as follows:

                             (a)     The undersigned is an "accredited
investor" as that term is defined in Rule 501 promulgated under the Securities
Act of 1933, as amended (the "Securities Act").

                             (b)     The undersigned is currently the owner of
that number of shares of the Company's capital stock and warrants to purchase
shares of the Company's capital stock as set forth on the signature page hereto
(collectively, the "Company Capital Stock") and, except as otherwise set forth
on the signature page hereto, (i) has held the Company Capital Stock at all
times since ______________________ and (ii) did not acquire any shares of the
Company Capital Stock in contemplation of the Merger.  These securities
constitute the undersigned's entire interest in the outstanding capital stock
of the Company.  No other person or entity not a signatory to this Agreement
has a beneficial interest in or a right to acquire the Company Capital Stock or
any portion of the Company Capital Stock (except, with respect to stockholders
that are trusts, partnerships or limited liability companies, the
beneficiaries, partners and members of such stockholders).

                             (c)     The undersigned has no current plan or
intention to engage in a sale, exchange, transfer, distribution (including a
distribution by a partnership to its partners or by a corporation to its
stockholders), redemption, reduction in any way of the undersigned's risk of
ownership by short sale, or other disposition, directly or indirectly, (such
actions being collectively referred to as a "Sale") of the PairGain Common
Stock that the undersigned will receive in the Merger in exchange for the
undersigned's Company Capital Stock.

                             (d)     The undersigned has no current plan or
intention to engage in a Sale of the Company Capital Stock, other than pursuant
to the Merger, or to exercise dissenters' or appraisal rights with respect to
the Merger.

                             (e)     The undersigned is not aware of or
participating in any current plan or intention on the part of any other
stockholder of the Company to engage in a Sale of the PairGain Common Stock
that will be issued in the Merger in exchange for Company Capital Stock.

                             (f)     The representations contained in this
Paragraph (6) shall be true and correct at all times from the date hereof until
the Effective Time of the Merger.  The undersigned agrees to promptly notify
PairGain and the Company prior to the Effective Time if at any time after the
date hereof and prior to the Effective Time, the undersigned would no longer be
able to make the representations, warranties, covenants and agreements set
forth in this Paragraph (6).
<PAGE>   64
                             (g)     Notwithstanding the foregoing provisions
of this Paragraph (6), the undersigned acknowledges that the undersigned will
be holding the PairGain Common Stock received in the Merger with an investment
intent and, therefore, in the event of a change in circumstances (including a
change in personal or financial circumstances or a change in the value of such
PairGain Common Stock), the undersigned may at some time in the future engage
in a Sale of such PairGain Common Stock.

                    (7)      The undersigned understands that the PairGain
Common Stock to be issued in the Merger is not registered under the Securities
Act although such PairGain Common Stock will be subject to certain registration
rights as set forth in the Registration Rights Agreement attached as an exhibit
to the Merger Agreement ("Registration Rights Agreement").

                    (8)      The undersigned will execute such other documents
as are ordinary and necessary in connection with the Merger, including
confirmation of any of the above agreements.

                    (9)      The obligations of the undersigned hereunder shall
attach to and be binding upon any person or entity to whom legal or beneficial
ownership of the undersigned's Voting Shares shall pass by operation of law or
otherwise.

                    (10)     The Undersigned has full power and authority to
execute this Agreement and to make the representations, warranties and
agreements herein and to perform the Undersigned's obligations hereunder.

                    (11)     Except for the sale of the PairGain Common Stock
pursuant to certain registration rights described in the Registration Rights
Agreement, the Undersigned is acquiring the PairGain Common Stock for
investment purposes only, for the Undersigned's own account, and not with a
view to, or for resale in connection with, any distribution thereof within the
meaning of the Securities Act.  The Undersigned does not have any contract or
other arrangement with any person to sell or otherwise transfer any interest in
the PairGain Common Stock.

                    (12)     The Undersigned's principal residence or place of
business is set forth in the signature page hereto.

                    (13)     (a)     The Undersigned has had the opportunity to
ask questions of, and obtain any additional information reasonably available
to, PairGain and the Company with respect to their respective plans, results of
operations, financial conditions, businesses, properties, assets or business
prospects, and the Undersigned has received all such information as the
Undersigned deemed necessary and appropriate to enable the Undersigned to
evaluate the risks and merits of the Merger, and the Undersigned has received
satisfactory and complete information concerning the business and financial
condition of PairGain and the Company in response to all inquiries in respect
thereof; and

                             (b)     The Undersigned has consulted with such
legal and financial counsel as the Undersigned has deemed appropriate.
<PAGE>   65
                    (14)     The Undersigned can look after the Undersigned's
financial interests in connection with the Merger; has such knowledge and
experience in financial or business matters as to be able to evaluate the
merits and risks of the Merger.  The Undersigned has not been organized solely
for the purpose of acquiring PairGain Common Stock.

                    (15)     The Undersigned acknowledges that:

                             (a)     the sale of the PairGain Common Stock has
not been registered under the Securities Act, and the PairGain Common Stock
must be held indefinitely unless a transfer of the PairGain Common Stock is
subsequently registered under the Securities Act (such as provided in the
Registration Rights Agreement) or an exemption from such registration is
available;

                             (b)     any share certificates representing the
PairGain Common Stock will bear the following legends:

                    THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
                    REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
                    AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
                    UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO IS
                    IN EFFECT UNDER SUCH ACT, (2) SUCH TRANSFER IS PURSUANT TO
                    RULE 144 UNDER SUCH ACT OR (3) THE HOLDER HEREOF FURNISHES
                    TO PAIRGAIN TECHNOLOGIES, INC. AN OPINION OF COUNSEL, WHICH
                    COUNSEL AND WHICH OPINION SHALL BE REASONABLY SATISFACTORY
                    TO PAIRGAIN TECHNOLOGIES, INC. THAT REGISTRATION UNDER SUCH
                    ACT IS NOT REQUIRED.

                    THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
                    CERTAIN RESTRICTIONS SET FORTH IN THAT CERTAIN
                    AFFILIATE/STOCKHOLDER AGREEMENT DATED AS OF FEBRUARY 19,
                    1997, A COPY OF WHICH MAY BE OBTAINED BY THE HOLDER HEREOF,
                    UPON REQUEST AND WITHOUT CHARGE, AT THE PRINCIPAL OFFICES
                    OF PAIRGAIN TECHNOLOGIES, INC.

                             (c)     PairGain may notify its transfer agent of,
and cause its transfer agent to refuse to effect transfers of PairGain Common
Stock inconsistent with, the legends and restrictions set forth above.

 (16)     No waiver of any condition of, or any breach of any provision of, this
Affiliate/Stockholder Agreement shall be effective unless in writing and signed
by an authorized officer of PairGain.
<PAGE>   66
                    (17)     This Agreement shall terminate and be of no force
and effect immediately upon the termination, if any, of the Merger Agreement.
All representations and warranties in this Affiliate/Stockholder Agreement
shall survive until the ninth month anniversary of the Effective Time.  If the
Merger is consummated, the sole remedy of PairGain or Merger Sub for any breach
of representations and warranties contained herein shall be as provided in
Section 6 of the Merger Agreement.

                                  Very truly yours


                                                                                
                                  ----------------------------------------------
                                  Signature

                                                                                
                                  ----------------------------------------------
                                  Name

                                                                                
                                  ----------------------------------------------
                                  Date

                                                                                
                                  ----------------------------------------------
                                  Principal residence or place of business

                                  Total number of shares of Company Capital
                                  Stock owned on the date hereof:

                                  Common:
                                  Series A Preferred:
                                  Series B Preferred:
                                  Series B-1 Preferred

                                  Exceptions, if any, to representations in
                                  Paragraph 6(b):

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

                                                                                
                                  ----------------------------------------------
<PAGE>   67
ACCEPTED AND AGREED:


AVIDIA Systems, Inc.


                                       
---------------------------------------
By:
Its:


PairGain Technologies, Inc.


                                       
---------------------------------------
By:
Its:


Abalone Corporation


                                       
---------------------------------------
By:
Its:
<PAGE>   68
                               EXHIBIT 3.27(III)


                               IRREVOCABLE PROXY
                                TO VOTE STOCK OF
                              AVIDIA SYSTEMS, INC.

         The undersigned stockholder of AVIDIA Systems, Inc., a Delaware
corporation ("Avidia"), hereby irrevocably (to the fullest extent permitted by
Section 212 of the Delaware General Corporation Law ("Delaware GCL")) appoints
the members of the Board of Directors of PairGain Technologies, Inc., a
Delaware corporation ("PairGain"), and each of them, as the sole and exclusive
attorneys and proxies of the undersigned, with full power of substitution and
resubstitution, at any time prior to the Expiration Date (as defined below) to
vote and exercise all voting and related voting rights (to the fullest voting
extent that the undersigned is entitled to do so) with respect to all of the
shares of capital stock of Avidia that now are or hereafter may be beneficially
owned by the undersigned, and any and all other shares or securities of Avidia
issued or issuable in respect thereof on or after the date hereof
(collectively, the "Shares") in accordance with the terms of this Proxy.  The
Shares beneficially owned by the undersigned stockholder of Avidia as of the
date of this Proxy are listed on the final page of this Proxy.  Upon the
undersigned's execution of this Proxy, any and all prior proxies given by the
undersigned with respect to any Shares are hereby revoked and the undersigned
agrees not to grant any subsequent proxies with respect to the Shares until
after the Expiration Date.

         This Proxy is irrevocable (to the fullest extent provided in Section
212 of the Delaware GCL) and is granted in consideration of PairGain entering
into that certain Agreement and Plan of Reorganization, dated as of February
19, 1997 (the "Reorganization Agreement"), by and among Avidia, PairGain and
Abalone Corporation, a Delaware corporation and wholly-owned subsidiary of
PairGain ("Merger Sub").  The Reorganization Agreement provides for the merger
of Merger Sub with and into Avidia (the "Merger").  As used herein, the term
"Expiration Date" shall mean either (i) the Effective Time (as such term is
defined in the Reorganization Agreement) or (ii) the date of termination (if
any) of the Reorganization Agreement, whichever shall occur first.

         The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and other related voting rights of the
undersigned with respect to the Shares (including, without limitation, the
power to execute and deliver written consents pursuant to Section 228 of the
Delaware GCL), at every annual, special or adjourned meeting of the
stockholders of Avidia and in every written consent in lieu of such meeting
solely for the following items (i) in favor of approval of the Merger and the
Reorganization Agreement and any corporate actions that could reasonably be
expected to facilitate the Merger and
<PAGE>   69
(ii) against any corporate action that, in the reasonable judgment of
PairGain's Board of Directors, would violate, frustrate the purpose of, prevent
or delay consummation of the Merger.  The attorneys and proxies named above may
not exercise this Proxy on any other matter except as provided in the foregoing
sentence.  The undersigned stockholder may vote the Shares on all other
matters.

         Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.

         This Proxy shall be governed by, and construed in accordance with, the
laws of the State of Delaware and is irrevocable (to the fullest extent
provided in Section 212 of the Delaware GCL).

Dated:  _____________________, 1997


                                  ---------------------------------------
                                  (Signature of Stockholder)


                                                                         
                                  ---------------------------------------
                                  (Print Name of Stockholder)

                                  Total number of shares of Avidia capital 
                                  stock owned on the date hereof:

                                  Common:
                                  Series A Preferred:
                                  Series B Preferred:
                                  Series B-1 Preferred
<PAGE>   70
                                  EXHIBIT 5.12

                         REGISTRATION RIGHTS AGREEMENT

                    This Registration Rights Agreement ("Agreement") dated as
of the Effective Time (as defined herein), by and among Pairgain Technologies,
Inc., a Delaware corporation ("Pairgain"), and the stockholders of AVIDIA
Systems, Inc., a Delaware corporation ("Avidia") listed on the signature page
hereto (collectively, the "Stockholders").

                    Avidia has entered into an Agreement and Plan of
Reorganization dated February 19, 1997 (the "Reorganization Agreement") with
PairGain and Abalone Corporation ("Merger Sub") pursuant to which Merger Sub
will be merged with and into Abalone.  The Stockholders will receive shares of
PairGain common stock, par value $.0005 per share (the "PG Common Stock"), in
exchange for shares of common stock and preferred stock of Avidia and in
exchange for Exchangeable Warrants (as defined in the Reorganization
Agreement).  The Stockholders desire to have and PairGain is willing to grant
to the Stockholders certain rights to have the shares of PG Common Stock issued
to the Stockholders in connection with the Merger or issued from time to time
upon the exercise of Assumed Warrants (as defined in the Reorganization
Agreement) registered under the Act (as defined herein) for resale to the
public on the terms and subject to certain restrictions set forth in this
Agreement.

                    Accordingly, PairGain and the Stockholders hereby agree as
follows:

                    (18)     Definitions.  As used in this Agreement:

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

                             (b)     "Act" means the Securities Act of 1933, as
amended.

                             (c)     "Effective Time" shall have the meaning
set forth in the Reorganization Agreement.

                             (d)     "Holder" means: (i) a Stockholder, (ii)
the Stockholder Representative (as defined in the Reorganization Agreement), or
(iii) a transferee of a Holder pursuant to Section 11 of this Agreement.

                             (e)     "Potential Material Event" shall mean any
of the following:  (i) the possession by PairGain of material non-public
information required to be disclosed in the Shelf Registration Statement and
the determination in good faith by the Board of Directors of PairGain that
disclosure of such information in the Shelf Registration Statement would be
detrimental to the business and affairs of PairGain; or (ii) any engagement or
activity by PairGain which would, in the good faith determination of the Board
of Directors of PairGain, be adversely affected by disclosure in the Shelf
Registration Statement at such
<PAGE>   71
time, which determination shall be accompanied by a good faith determination by
the Board of Directors of PairGain that the Shelf Registration Statement would
be materially misleading absent inclusion of such information.

                             (f)     "Registrable Securities" means for each
Holder the number of shares of PG Common Stock issued to such Holder pursuant
to the Reorganization Agreement (including shares to be placed in escrow as
contemplated in the Reorganization Agreement) and issued to such Holder from
time to time upon exercise of Assumed Warrants, if any, received pursuant to
Section 1.7 of the Reorganization Agreement, and for all Holders the sum of the
Registrable Securities held by them.

                             (g)     "SEC" means the U.S. Securities and
Exchange Commission.

                             (h)     "Shelf Registration Statement" shall mean
a "shelf" registration statement of PairGain covering the issuance of all of
the Registrable Securities (but no other securities, unless approved by the
Stockholder Representative) on an appropriate form under Rule 415 under the
Act, or any similar rule that may be adopted by the SEC, and all amendments and
supplements to such registration statement, including post-effective
amendments, and in each case including the prospectus contained therein, all
exhibits thereto and all material incorporated by reference therein.

                    Terms not otherwise defined herein have the meanings given
to them in the Reorganization Agreement.

                    (19)     Shelf Registration.  Pairgain shall use its
reasonable best efforts to cause the Registrable Securities held by each Holder
to be registered under the Act so as to permit the public sale thereof, and in
connection therewith shall use its reasonable best efforts to prepare and file
with the SEC within five (5) days following the Effective Time, and shall use
its reasonable best efforts to cause to become effective as soon as practicable
after filing, a Shelf Registration Statement; provided, however, that each
Holder shall provide all such information and materials and take all such
action as may be required in order to (a) permit the preparation of a Shelf
Registration Statement that complies in all material respects with all
applicable requirements of the SEC and (b) obtain any desired acceleration of
the effective date of such registration statement, such provision of
information and materials to be a condition precedent to the obligations of
Pairgain pursuant to this Section 2.  Pairgain shall not be required to effect
more than one (1) registration under this Section 2.

                    (20)     Piggyback Registration.

                             (a)  If (but without any obligation to do so)
PairGain proposes to register under the Act (including for this purpose a
registration effected by PairGain for stockholders other than the Holders) any
securities of the same class or type as the Registrable Securities in
connection with the public offering of such securities solely for cash (other
than (i) a registration relating solely to the sale of securities to
participants in a
<PAGE>   72
PairGain stock or stock option plan, (ii) a registration in connection with a
bona fide business acquisition of or by PairGain, or (iii) a registration in
which the only equity securities being registered are equity securities
issuable upon conversion of debt securities which are also being registered),
PairGain shall, at such time, promptly give each Holder written notice of such
registration.  Upon the written request of each Holder given within ten (10)
days after mailing of such notice by PairGain, PairGain shall, subject to the
provisions of Section 3(b), cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered;
provided that, upon notice to the Holders, PairGain may be relieved of its
obligation under this Section 3.a if it determines for any reason not to
proceed with its proposed registered public offering.

                             (b)  In connection with any offering involving an
underwriting of shares of PairGain's capital stock (an "Underwritten
Offering"), PairGain shall not be required under this Section 3 to include any
of the Holders' Registrable Securities in such Underwritten Offering unless
they accept the terms of the underwriting as agreed upon between PairGain and
the managing underwriter(s) selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their good faith judgment can be effectively sold in such
offering.  If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering, together with any
securities to be sold by PairGain, exceeds the amount of securities that the
underwriters determine in their good faith judgment can be effectively sold in
the offering, then PairGain shall be required to include in the offering only
that number of such securities, including Registrable Securities, which the
underwriters determine in their good faith judgment can be effectively sold in
such offering (the securities so included to be apportioned (A) first, to
PairGain, and (B) second, to the extent additional securities may be included
therein, among the selling stockholders, including any Holders who have
requested registration, according to the total amount of PairGain securities
owned by each such selling stockholder, or in such other proportions as shall
mutually be agreed to by such selling stockholders).  For purposes of the
preceding parenthetical concerning apportionment, for any Holder that is a
partnership, limited liability company or corporation, the partners, retired
partners, members and stockholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single "selling
stockholder", and any pro rata reduction with respect to such "selling
stockholder" shall be based upon the aggregate amount of Registrable Securities
owned by all entities and individuals included in such "selling stockholder",
as defined in this sentence.

                    (21)     Limitation on Registration Rights.
Notwithstanding anything to the contrary contained herein, the Holders' rights
under Sections 2 and 3 shall be subject to the provisions of Section 7 of the
Registration Rights Agreement dated as of September 30, 1992, among PairGain,
Alcatel Network Systems, Inc., and the Investors and Founders (as such terms
are defined therein).

                    (22)     Obligations of Pairgain.  Pairgain shall (i)
prepare and file with the SEC the Shelf Registration Statement in accordance
with Section 2 hereof with respect to the
<PAGE>   73
Registrable Securities and shall use its reasonable best efforts to cause the
Shelf Registration Statement to become effective as promptly as practicable
after filing and to keep such registration statement effective for a period of
twenty-four (24) months or until such time as all of the Registrable Securities
then held by each Holder can be sold by such Holder in a three (3)-month period
in accordance with Rule 144 under the Act; (ii) prepare and file with the SEC
such amendments and supplements to the Shelf Registration Statement and the
prospectus used in connection therewith as may be necessary and to comply with
the provisions of the Act with respect to the sale or other disposition of all
securities proposed to be registered in such Shelf Registration Statement so
long as such Shelf Registration Statement is required to remain effective
including, without limitation, any such amendment or supplement required to
include the information pursuant to Section 6.a; (iii) furnish to each Holder
such number of copies of any prospectus (including any preliminary prospectus
and any amended or supplemented prospectus) in conformity with the requirements
of the Act, and such other documents, as each Holder may reasonably request in
order to effect the offering and sale of the shares of the Registrable
Securities to be offered and sold, but only while Pairgain shall be required
under the provisions hereof to cause the Shelf Registration Statement to remain
effective; (iv) use its reasonable best efforts to register or qualify the
shares of the Registrable Securities covered by the Shelf Registration
Statement prepared as provided herein under the securities or blue sky laws of
such jurisdictions as each Holder shall reasonably request (provided that
Pairgain shall not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such jurisdiction where it has not been qualified), and do any
and all other acts or things which may be necessary or advisable to enable each
Holder to consummate the public sale or other disposition of such stock in such
jurisdictions; (v) notify each Holder upon the happening of any event as a
result of which the prospectus included in the Shelf Registration Statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(vi) so long as the Shelf Registration Statement remains effective, promptly
prepare, file and furnish to each Holder a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary or prepare
and file such document incorporated by reference into the prospectus, so that,
as thereafter delivered to the purchasers of the Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing;
(vii) notify each Holder, promptly after it shall receive notice thereof, of
the date and time the Shelf Registration Statement and each post-effective
amendment thereto has become effective or a supplement to any prospectus
forming a part of such Shelf Registration Statement including any documents
incorporated by reference has been filed; (viii) notify each Holder promptly of
any request by the SEC for the amending or supplementing of the Shelf
Registration Statement or prospectus or for additional information; (ix) advise
each Holder, promptly after it shall receive notice or obtain knowledge
thereof, of the issuance of any stop order by the SEC or a state securities
authority suspending the effectiveness of the Shelf Registration Statement or
the initiation or threatening of any proceeding for that purpose and promptly
use its reasonable best efforts to prevent the issuance of any stop order or to
obtain its withdrawal if
<PAGE>   74
such stop order should be issued; (x) cooperate with the Holders to facilitate
timely preparation and delivery of certificates representing Registrable
Securities to be sold and not bearing any restrictive legends and enable such
Registrable Securities to be in such amounts and registered in such names as
the Holders may reasonably request in connection with the sale of Registrable
Securities; (xi) use reasonable best efforts to cause all Registrable
Securities to be approved for listing on the Nasdaq Stock Market, subject to
official notice of issuance at or prior to the time the Shelf Registration
Statement is declared effective by the SEC; (xii) promptly notify the Holders
of the existence of a Potential Material Event; (xiii) promptly notify the
Holders of the withdrawal of any stop order; and (xiv) promptly notify the
Holders that a Potential Material Event has been disclosed to the public or
that such Potential Material event no longer exists.

                    (23)     Holder's Obligations.

                             (a) PairGain may require each Holder to furnish to
PairGain such information regarding the Holder and the proposed distribution of
Registrable Securities as PairGain may from time to time reasonably request in
writing.  Each Holder shall provide PairGain with any such information within
five (5) business days after such information is requested.

                             (b)     Each Holder agrees that upon receipt of
any notice from PairGain of the happening of any event of the kind described in
Section 5(v), 5(ix) or 5(xii) hereof, such Holder will forthwith discontinue
disposition of Registrable Securities pursuant to the Shelf Registration
Statement until such Holder's receipt of the notice described in Section
5(vii), 5(xiii) or 5(xiv), respectively.

                    (24)     Availability of Form S-3.  Pairgain represents
that if Form S-3 (or a successor form) is not available for use by Pairgain,
Pairgain shall file a registration statement on Form S-1 to satisfy its
obligations under Section 2 hereof.  Pairgain further represents that it is
currently eligible to utilize Form S-3 and currently believes that there is no
material non-public information which would preclude it from filing a Shelf
Registration Statement on Form S-3.

                    (25)     Expenses.  Pairgain shall pay all of the
out-of-pocket expenses incurred, other than underwriting discounts and
commissions, in connection with any registration of Registrable Securities
pursuant to this Agreement, including, without limitation, all SEC, NASD and
blue sky registration and filing fees, printing expenses, transfer agents' and
registrars' fees, and the reasonable fees and disbursements of Pairgain's
independent accountants and outside counsel; provided that if Pairgain's
outside counsel does not act as counsel to the Holders in connection with the
registration of Registrable Securities pursuant to this Agreement, then
Pairgain shall also pay the reasonable fees and disbursements of a single
counsel for all of the Holders.

                    (26)     Indemnification.  In the event of any offering
registered pursuant to this Agreement:
<PAGE>   75
                             (a)     Pairgain will indemnify each Holder, each
of its officers, directors and partners and such Holder's legal counsel and
independent accountants, and each person controlling such Holder within the
meaning of Section 15 of the Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Agreement, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Act, against all expenses, claims, losses,
damages and liabilities (or actions in respect thereof), including any of the
foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement)
of a material fact contained in any registration statement, prospectus,
offering circular or other document, or any amendment or supplement thereto,
incident to any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they are made, not misleading, or any violation by
Pairgain of any rule or regulation promulgated under the Act, the 1934 Act, or
state securities laws, or common law, applicable to Pairgain in connection with
any such registration, qualification or compliance, and will reimburse each
such Holder, each of its officers, directors and partners and such Holder's
legal counsel and independent accountants, and each person controlling such
Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, provided that Pairgain will not be liable in any
such case to the extent that any such claim, loss, damage, liability or expense
arises out of or is based on any untrue statement or omission or alleged untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to Pairgain by such Holder or underwriter specifically
for use in any such registration statement or prospectus.

                             (b)     Each Holder, severally and not jointly,
will, if Registrable Securities held by such Holder are included in the
securities as to which such registration, qualification or compliance is being
effected, indemnify Pairgain, each of its directors and officers and its legal
counsel and independent accountants, each underwriter, if any, of Pairgain's
securities covered by such a registration statement, each person who controls
Pairgain or such underwriter within the meaning of Section 15 of the Act, and
each other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the Act, against
all claims, losses, damages and liabilities (or actions in respect thereof)
arising out of or based on any untrue statement (or alleged untrue statement)
or a material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, and will reimburse Pairgain, such
Holders, such directors, officers, legal counsel, independent accountants,
underwriters or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to Pairgain by or on behalf of
<PAGE>   76
such Holder specifically for use in any such registration statement or
prospectus; provided, however, that the obligations of such Holders hereunder
shall be limited to an amount equal to the gross proceeds before expenses and
commissions to each such Holder of Registrable Securities sold as contemplated
herein.

                             (c)     Each party entitled to indemnification
under this Section 9 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has written notice of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claim or any litigation resulting therefrom, provided that counsel for
the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be approved by the Indemnified Party (whose approval shall
not be unreasonably withheld), and the Indemnified Party may participate in
such defense at such party's expense, and provided further that the failure of
any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement, except to the
extent, but only to the extent, that the Indemnifying Party's ability to defend
against such claim or litigation is impaired as a result of such failure to
give notice.  Notwithstanding anything to the contrary in the preceding
sentence, an Indemnified Party shall have the right to employ separate counsel
at the expense of the Indemnifying Party if (i) the employment thereof has been
specifically authorized by the Indemnifying Party or (ii) the Indemnifying
Party fails to assume the defense of any action or employ counsel as provided
in this Section 9.c.  No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party,
consent to entry of any judgment or enter any settlement which does not include
as an unconditional term thereof the giving by the claimant or plaintiff to
such Indemnified Party of a release from all liability in respect to such claim
or litigation.

                             (d)     If the indemnifications provided for in
this Section 9 shall be held to be unenforceable although applicable in
accordance with its terms, then each Indemnifying Party shall, in lieu of
indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of any loss, claim, damage or liability,
or action in respect thereof, referred to herein in such proportion as shall be
appropriate to reflect the relative benefits received by PairGain on the one
hand and the Holders on the other.  The relative faults of the Indemnifying
Party and the Indemnified Party shall be determined by reference to, among
other things, whether and to what extent the untrue or alleged untrue statement
of a material fact or omission or alleged omission to state a material fact
related to information supplied by the Indemnifying Party or the Indemnified
Party, and each party's relative intent, knowledge, access to information and
opportunity to correct or present such statement or omission.  In no event
shall the liability of any Holder for contribution under this paragraph d.
exceed the gross proceeds before expenses and commissions to each such Holder
of Registrable Securities sold as contemplated herein.
<PAGE>   77
                             (e)     The obligations of Pairgain and each
Holder under this Section 9 shall survive the completion of any offering of
stock in a registration statement under this Agreement and otherwise.

                    (27)     Reports Under Securities Exchange Act of 1934.
Pairgain agrees to:

                             (a)     use its reasonable best efforts to file
with the SEC in a timely manner all reports and other documents required of
Pairgain under the Act and the 1934 Act; and

                             (b)     furnish to each Holder, forthwith upon
request (i) a written statement by Pairgain that it has complied with the
reporting requirements of the Act and the 1934 Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of Pairgain and (iii) such other information as may be reasonably
requested in availing each Holder of any rule or regulation of the SEC which
permits the selling of any such securities pursuant to Form S-3.

                    (28)     Assignment of Registration Rights.  The rights to
cause Pairgain to register Registrable Securities pursuant to this Agreement
may be assigned by a Holder to one or more transferees of Registrable
Securities only if: (a) Pairgain is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee and the Registrable Securities with respect to which such
registration rights are being assigned and a copy of a duly executed written
instrument in form reasonably satisfactory to Pairgain by which such transferee
assumes all of the obligations and liabilities of its transferor hereunder and
agrees itself to be bound hereby; and (b) immediately following such transfer
the disposition of such Registrable Securities by the transferee is restricted
under the Act.

                    (29)     Amendment of Registration Rights.  Pairgain may,
with the consent of the Stockholder Representative, amend the registration
rights granted hereunder.

                    (30)     Termination.  The registration rights set forth in
this Agreement shall terminate at such time as PairGain is no longer obligated
to maintain the effectiveness of the Shelf Registration Statement.


                          [Signature Pages to Follow]
<PAGE>   78
               [Signature Page to Registration Rights Agreement]


                    IN WITNESS WHEREOF, PG and the stockholders of Avidia have
caused this Agreement to be executed and delivered as of the date first written
above.

                                PAIRGAIN TECHNOLOGIES, INC.



                                By:
                                         -------------------------------
                                         Name: Charles W. McBrayer
                                         Title: Chief Financial Officer


AVIDIA SYSTEMS, INC.
STOCKHOLDERS AND WARRANT HOLDERS


                                     
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<PAGE>   79
                                  EXHIBIT 6.3

                           INDEMNITY ESCROW AGREEMENT


         Indemnity Escrow Agreement ("Agreement") dated as of February 27, 1997
by and among PairGain Technologies, Inc., a Delaware corporation ("PairGain"),
Abalone Corporation, a Delaware corporation and a wholly-owned subsidiary of
PairGain ("Merger Sub"), Wells Fargo Bank, N.A. (the "Escrow Agent"), and Derek
Minno (the "Stockholder Representative").

         WHEREAS, PairGain, Merger Sub and Avidia Systems, Inc., a Delaware
corporation ("Avidia") have entered into an Agreement and Plan of
Reorganization dated as of February 19, 1997 (the "Merger Agreement") pursuant
to which Merger Sub will merge with and into Avidia, and Avidia shall be the
surviving corporation.  The holders of Avidia Common Stock and Avidia Preferred
Stock (the "Avidia Stockholders") have selected the Stockholder Representative
to act on their behalf in connection with the Merger.  Capitalized terms
defined in the Merger Agreement shall be used herein with the meanings so
defined; and

         WHEREAS, the Merger Agreement provides for certain rights of
indemnification between PairGain and Merger Sub, on the one hand, and the
holders of Avidia Common Stock and Avidia Preferred Stock as of immediately
prior to the Effective Time, on the other hand; and

         WHEREAS, the Merger Agreement provides that an escrow will be
established to secure the indemnification obligations of the Avidia
Stockholders to PairGain and Merger Sub; and

         WHEREAS, it is a condition of the Merger Agreement that the parties
thereto enter into this Agreement in order to provide certain terms and
conditions regarding the parties' indemnification rights and obligations in
connection with the Merger Agreement and to provide for the escrow of certain
shares hereunder.

         NOW, THEREFORE, in consideration of the premises and agreements set
forth below, the parties agree as follows:

         Section 1.  Section 6 of the Merger Agreement Controls.  In the event
the terms of this Agreement conflict in any way with the provisions of Section
6 of the Merger Agreement, then Section 6 of the Merger Agreement shall
control.  A copy of Section 6 of the Merger Agreement is attached hereto as
Exhibit A.

         Section 2.  Establishment of the Escrow.

         (a)        Pursuant to Section 6.3 of the Merger Agreement, at the
Effective Time, PairGain will deposit with the Escrow Agent two stock
certificates, each in the name of the
<PAGE>   80
Escrow Agent (or its nominee), one for 171 996 shares of PG Common Stock and
one for 29,987 shares of PG Common Stock, together constituting the Holdback
Amount and to be held in an account designated as "PairGain Technologies, Inc.
Escrow Account," or having a similar designation.  The shares of PG Common
Stock constituting the Holdback Amount and evidenced by such certificates are
hereinafter sometimes referred to collectively as the "Escrow Shares."  The
Escrow Shares shall be disbursed in accordance with the terms hereof.  The
Escrow Agent agrees to accept the Escrow Shares and to hold and distribute them
in the manner provided herein.  The Escrow Agent agrees to take appropriate
measures to safeguard the certificates evidencing the Escrow Shares in its
possession, in accordance with customary custodial practices.

         (b)        Exhibit B hereto contains a list of all Avidia
Stockholders, their addresses and number of Escrow Shares held for their
account hereunder at the Effective Time of the Merger.  A Stockholder's
"Proportionate Percentage" shall refer to the number of Escrow Shares held for
the account of a particular Avidia Stockholder relative to the Escrow Shares
held for the account of all Avidia Stockholders.

         Section 3.  Survival of Representations, Warranties and Covenants; 
Consent of the Avidia Stockholders

         (a)        As provided in Section 6.1 of the Merger Agreement, the
indemnity obligations secured by the Escrow Shares survive the consummation of
the Merger and shall terminate on the date that is the nine (9) month
anniversary of the Effective Time (the "Indemnification Termination Date").
PairGain shall give written notice to the Escrow Agent and the Stockholder
Representative of the Effective Time.  The aggregate liability of each of the
Avidia Stockholders to PairGain and Merger Sub under this Agreement and the
Merger Agreement shall be limited to the Escrow Shares (subject to equitable
adjustment in the case of any stock split, stock dividend, subdivision or the
like affecting the PairGain Common)  For purposes of this Agreement, the value
of each share of PairGain Common shall be deemed to have a value of $39.71.

         (b)        As set forth in the Merger Agreement, by virtue of the
Avidia Stockholders' approval of the Merger Agreement, the Avidia Stockholders
have, without any further action required, consented to:  (i) the establishment
of the escrow hereunder to secure the Avidia Stockholders' indemnification
obligations under Section 6.1 of the Merger Agreement in the manner set forth
herein, (ii) the appointment of the Stockholder Representative as their
representative for purposes of this Agreement and as attorney-in-fact and agent
for and on behalf of each such Avidia Stockholder and the taking by the
Stockholder Representative of any and all actions and the making of any
decisions required or permitted to be taken or made by him under this Agreement
and (iii) all of the other terms, conditions and limitations in this Agreement.

         Section 4.  Distributions and Claims.

         (a)        (i)      PairGain shall provide to the Escrow Agent a copy
of each Notice of Action and Claim Notice delivered to the Stockholder
Representative pursuant to Section 6.6
<PAGE>   81
of the Merger Agreement no later than the date on which such Notice of Action
or Claim Notice is sent to the Stockholder Representative.  Each Notice of
Action and Claim Notice delivered to the Escrow Agent shall include a
certification that PairGain has mailed a copy of such Notice of Action or Claim
Notice to the Stockholder Representative as provided in Section 6.6 of the
Merger Agreement.  No claim shall be considered to be an indemnifiable claim
pursuant to Section 6 of the Merger Agreement or this Escrow Agreement unless
the amount of such claim exceeds $7,500, and no Notice of Claim or Claim Notice
shall be given with respect to a claim of less than $7,500.  A Notice of Claim
or Claim Notice shall be given whether or not the basket of $200,000 has been
reached under Section 6.4 of the Merger Agreement (hereinafter referred to as
the "Basket").  PairGain shall also give the Escrow Agent and the Stockholder
Representative notice of when the Basket has been reached and when the Escrow
Shares have been exhausted, according in each case to the Notices of Action and
Claim Notices submitted by PairGain without regard to the existence of any
Challenged Claim (as defined below), which notice may be contained in a Notice
of Action or Claim Notice.  PairGain shall not be entitled to give a Notice of
Action or Claim Notice after the Indemnification Termination Date; provided,
any dispute with respect to whether a matter was the subject of a prior Notice
of Action or Claim Notice shall be submitted to arbitration in accordance with
Section 6.8 of the Merger Agreement.  The Notice of Action or Claim Notice
shall set forth the identity of the Indemnifying Party or Parties and of the
Indemnified Party or Parties, a brief description of the nature of the claim,
the maximum amount of the loss, expense, liability or other damage suffered, or
which may be suffered, by the Indemnified Party, and the number of Escrow
Shares with a value equal to such amount, rounded up to the next number of
whole shares and shall indicate the applicable sections of the Merger Agreement
under which the claim for indemnity arises.

                    (ii)     The Stockholder Representative shall provide to
the Escrow Agent a copy of each Contest Notice delivered to an Indemnified
Party pursuant to Section 6.6(c) of the Merger Agreement no later than the date
on which such Contest Notice is sent to the Indemnified Party.  Each Contest
Notice delivered to the Escrow Agent shall include a certification that the
Stockholder Representative has mailed a copy of such Contest Notice to the
Indemnified Party as provided in Section 6.6(c) of the Merger Agreement.  A
Claim or Action (or that portion of a Claim or Action) which the Stockholder
Representative agrees is the responsibility of the Avidia Stockholders pursuant
to a Notice of Contest is referred to as an "Accepted Claim."  A Claim or
Action (or that portion of a Claim or Action) (A) to which the Stockholder
Representative objects pursuant to a Notice of Contest, or (B) as to which the
Stockholder Representative assumes the defense and reserves its rights pursuant
to Section 6.6(c) of the Merger Agreement is referred to as a "Challenged
Claim."

         (iii)      Subject to Section 4(a)(iv) below, the Stockholder
Representative and PairGain shall submit the matter of a Challenged Claim to
arbitration in accordance with Section 6.8 of the Merger Agreement.  PairGain
shall provide to the Escrow Agent written notice of a Resolution (a "Notice of
Resolution"), setting forth the amount of Indemnification Damages, if any,
awarded to PairGain.  Each Notice of Resolution delivered to the Escrow Agent
shall include a certification that PairGain has mailed a copy of such Notice of
Resolution to the Stockholder Representative.  The Stockholder Representative
shall have fifteen (15) days from the date of a Notice of Resolution in which
to object thereto.  Any
<PAGE>   82
objection shall be delivered to PairGain and the Escrow Agent and shall contain
a certification that a copy of such objection has been given to both such
parties.

         (iv)       In the event that a Notice of Contest provides that the
Stockholder Representative elects to assume the defense of an Action subject to
a reservation of rights as to responsibility for any Indemnification Damages,
then upon resolution of the underlying action, the Stockholder Representative
shall either acknowledge responsibility for any resulting Indemnification
Damages, and such amount shall be paid as provided in Section 4(b)(i) below, or
object to responsibility for Indemnification Damages and thereupon the parties
shall submit the matter to arbitration in accordance with Section 6.8 of the
Merger Agreement (and the underlying indemnity claim shall be deemed a
Challenged Claim).

                    (b)      (i)     Upon receipt of a Notice of Action or
Claim Notice from PairGain at any time after the Basket has been satisfied and
prior to the Indemnification Termination Date, and if the Escrow Agent receives
(A) a Notice of Contest in response thereto stating that the Stockholder
Representative agrees that the Avidia Stockholders are responsible for the
Action or Claim covered by the Notice of Action or Claim Notice, or (B) a
Notice of Contest objecting to the Notice of Action or Claim Notice, followed
by a Notice of Resolution as to which the Stockholder Representative does not
object as provided in Section 4(b)(iii) below, the Escrow Agent shall deliver
to PairGain, as promptly as practicable, Escrow Shares having a value (as
certified to the Escrow Agent and the Stockholder Representative by PairGain)
equal to the amount of Indemnification Damages set forth in the Notice of
Action or Claim Notice and agreed to in the Notice of Contest or specified in
the Notice of Resolution, as applicable.

                             (ii)    Pursuant to Section 6.9 of the Merger
Agreement, PairGain may instruct the Escrow Agent in writing to deliver to
PairGain, or to liquidate on PairGain's behalf and deliver to PairGain, at any
time after April 9, 1997, up to [Reimbursable Amount] Escrow Shares.  PairGain
agrees to provide a copy of such instruction to the Stockholder Representative.

                    (iii)    Escrow Shares to be delivered by the Escrow Agent
on behalf of each Avidia Stockholder shall be determined based on such Avidia
Stockholder's Proportionate Percentage.  Within 10 business days after any
payment of an indemnification claim hereunder, or the delivery or liquidation
of Escrow Shares pursuant to Section 4(b)(ii), and as and when required by
Section 4(b)(v), PairGain will deliver to the Escrow Agent and the Stockholder
Representative a revised Exhibit B, which will be attached in lieu of the then
existing Exhibit B.  The Escrow Agent may rely upon such revised Exhibit B
unless and until the Stockholder Representative delivers an objection in
writing, which objection shall be made within 30 days of receipt of the revised
Exhibit B.  Any disputes regarding Exhibit B will be resolved in the manner
provided in Section 6.8 of the Merger Agreement.

         (iv)       The Escrow Agent shall retain in escrow after the
Indemnification Termination Date the number of Escrow Shares (rounded up to the
nearest whole share) having a value (determined as provided in Section 3(a))
equal to the dollar amount set forth in the applicable Notices of Action or
Claim Notices for all Challenged Claims ("Pending
<PAGE>   83
Indemnification Claims").  The "dollar amount" of any Pending Indemnification
Claim shall be calculated assuming the maximum possible exposure set forth in
the Notice of Action or Claim Notice.  Each Notice of Action or Claim Notice
shall state on its face the maximum possible exposure claimed thereunder, on
which statement the Escrow Agent may conclusively rely.

         (v)        As promptly as practicable after the Indemnification
Termination Date, the Escrow Agent shall deliver the stock certificate
evidencing the Escrow Shares to PairGain's stock transfer agent (the "Transfer
Agent") in exchange for:  (a) stock certificates for and in the name of each
Avidia Stockholder with respect to which Escrow Shares are then attributable in
accordance with Exhibit B (as revised, if applicable); provided, however, that
the Escrow Agent shall exclude from such number of Escrow Shares the number of
Escrow Shares to be retained by the Escrow Agent pursuant to Section 4(b)(iv)
above, and (b) if applicable, a new stock certificate in the name of the Escrow
Agent representing the aggregate number of Escrow Shares to be retained by the
Escrow Agent pursuant to Section 4(b)(iv) above.  Upon receipt of such stock
certificates from the Transfer Agent, the Escrow Agent will promptly deliver
such stock certificates to the Avidia Stockholders at such addresses as the
Stockholder Representative shall direct, and the Escrow Agent will retain the
new stock certificate in its name pending resolution of the Pending
Indemnification Claims.  Notwithstanding the foregoing, PairGain may provide
written notice to the Escrow Agent, with a copy to the Stockholder
Representative, prior to the Indemnification Termination Date if any Assumed
Warrants have not been exercised and shall specify the number of Escrow Shares
attributable to such unexercised Assumed Warrants (the "Unexercised Warrant
Shares").  PairGain shall attach to such notice a revised Exhibit B, reducing
the number of Escrow Shares held for the applicable Avidia Stockholder to
reflect the elimination of the Unexercised Warrant Shares.  If at any time
after such notice and prior to the Indemnification Termination Date any such
unexercised Assumed Warrants are exercised, PairGain shall amend such notice in
a writing provided to the Escrow Agent and the Stockholder Representative,
stating the revised number of Unexercised Warrant Shares and attaching a
further revised Exhibit B.  The Escrow Agent shall obtain from the stock
transfer agent and deliver to PairGain a separate certificate for the
Unexercised Warrant Shares.

         (c)        Escrow Shares that are not distributed to Avidia
Stockholders on the Indemnification Termination Date because they have been
retained pursuant to Section 4(b)(iv) shall be distributed (as appropriate) as
promptly as practicable after disposition of each Pending Indemnification
Claim.  Upon the date after which the last of all Pending Indemnification
Claims has been finally determined and the final distribution has been made to
PairGain, the balance of all Escrow Shares shall be delivered to Avidia
Stockholders in accordance with Section 4(b)(v).

         (d)        Notwithstanding any provision of this Agreement or the
Merger Agreement to the contrary, no Escrow Shares may be liquidated, sold,
assigned, transferred, conveyed, encumbered or disposed of, or released from
escrow until such time as PairGain has publicly announced financial results
covering at least thirty (30) days of post-closing combined operations of
Avidia and PairGain.  PairGain shall give prompt written notice of the
announcement of such financial results to the Escrow Agent and the Stockholder
Representative.
<PAGE>   84
         Section 5.  Voting Rights and Distributions.

         (a)        If a meeting or written action of stockholders of PairGain
occurs while this Escrow Agreement is still in effect, the Escrow Agent shall
promptly send to the Stockholder Representative copies of any notices, proxies
and proxy materials in connection with such meeting or written action.  The
Escrow Agent shall vote the Escrow Shares in accordance with instructions set
forth in any proxies returned to the Escrow Agent by the Stockholder
Representative.  If no proxy is received, the Escrow Agent shall not vote such
shares.

         (b)        All dividends and distributions (other than cash dividends
and distributions) made by PairGain with respect to the Escrow Shares will be
paid or made to the Escrow Agent to be held in escrow with the other Escrow
Shares as provided herein as additional assets of the escrow to satisfy
indemnification claims in accordance with Section 6 of the Merger Agreement.
Such dividends and distributions shall be deemed to be a part of the Escrow
Shares to which they relate.  Cash dividends and distributions, if any, with
respect to the Escrow Shares will be made by PairGain directly to the Avidia
Stockholders for whose account such shares are being held hereunder.

         Section 6.  The Stockholder Representative.

         (a)        As long as there are shares held in escrow pursuant to this
Agreement, the Avidia Stockholders, and each of them, will be represented by
the Stockholder Representative, who is empowered to receive any notice under
this Agreement for the Avidia Stockholders and each of them, and to give any
and all notices and instructions and take any and all action for and on behalf
of the Avidia Stockholders, and each of them, under this Agreement.  The Avidia
Stockholders will have the right to remove the Stockholder Representative and,
upon such removal, or in the event of the Stockholder Representative's death or
resignation, to appoint as a new Stockholder Representative any former Avidia
Stockholder at any time and from time to time during the period when any shares
are held in escrow, by a vote of the Avidia Stockholders holding a majority
interest in the Escrow Shares held in escrow at such time evidenced by a
writing executed by such majority of Avidia Stockholders.  The appointment of
the new Stockholder Representative will be of no force or effect whatsoever
upon PairGain or the Escrow Agent or otherwise under this Agreement until three
days after the later of the dates when PairGain or the Escrow Agent is deemed
to have received written notice of such appointment, which notice must include
at least:  (i) the identity and address of the new Stockholder Representative
and a statement that such Stockholder Representative has been appointed by a
vote of Avidia Stockholders holding a majority interest in the Escrow Shares
then held in escrow; (ii) the duly acknowledged signatures of each of the
Avidia Stockholders voting for the new Stockholder Representative; and (iii) a
statement that any non-signing Avidia Stockholder has been notified in writing
of the appointment of the new Stockholder Representative.  PairGain and the
Escrow Agent will be entitled to rely on any notice received in such form
without conducting an investigation of the contents thereof.  Any notice given
to the Stockholder Representative will constitute notice to each and all of the
Avidia Stockholders at the time notice is given to the Stockholder
Representative.  Any action taken by, or notice or instruction received from,
the
<PAGE>   85
Stockholder Representative will be deemed to be action by, or notice or
instruction from, each and all of the Avidia Stockholders.  PairGain may and
the Escrow Agent will disregard any notice or instruction received from any
Avidia Stockholder other than the then acting Stockholder Representative with
regard to this Agreement prior to the Indemnification Termination Date.

         (b)        The Stockholder Representative shall not suffer any
liability or loss for any act performed or omitted to be performed by him under
this Agreement in the absence of his gross negligence or willful misconduct.
The Stockholder Representative may consult with counsel in connection with his
duties hereunder and shall be fully protected by any act taken, suffered,
permitted, or omitted in good faith in accordance with the advice of counsel.
The Stockholder Representative shall not be responsible for the sufficiency or
accuracy of the form, execution, validity or genuineness of documents or
securities now or hereafter deposited hereunder, or of any endorsement thereof
or for any lack of endorsement thereon, or for any description therein, nor
shall he be responsible or liable in any respect on account of the identity,
authority or rights of the persons executing or delivering or purporting to
execute or deliver any such document, security or endorsement, and the
Stockholder Representative shall be fully protected in relying upon any written
notice, demand, certificate or document which he in good faith believes to be
genuine.

         (c)        The Stockholder Representative shall be entitled to employ
such legal counsel and other experts as he may deem necessary to advise him
properly with respect to his rights and obligations hereunder and to evaluate
indemnification claims and to pursue challenges to indemnification claims or to
defend claims.  The reasonable expenses and fees of such counsel and experts,
and any reasonable, documented out of pocket expenses which the Stockholder
Representative incurs under Section 4 or hereunder in relation to evaluating,
challenging or contesting claims, shall be reimbursed out of the Escrow Shares,
and to that end the Stockholder Representative may direct the Escrow Agent to
disburse to the Stockholder Representative Escrow Shares having a value equal
to the amount of such expenses; provided, however, that the aggregate of all
reimbursements and disbursements to which the Stockholder Representative may be
entitled under this Agreement shall not exceed 6,296 Escrow Shares.  The Escrow
Agent shall have no responsibility to determine whether expenses for which the
Stockholder Representative claims reimbursement hereunder are reasonable, and
may conclusively  rely on the Stockholder Representative's disbursement
instructions.

         (d)        The Stockholder Representative hereby agrees to do such
acts, and execute further documents, as shall be necessary to carry out the
provisions of this Agreement or to transfer any Escrow Shares pursuant to the
terms hereof.

         Section 7.  Interest in Escrow Shares.  The interest of the Avidia
Stockholders in the Escrow Shares (until released to them hereunder) is
nonassignable and shall be transferable only by operation of law.

         Section 8.  Provisions Concerning the Escrow Agent.
<PAGE>   86
         (a)        The Escrow Agent shall be entitled to reasonable
compensation for all services rendered and expenses incurred by it in the
performance of its obligations hereunder.  The Escrow Agent shall be entitled
to employ such legal counsel and other experts as it may deem necessary to
properly advise it in connection with its obligations hereunder, and may rely
on the advice of such counsel, and may pay them reasonable compensation
therefor.  The Escrow Agent and such legal counsel's and other expert's fees
and expenses shall be borne by PairGain.

         (b)        The Escrow Agent shall not be liable for any diminution of
value of the Escrow Shares.  The Escrow Agent shall have no authority to sell
or otherwise dispose of or encumber the Escrow Shares except as provided
herein.

         (c)        Notwithstanding any other provisions herein contained, the
Escrow Agent may at all times act upon and in accordance with the joint written
instructions of PairGain and the Stockholder Representative.  The Escrow Agent
shall not be liable for any act done or omitted by it in accordance with such
instructions or pursuant to the advice of counsel of its selection.

         (d)        The duties and responsibilities of the Escrow Agent shall
be limited to those expressly set forth in this Agreement and instructions
given to the Escrow Agent pursuant to this Agreement, and the Escrow Agent
shall not be subject to, nor obligated to recognize, any other agreement
between any or all of the parties hereto even though reference thereto may be
made herein; provided, however, with the written consent of the Escrow Agent,
this Agreement may be amended at any time by an instrument in writing signed by
PairGain and the Stockholder Representative.

         (e)        The Escrow Agent shall not be responsible for the
sufficiency or accuracy of the form, execution, validity or genuineness of
documents or securities now or hereafter deposited hereunder, or of any
endorsement thereof, or for any lack of endorsement thereon, or for any
description therein, nor shall it be responsible or liable in any respect on
account of the identity, authority or rights of the persons executing or
delivering or purporting to execute or deliver any such document, security or
endorsement of this Agreement, and the Escrow Agent shall be fully protected in
relying upon any written notice, demand, certificate or document which it in
good faith believes to be genuine.

         (f)        The Escrow Agent is authorized, in its sole discretion, to
disregard any and all notices or instructions given by any of the parties
hereto or by any other person, firm or corporation, except only such notices or
instructions as are herein provided for in this Agreement and orders or process
of any court entered or issued with or without jurisdiction.  If any property
subject hereto is at any time attached, garnished or levied upon under any
court order, or in case the payment, assignment, transfer, conveyance or
delivery of any such property shall be stayed or enjoined by any court order,
or in case any order, judgment or decree shall be made or entered by any court
affecting such property or any part thereof, then and in any of such events,
the Escrow Agent is authorized, in its sole discretion, to rely upon and comply
with any such order, writ, judgment or decree which the Escrow Agent is advised
by legal counsel of its own choosing is binding upon it; and if the Escrow
Agent
<PAGE>   87
complies with any such order, writ, judgment or decree, it shall not be liable
to any of the parties hereto or to any other person, firm or corporation by
reason of such compliance even though such order, writ, judgment or decree may
be subsequently reversed, modified, annulled, set aside or vacated.

         (g)        The Escrow Agent may resign by giving sixty (60) days'
advance written notice to PairGain and the Stockholder Representative and
thereafter shall deliver the Escrow Shares to such substitute escrow agent as
PairGain and the Stockholder Representative shall jointly direct in writing.
If such direction to deliver to a substitute escrow agent is not received by
the Escrow Agent within sixty (60) days after mailing such notice of
resignation, it is unconditionally and irrevocably authorized, directed and
empowered to file an interpleader motion and deliver all items held by it to a
court of competent jurisdiction.

         (h)        PairGain and the Stockholder Representative together shall
have the right to remove the Escrow Agent hereunder by giving notice in writing
to the Escrow Agent, specifying the date upon which such removal shall take
effect.  In the event of such removal, PairGain and the Stockholder
Representative agree that they will jointly appoint a successor Escrow Agent
within thirty (30) days after the giving of such notice (which successor Escrow
Agent shall be a bank or trust company organized under the laws of the United
States of America or of the State of California having a combined capital and
surplus of not less than $100,000,000), and the Escrow Agent hereby agrees
that, upon receiving joint written instructions from PairGain and the
Stockholder Representative shall, within ten (10) business days after such
receipt, turn over and deliver to such successor Escrow Agent all of the Escrow
Shares and other properties and amounts held by it pursuant to this Agreement
in accordance with the terms of such written instructions.

         (i)        In consideration of its acceptance of the appointment as
the Escrow Agent, PairGain agrees to indemnify and hold the Escrow Agent
harmless as to any liability incurred by it to any person, firm or corporation
by reason of its having accepted the same or in carrying out any of the terms
hereof (except as such liability may arise out of or be based upon the gross
negligence or willful misconduct of the Escrow Agent), and to reimburse the
Escrow Agent for all its reasonable expenses, including, among other things,
counsel fees and court costs, incurred by reason of its position hereunder or
actions taken pursuant hereto.

         Section 9.  Notices.  All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given if delivered in
person, by cable, telegram or telex (and shall be deemed to have been duly
given on the date of delivery if so given), or by registered or certified mail
(postage prepaid, return receipt requested) (and shall be deemed to have been
duly given the second business day after the date of the postmark if so given)
to the respective parties as follows:

         If to PairGain:

         Charles W. McBrayer
         Chief Financial Officer
         PairGain Technologies, Inc.
         14402 Franklin Avenue
         Tustin, CA 92780
<PAGE>   88
         With copies to:

         Bruce R. Hallett
         Brobeck, Phleger & Harrison LLP
         4675 MacArthur Court, Suite 1000
         Newport Beach, CA 92660


         If to the Stockholder Representative:

         Derek Minno
         Stockholder Representative
         Point Venture Partners LP
         600 Grant Street
         USX Tower 2970
         Pittsburgh, PA 15219

         with copies to:

         Frank J. Marco
         Shipman & Goodwin LLP
         One American Row
         Hartford, CT 06103

         If to the Escrow Agent:

         Wells Fargo Bank, N.A.
         707 Wilshire Boulevard
         MAC 2818-101
         Los Angeles, CA 90017
         Attention:  Karen Hickey


or to such other address as any party may have furnished to the others in
writing in accordance herewith, except that notices of changes of address shall
only be effective upon receipt.

         Section 10.  Headings.  The descriptive headings in this Agreement
have been inserted for convenience only and shall not be deemed to limit or
otherwise affect the construction of any provision hereof.

         Section 11.  Entire Agreement; Assignment.  This Agreement and the
Merger Agreement constitute the entire agreement among the parties with respect
to the subject
<PAGE>   89
matter hereof and thereof and supersede all other prior agreements and
understandings, both written and oral, among the parties or any of them with
respect to the subject matter hereof and thereof.  This Agreement shall not be
assigned by operation of law or otherwise.

         Section 12.  Parties in Interest.  This Agreement shall be binding
upon and inure solely to the benefit of the parties hereto, and nothing in this
Agreement, express or implied, is intended to confer upon any other person any
rights or remedies of any nature whatsoever under or by reason of this
Agreement.

         Section 13.  Validity.  The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provisions of this Agreement, each of which shall remain in full
force and effect, provided that enforcement of such other provisions in the
absence of the invalid or unenforceable provisions does not deprive either
Avidia or PairGain of the benefit of the bargain.

         Section 14.  Counterparts.  This Agreement may be executed in two or
more counterparts, each of which shall be deemed to be an original but all of
which shall constitute one and same Agreement.

         Section 15.  Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the State of Delaware, regardless of
the laws that might otherwise govern under applicable principles of conflicts
of laws thereof.

         Section 16.  Appointment.  PairGain and the Stockholder Representative
hereby appoint Wells Fargo Bank, N.A. to act as the Escrow Agent and Wells
Fargo Bank, N.A. accepts such appointment.


                            [Signature Pages Follow]
<PAGE>   90
         IN WITNESS WHEREOF, PairGain, Merger Sub, the Stockholder
Representative and the Escrow Agent have caused this Agreement to be signed by
their respective officers thereunto duly authorized, and their respective seals
to be affixed hereto, as of the date first written above.

PAIRGAIN TECHNOLOGIES, INC.



By:      _____________________
Title:   _____________________

ABALONE CORPORATION




By:      _____________________
Title:   _____________________



WELLS FARGO BANK, N.A.,
as Escrow Agent



By:      _____________________
Title:   _____________________


STOCKHOLDER
REPRESENTATIVE



___________________________
Derek Minno




<PAGE>   91
                                 EXHIBIT 7.2(G)

                 WRITTEN CONSENT AND AGREEMENT OF STOCKHOLDERS
                              AND WARRANT HOLDERS


I.  Written Consent

         Pursuant to Section 228 of the General Corporation Law of the State of
Delaware, the undersigned stockholders of Avidia Systems, Inc.  (the
"Corporation"), a Delaware corporation, hereby consent to and adopt the
following resolutions, without the holding of a meeting of the stockholders of
the Company, which resolutions shall have the same effect as if duly adopted at
a special meeting of the stockholders of the Corporation duly called and held,
at which a quorum was present and acting throughout:

         RESOLVED, that it is in the best interest of the Corporation that
Abalone Corporation, a Delaware corporation ("Abalone Acquisition") and a
wholly-owned subsidiary of PairGain Technologies, Inc., a Delaware corporation
("PairGain"), merge with and into the Corporation (the "Merger"), with the
Corporation being the surviving corporation, and the Merger is hereby approved;
and

         RESOLVED, that the Agreement and Plan of Reorganization (the "Merger
Agreement") among the Corporation, Abalone Acquisition and PairGain, including
the exhibits thereto, and the other agreements and instruments required by the
terms of the Merger Agreement to be executed by the Corporation or affecting
the rights of the Corporation's employees, optionholders, warrantholders or
stockholders, including, without limitation, the Registration Rights Agreement,
the Indemnity Escrow Agreement, the Affiliate/Stockholder Agreements and the
Non-Competition Agreements, as such terms are defined in the Merger Agreement
(collectively, the "Ancillary Agreements"), copies of which Merger Agreement
and Ancillary Agreements were provided to the stockholders, be and hereby are,
in all respects approved in substantially the form provided to the
stockholders; and

         RESOLVED, that the Board of Directors of the Corporation be, and
hereby is, authorized and empowered to take or cause to be taken any and all
actions as it may deem necessary or appropriate to effectuate the Merger on
substantially the terms set forth in the Merger Agreement and the Ancillary
Agreements, with such amendments or changes as the Board of Directors may
determine to be appropriate, and all actions previously taken by the Board of
Directors and officers of the Corporation in connection with the Merger are
hereby ratified and affirmed.
<PAGE>   92
II.  Confirmation of Indemnity and Appointment of Stockholder Representative

         By signing below, and without limiting the generality of the foregoing
approvals, each stockholder confirms and ratifies the provisions of Section 6.1
of the Merger Agreement, which provide that each stockholder severally and not
jointly agrees to indemnify and hold harmless PairGain, Merger Sub and the
Corporation (as the surviving corporation in the Merger) and their affiliates
and respective officers, directors, successors and assigns in respect of the
matters described in such Section 6.1.  The sole and exclusive source of such
indemnification shall be the shares of PairGain Common Stock held under the
Indemnity Escrow Agreement, and the stockholders of the Corporation shall have
no personal liability for indemnification damages except for their pro rata
share of the PairGain Common Stock held under the Indemnity Escrow Agreement.

         By signing below, and without limiting the generality of the foregoing
approvals, each stockholder also confirms and ratifies the provisions of
Section 1.3(b) of the Merger Agreement and Section 6 of the Indemnity Escrow
Agreement and consents to the appointment of Derek Minno and his successors as
such stockholder's agent and attorney-in-fact for the purposes set forth in
Section 1.3(b) of the Merger Agreement.  Without limiting the generality of the
foregoing, each stockholder irrevocably constitutes and appoints Charles
McCormack as such stockholder's true and lawful agent and attorney-in-fact to
enter into the Indemnity Escrow Agreement on such stockholder's behalf and to
otherwise act on behalf of such stockholder in accordance with the provisions
of the Indemnity Escrow Agreement and Section 1.3(b) of the Merger Agreement.

III.  Termination of Certain Agreements

         By signing below, each stockholder agrees that each and every
agreement among the Corporation and any of the stockholders, or among any of
the stockholders, providing for registration rights, rights of first refusal or
rights of co-sale, relating to the voting of the Corporation's securities or
requiring the Corporation to obtain the consent or approval of any stockholder
prior to taking or failing to take any action, be and hereby is terminated,
effective immediately prior to the effectiveness of the Merger.  The agreements
terminated effective immediately prior to the effectiveness of the Merger
include, without limitation, the following:  Common Stock and Series A
Preferred Stock Purchase Agreement, dated as of April 2, 1996 among the
Corporation and the Investors identified therein, as amended; and the Investors
identified and the Series B-1 Preferred Stock Purchase Agreements, dated as of
September 19, 1996 and October 1, 1996 among the Corporation and the Investors
identified therein.  The terminated agreements do not include that certain
Amended and Restated Shareholders' Agreement dated as of September 19, 1996
(the "Existing Shareholders' Agreement"), as the same shall be amended and
restated at the Effective Time (as defined in the Merger Agreement) by the
Second Amended and Restated Shareholders' Agreement, among the Corporation,
PairGain and the stockholders identified therein the form of which has been
provided to the stockholders (the "Amended Shareholders' Agreement").

IV.  Amendment of Shareholders' Agreement
<PAGE>   93
         By signing below, each stockholder agrees that upon the Effective Time
the Existing Shareholders' Agreement may and shall be amended and restated in
substantially the form of the Amended Shareholders' Agreement and each
stockholder hereby consents to and approves of such amendment and restatement.

V.  Consents of Warrantholders

         By signing below, and without limiting the generality of the foregoing
approvals, each holder of Exchangeable Warrants (as defined in the Merger
Agreement) consents to and confirms and ratifies and the provisions of Section
1.2 of the Merger Agreement, which section provides that at the Effective Time
each outstanding Exchangeable Warrant shall, automatically and without any
action on the part of the holder thereof, be converted into the right to
receive shares of PG Common Stock (as defined in the Merger Agreement) in the
amount and on the terms set forth in the Merger Agreement.

         By signing below, and without limiting the generality of the foregoing
approvals, each holder of Assumed Warrants (as defined in the Merger Agreement)
consents to and confirms and ratifies the provisions of Section 1.7 of the
Merger Agreement, which section provides that at the Effective Time each
Assumed Warrant shall, without any action on the part of the holder thereof, be
converted into a warrant to purchase shares of PG Common Stock (as defined in
the Merger Agreement) in the amount and for the purchase price per share as
determined in accordance with the terms and  calculations set forth in the
Merger Agreement.

VI.  Investment Representations

         By signing below each stockholder, as to himself, herself or itself,
hereby represents and warrants to the Company for the benefit of PairGain and
Abalone Corporation as follows:

                    (a)      The stockholder is an "accredited investor" as
that term is defined in Rule 501 promulgated under the Securities Act of 1933,
as amended (the "Securities Act").

                    (b)      The stockholder is currently the owner of that
number of shares of the Company's capital stock and warrants to purchase shares
of the Company's capital stock set forth opposite his, her or its name on
Tables A and B attached hereto (collectively, the "Company Capital Stock").

                    (c)      The stockholder's principal residence or place of
business is set forth in the signature page hereto.

                    In addition, each stockholder acknowledges that:

                             (i)     the sale of the PairGain Common Stock has
not been registered under the Securities Act, and the PairGain Common Stock
must be held indefinitely unless a transfer of the PairGain Common Stock is
subsequently registered under
<PAGE>   94
the Securities Act (such as provided in the Registration Rights Agreement) or
an exemption from such registration is available;

                             (ii)    any share certificates representing the
PairGain Common Stock will bear the following legend:

THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, TRANSFERRED OR
OTHERWISE DISPOSED OF UNLESS (1) A REGISTRATION STATEMENT WITH RESPECT THERETO
IS IN EFFECT UNDER SUCH ACT, (2) SUCH TRANSFER IS PURSUANT TO RULE 144 UNDER
SUCH ACT OR (3) THE HOLDER HEREOF FURNISHES TO PAIRGAIN TECHNOLOGIES, INC. AN
OPINION OF COUNSEL, WHICH COUNSEL AND WHICH OPINION SHALL BE REASONABLY
SATISFACTORY TO PAIRGAIN TECHNOLOGIES, INC. THAT REGISTRATION UNDER SUCH ACT IS
NOT REQUIRED.

                             (iii)   PairGain may notify its transfer agent of,
and cause its transfer agent to refuse to effect transfers of PairGain Common
Stock inconsistent with, the legends and restrictions set forth above.
<PAGE>   95
         This Consent and Agreement may be signed in multiple counterparts,
each of which shall be an original, but all of which taken together shall
constitute one document.  The undersigned stockholders further direct that this
Consent shall be effective as of the first date on which it has been executed
by the requisite number of stockholders and delivered to the Corporation in
accordance with Section 228 of the General Corporation Law of the State of
Delaware.

<TABLE>
<S>                                     <C>                                                <C>
                                                 SHAREHOLDERS                              ADDRESS

                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Paul K. Sun                                                            
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Paul Eaton                                                             
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    David Jenkins                                                          
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Charles McCormack                                                      
                                                                               --------------------------------

                                        POINT VENTURE PARTNERS, L.P.



                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:

                                        POINT VENTURE PARTNERS,
                                        PENNSYLVANIA, L.P.


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Robert Gilbertson                                                      
                                                                               --------------------------------
</TABLE>
<PAGE>   96
<TABLE>
<S>                                     <C>                                    <C>
                                                                                                               
-------------------------------         ------------------------------         -------------------------------
Date                                    Lisa Juliano                                                           
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Harvery Wasserman                                                      
                                                                               --------------------------------


                                        TECOM CO., LTD.


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Michael J. Price                                                       
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Michel David-Weill                                                     
                                                                               --------------------------------


                                        MAINZ HOLDINGS LIMITED



                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Damon Mezzacappa                                                       
                                                                               --------------------------------


                                        WINDSONG PARTNERS, L.P.



                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:
</TABLE>
<PAGE>   97
<TABLE>
<S>                                     <C>                                    <C>
                                         J. IRA HARRIS LIVING TRUST



                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                        FIRSTMARK TELLURIDE GROUP


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                        M. TARGOFF INSURANCE TRUST


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                        AUDREY MACLEAN AND MICHAEL
                                        MCCLAIR, AS TRUSTEES


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:  Audrey MacLean                                                    
                                                                               --------------------------------
                                        Its:  Trustee


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:  Michael McClair                                                   
                                                                               --------------------------------
                                        Its:  Trustee
</TABLE>
<PAGE>   98

<TABLE>
<S>                                     <C>                                    <C>
                                        ROCK VENTURES LLC


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Jeffrey A. Golman                                                      
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    L. Gregory Rice                                                        
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Marcus Agius                                                           
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    William R. Araskog                                                     
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Richard P. Emerson                                                     
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Dennis Friedman                                                        
                                                                               --------------------------------



                                        CINQ PARTNERS


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    David C. Lee                                                           
                                                                               --------------------------------
</TABLE>
<PAGE>   99
<TABLE>
<S>                                     <C>                                    <C>
                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Marc Abramson                                                          
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Dan Lacoff                                                             
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Dr. Sanford Lederman                                                   
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Gil Ha                                                                 
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Scott Hoffman                                                          
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    James S. Kahan                                                         
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Adam P. Parten                                                         
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Melvin Meskin                                                          
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    Cashimir Skrzypczak                                                    
                                                                               --------------------------------


                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    David Lacoff                                                           
                                                                               --------------------------------


                                        LAZARD FRERES & CO. LLC

                                                                                                               
-------------------------------         -------------------------------        --------------------------------
Date                                    By:                                                                    
                                                                               --------------------------------
                                        Its:
</TABLE>