<PAGE>
 
                                                                   EXHIBIT 10.55
                                                                                

                              AMENDED AND RESTATED

                           ARTICLES OF INCORPORATION

                                       OF

                                 SONOMA SYSTEMS
                                        


The undersigned, Gregory Koss and Craig W. Johnson, certify that:

     1.   They are the President and Secretary, respectively, of Sonoma Systems,
a California corporation.

     2.   The Articles of Incorporation of this corporation are amended and
restated to read in full as follows:

                                       "I

     The name of this corporation is Sonoma Systems.

                                       II

     The purpose of this corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
California other than the banking business, the trust company business or the
practice of a profession permitted to be incorporated by the California
Corporations Code.

                                      III

     (A) Classes of Stock.  This corporation is authorized to issue two classes
         ----------------                                                      
of stock to be designated, respectively, "Common Stock" and "Preferred Stock."
                                          ------------       ---------------   
The total number of shares which the corporation is authorized to issue is
44,250,000 shares, of which 25,000,000 shares shall be Common Stock and
19,250,000 shares shall be Preferred Stock, each with a par value of $0.01.

     (B) Reverse Split.  Upon the effective date of filing of these Amended and
         -------------                                                         
Restated Articles of Incorporation, each outstanding share of this corporation's
Common Stock shall be converted and reconstituted into 0.535088633 of a share of
this corporation's Common Stock (the "Common Reverse Split").  Any fractional
                                      --------------------                   
number of shares remaining after applying the Common Reverse Split to each
certificate representing shares of Common Stock then held by any holder shall be
redeemed at a purchase price of $0.15 per full share of Common Stock.  Upon the
effective date of filing of these Amended and Restated Articles of
Incorporation, each outstanding share of this corporation's Preferred Stock
shall be converted and reconstituted into 0.045481421 of a share of this
corporation's Series A Preferred Stock, 0.032540820 of a share of 
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this corporation's Series B Preferred Stock and 0.0675183063 of a share of this
corporation's Series C Preferred Stock (the "Preferred Reverse Split"). Any
                                             -----------------------    
fractional number of shares remaining after applying the Preferred Reverse Split
to each certificate representing shares Preferred Stock then held by any holder
shall be redeemed at a purchase price of $1.4876 per full share of Preferred
Stock. All amounts per share and all per share numbers set forth in these
Amended and Restated Articles of Incorporation have been appropriately adjusted
to reflect the Common Reverse Split and the Preferred Reverse Split.

     (C) Rights, Preferences and Restrictions of Preferred Stock.  The Preferred
         -------------------------------------------------------                
Stock authorized by these Restated Articles of Incorporation may be issued from
time to time in one or more series.  The Board of Directors is authorized to fix
the number of shares of any series of Preferred Stock and to determine the
designation of any such series.  The Board of Directors is also authorized,
except as to matters fixed as to Series A Preferred Stock, Series B Preferred
Stock and Series C Preferred Stock hereinafter stated in this Article III(C), to
determine or alter the rights, preferences, privileges and restrictions granted
to or imposed upon any wholly unissued series of Preferred Stock and to increase
or decrease the number of shares of that series, but not below the number of
shares of such series then outstanding.  The first series of Preferred Stock
shall be designated "Series A Preferred Stock" and shall consist of 1,000,000
                     ------------------------                                
shares.  The second series of Preferred Stock shall be designated "Series B
                                                                   --------
Preferred Stock" and shall consist of 715,475 shares.  The third series of
---------------                                                           
Preferred Stock shall be designated "Series C Preferred Stock" and shall consist
                                     ------------------------                   
of 7,534,525 shares.  Subject to the rights, preferences, privileges and
restrictions of any future series of Preferred Stock, the rights, preferences,
privileges, and restrictions granted to and imposed on the Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock are as follows:


          (1)  Dividends.
               --------- 

               (aa) Dividends on Series A Preferred Stock.  The holders of
                    -------------------------------------                 
outstanding Series A Preferred Stock shall receive in each fiscal year after the
Original Issue Date (as defined in Section 3(cc) below), dividends in cash at
the rate of $0.06 per share per annum, out of any assets legally available
therefor, before any cash dividend is paid on Series B Preferred Stock, Series C
Preferred Stock or Common Stock.  Dividends or distributions (other than
dividends payable solely in shares of Common Stock) may be declared and paid
upon shares of Series B Preferred Stock, Series C Preferred Stock and Common
Stock in any fiscal year of the corporation only if dividends shall have been
paid on or declared and set apart upon all shares of Series A Preferred Stock at
such annual rate; and no further dividends shall be paid to holders of shares of
Series A Preferred Stock in excess of such annual rate in any fiscal year.
Dividends on Series A Preferred Stock shall accrue on each share from the
Original Issue Date, and shall accrue from day to day, whether or not earned or
declared, and shall be cumulative so that, if such dividends in respect of any
previous or current annual dividend period, at the annual rate specified above,
shall not have been paid, the deficiency shall first be fully paid before any
dividend or other distribution shall be paid on or declared and set apart for
the Series B Preferred Stock, Series C Preferred Stock or Common Stock.  Any
accumulation of dividends on the Series A Preferred Stock shall not bear
interest.  Cumulative dividends with respect to a share of Series A Preferred
Stock which are accrued, payable and/or in arrears shall be paid to the extent

                                      -2-
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assets are legally available therefor, and any amounts for which assets are not
legally available shall be paid promptly as assets become legally available
therefor; any partial payment will be made pro rata among the holders of such
shares.

          (bb) The holders of outstanding Series B Preferred Stock and Series C
Preferred Stock shall be entitled to receive in any fiscal year, when, if and as
declared by the Board of Directors, out of any assets at the time legally
available therefor, dividends in cash at the rate of $0.12 per share of Series B
Preferred Stock per annum and $0.12 per share of Series C Preferred Stock per
annum, each before any cash dividend is paid on Common Stock.  Such dividend or
distribution may be payable annually or otherwise as the Board of Directors may
from time to time determine.  Dividends or distributions (other than dividends
payable solely in shares of Common Stock) may be declared and paid upon shares
of Common Stock in any fiscal year of the corporation only if dividends shall
have been paid on or declared and set apart upon all shares of Series B
Preferred Stock and Series C Preferred Stock at such annual rates; and no
further dividends shall be paid to holders of shares of Series B Preferred Stock
and Series C Preferred Stock in excess of such annual rates in any fiscal year
unless at the same time equivalent dividends are paid to holders of shares of
Common Stock.  The right to such dividends on shares of Series B Preferred Stock
and Series C Preferred Stock shall not be cumulative and no right shall accrue
to holders of shares of Series B Preferred Stock and Series C Preferred Stock by
reason of the fact that dividends on said shares are not declared in any prior
year, nor shall any undeclared or unpaid dividend bear or accrue interest.

          (cc) In the event this corporation shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by this
corporation or other persons, assets (excluding cash dividends) or options or
rights to purchase any such securities or evidences of indebtedness, then, in
each such case the holders of the Series B Preferred Stock and Series C
Preferred Stock shall be entitled to a proportionate share of any such
distribution as though the holders of the Series B Preferred Stock and Series C
Preferred Stock were the holders of the number of shares of Common Stock of the
corporation into which their respective shares of Series B Preferred Stock and
Series C Preferred Stock are convertible as of the record date fixed for the
determination of the holders of Common Stock of the corporation entitled to
receive such distribution.


     (2)  Voting Rights.
          ------------- 

          (aa) Neither the Series A Preferred Stock nor the Series B Preferred
Stock shall have voting rights with respect to the election of directors or any
other matter to be put before the shareholders of the corporation, except in
those matters for which a vote of either such series is required by law, in
which event each share of Series A Preferred Stock and Series B Preferred Stock
shall have one vote per share.

          (bb) Each holder of shares of Series C Preferred Stock shall be
entitled to the number of votes equal to the number of shares of Common Stock
into which such shares of Series C Preferred Stock could be converted on the
record date for the vote or consent of shareholders and shall have voting rights
and powers equal to the voting rights and powers of the 

                                      -3-
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Common Stock. The holder of each share of Series C Preferred Stock shall be
entitled to notice of any shareholders' meeting in accordance with the Bylaws of
the corporation and shall vote with holders of the Common Stock as a single
class upon any matter submitted to a vote of shareholders, except in those
matters required by law to be submitted to a class vote, and those matters
specified in Section (C)(5) below. Fractional votes by the holders of Series C
Preferred Stock shall not, however, be permitted and any fractional voting
rights resulting from the above formula (after aggregating all shares into which
shares of Series C Preferred Stock held by each holder could be converted) shall
be rounded to the nearest whole number.


          (3) Conversion.  The holders of Series B Preferred Stock and Series C
              ----------                                                       
Preferred Stock shall have conversion rights as follows (the "Conversion
                                                              ----------
Rights"):

               (aa)  Right to Convert.
                     ---------------- 

                     (i) Subject to the adjustments described in this Section
(C)(3), each share of Series B Preferred Stock shall be convertible, at the
option of the holder thereof, at the office of this corporation or any transfer
agent for such stock, into such number of fully paid and nonassessable shares of
Common Stock as is determined by dividing $1.4876 by the Series B Conversion
Price in effect on the date the certificate is surrendered for conversion, at
any time (1) after the earlier of the closing of the corporation's sale of
Common Stock pursuant to a registration statement under the Securities Act of
1933, as amended (the "Securities Act"), pursuant to an underwritten firm
                       ---------------
commitment public offering; provided, however, that the provisions of Section 
                            --------  -------
(C)(3)(aa)(iii) below shall apply in the event of an Initial Public Offering as
defined therein, (2) the corporation becoming subject to the periodic reporting
requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as
amended, or (3) immediately prior to the closing of the corporation's sale of
all or substantially all of its property or business or merger into or
consolidation with any other corporation (other than a wholly-owned subsidiary
corporation) or other transaction or series of related transactions in which
more than 50% of the voting power of the corporation is disposed of (other than
a merger effected exclusively for the purpose of changing the domicile of the
corporation). The initial "Series B Conversion Price" shall be $1.4876 per share
                           -------------------------
of Series B Preferred Stock. Such initial Series B Conversion Price shall be
subject to adjustment as set forth below. The number of shares of Common Stock
into which each share of Series B Preferred Stock may be converted is hereafter
referred to as the "Series B Conversion Rate."
                    ------------------------  

                     (ii) Subject to the adjustments described in this Section
(C)(3), each share of Series C Preferred Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share, at the office of this corporation or any transfer agent for such stock,
into such number of fully paid and nonassessable shares of Common Stock as is
determined by dividing $1.4876 by the Series C Conversion Price in effect on the
date the certificate is surrendered for conversion. The initial "Series C
                                                                 --------
Conversion Price" shall be $1.4876 per share of Series C Preferred Stock.  
----------------
Such initial Series C Conversion Price shall be subject to adjustment as set
forth below. The number of shares of Common Stock into which each share of
Series C Preferred Stock may be converted is hereafter referred to as the
"Series C                 
 --------                 

                                      -4-
<PAGE>
 
Conversion Rate."  The Series B Conversion Rate and Series C Conversion Rate 
----------- 
are sometimes referred to herein as the "Conversion Rate(s)."
                                         -----------------

          (iii)  Each share of Series B Preferred Stock and Series C
Preferred Stock shall automatically be converted into shares of Common Stock at
the then effective Conversion Rate upon the earlier of (1) the closing of the
corporation's sale of Common Stock pursuant to a registration statement under
the Securities Act pursuant to an underwritten firm commitment public offering,
provided that such offering results in $20,000,000 or more in cash proceeds to
the corporation, net of underwriting discounts and commissions, and such shares
are offered at a price to the public of at least $8.00 per share (as adjusted
proportionately for stock splits, stock dividends and reverse stock splits) (an
"Initial Public Offering"), or (2) the date specified by written consent or
 -----------------------                                                   
agreement of the holders of 66-2/3% of the then outstanding shares of Series C
Preferred Stock and a majority of the then outstanding shares of Series B
Preferred Stock, each series voting separately.

          (iv)   No fractional shares of Common Stock shall be issued upon
conversion of the Series B Preferred Stock or Series C Preferred Stock and any
such shares surrendered for conversion which would otherwise result in a
fractional share of Common Stock shall be redeemed for the then fair market
value thereof as determined by the corporation's Board of Directors, payable as
promptly as possible whenever funds are legally available therefor.  If more
than one share of Series B Preferred Stock or Series C Preferred Stock is
surrendered for conversion at any one time by the same holder, the number of
full shares of Common Stock to be issued upon conversion shall be computed on
the basis of the aggregate number of shares of Series B Preferred Stock or
Series C Preferred Stock so surrendered.


     (bb) Mechanics of Conversion.
          ----------------------- 

          (i)  Before any holder of Series B Preferred Stock or Series C
Preferred Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the corporation or of any transfer agent for the
Preferred Stock, and shall give written notice to the corporation at such office
that such holder elects to convert the same and shall state in such notice the
name or names in which such holder wishes the certificate or certificates for
the number of shares of Common Stock to be issued.  The corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such holder
of Series B Preferred Stock or Series C Preferred Stock, or to such holder's
nominee or nominees, a certificate or certificates for the number of shares of
Common Stock to which such holder shall be entitled as aforesaid.  Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred Stock
or Series C Preferred Stock to be converted, and the person or persons entitled
to receive the shares of Common Stock issuable upon such conversion shall be
treated for all purposes as the record holder or holders of such shares of
Common Stock on such date.

          (ii) If the conversion is in connection with an underwritten offering
of securities pursuant to the Securities Act, the conversion may, at the option
of any 

                                      -5-
<PAGE>
 
holder tendering shares of Series B Preferred Stock or Series C Preferred
Stock for conversion, be conditioned upon the closing with the underwriters of
the sale of securities pursuant to such offering, in which event the person(s)
entitled to received the Common Stock upon conversion of the Series B Preferred
Stock or Series C Preferred Stock shall not be deemed to have converted such
Series B Preferred Stock or Series C Preferred Stock until immediately prior to
the closing of such sale of securities.

     (cc) Adjustment of Conversion Rate For Subdivisions or Combinations of
          -----------------------------------------------------------------
Common Stock.  In the event the corporation, at any time or from time to time
------------                                                                 
after the effective date of a written agreement by the corporation for the
initial sale of Series C Preferred Stock (hereinafter referred to as the
"Original Issue Date"), effects a subdivision or combination of its outstanding
--------------------                                                           
Common Stock into a greater or lesser number of shares without a proportionate
and corresponding subdivision or combination of its outstanding Series B
Preferred Stock or Series C Preferred Stock, then and in each such event the
Series B Conversion Rate or Series C Conversion Rate, as applicable, shall be
increased or decreased proportionately.

     (dd) Adjustment of Conversion Rate for Dividends, Distributions and
          --------------------------------------------------------------
Common Stock Equivalents.  In the event the corporation at any time or from time
------------------------                                                        
to time after the Original Issue Date shall make or issue, or fix a record date
for the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights (hereinafter referred to as "Common Stock Equivalents")
                                                  ------------------------  
convertible into or entitling the holder thereof to receive additional shares of
Common Stock without payment of any consideration by such holder for such Common
Stock Equivalents or the additional shares of Common Stock, then and in each
such event the maximum number of shares (as set forth in the instrument relating
thereto without regard to any provisions contained therein for a subsequent
adjustment of such number) of Common Stock issuable in payment of such dividend
or distribution or upon conversion or exercise of such Conversion Stock
Equivalents shall be deemed to be issued and outstanding as of the time of such
issuance or, in the event such a record date shall have been fixed, as of the
close of business on such record date.  In each such event, the Conversion Rate
for the Series B Preferred Stock and Series C Preferred Stock shall be increased
as of the time of such issuance or, in the event such a record date shall have
been fixed, as of the close of business on such record date, by multiplying the
Conversion Rate for each such series by a fraction,

          (i)  the numerator of which shall be the total number of shares of
Common Stock issued and outstanding or deemed to be issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date plus the number of shares of Common Stock issuable in payment of
such dividend or distribution or upon conversion or exercise of such Common
Stock Equivalents and

          (ii) the denominator of which shall be the total number of shares of
Common Stock issued and outstanding or deemed to be issued and outstanding
immediately prior to the time of such issuance or the close of business on such
record date provided, however, (A) if such record date shall have been fixed and
such dividend is not fully paid or if such distribution is not fully made on the
date fixed therefor, the Conversion Rate for 

                                      -6-
<PAGE>
 
each such series shall be recomputed accordingly as of the close of business on
such record date and thereafter the Conversion Rate for each such series shall
be adjusted pursuant to this Section (C)(3)(dd) as of the time of actual payment
of such dividends or distribution; (B) if such Common Stock Equivalents provide,
with the passage of time or otherwise, for any decrease in the number of shares
of Common Stock issuable upon conversion or exercise thereof, the Conversion
Rate for each such series shall, upon any such decrease becoming effective, be
recomputed to reflect such decrease insofar as it affects the rights of
conversion or exercise of the Common Stock Equivalents then outstanding, and (C)
upon the expiration of any rights of conversion or exercise under any
unexercised Common Stock Equivalents, the Conversion Rate for each such series
computed upon the original issue thereof shall, upon such expiration, be
recomputed as if the only additional shares of Common Stock issued were the
shares of such stock, if any, actually issued upon the conversion or exercise of
such Common Stock Equivalents.

          (ee) No Impairment.  The corporation will not, by amendment of its
               -------------                                                
Articles of Incorporation or through any reorganization, recapitalization,
transfer of assets, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section (C)(3) and in the taking of all such action as may be necessary
or appropriate in order to protect the Conversion Rights of the holders of the
Series B Preferred Stock and Series C Preferred Stock against impairment.

          (ff) Certificate as to Adjustments.  Upon the occurrence of each
               -----------------------------                              
adjustment or readjustment of the Conversion Rates pursuant to this Section
(C)(3), the corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and furnish to each
holder of Series B Preferred Stock and Series C Preferred Stock a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based.  The corporation shall,
upon the written request at any time of any holder of Series B Preferred Stock
or Series C Preferred Stock, furnish or cause to be furnished to such holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
applicable Conversion Rate at the time in effect, and (iii) the number of shares
of Common Stock and the amount, if any, of the property which at the time would
be received upon the conversion of such holder's shares of Series B Preferred
Stock or Series C Preferred Stock.

          (gg) Notices of Record Date.  In the event of the establishment by the
               ----------------------                                           
corporation of a record of the holders of any class of securities for the
purpose of determining the holders thereof who are entitled to receive any
dividend (other than a cash dividend) or other distribution, any Common Stock
Equivalents or any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property, or to receive
any other right, the corporation shall mail to each holder of Preferred Stock,
at least 20 days prior to the date specified therein, notice specifying the date
on which any such record is to be taken for the purpose of such dividend,
distribution or right, and the amount and character of such dividend,
distribution or right.

                                      -7-
<PAGE>
 
          (hh) Reservation of Stock Issuable Upon Conversion.  The corporation
               ---------------------------------------------                  
shall at all times reserve and keep available out of its authorized but unissued
shares of Common Stock solely for the purpose of effecting the conversion of the
shares of the Series B Preferred Stock and Series C Preferred Stock such number
of its shares of Common Stock as shall from time to time be sufficient to effect
the conversion of all then outstanding shares of the Series B Preferred Stock
and Series C Preferred Stock; and, if at any time the number of authorized but
unissued shares of Common Stock shall not be sufficient to effect the conversion
of all then outstanding shares of the Series B Preferred Stock and Series C
Preferred Stock, the corporation will take such corporate action as may, in the
opinion of its counsel, be necessary to increase its authorized but unissued
shares of Common Stock to such number of shares as shall be sufficient for such
purpose.

          (ii) Notices.  Any notices required by the provisions of this Section
               -------                                                         
(C)(3) to be given to the holders of shares of Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at such holder's address appearing on the books of the
corporation.

          (jj) Issue Taxes.  The corporation shall pay any and all issue and
               -----------                                                  
other taxes that may be payable in respect of any issue or delivery of shares of
Common Stock on conversion of Series B Preferred Stock or Series C Preferred
Stock pursuant hereto; provided, however, that the corporation shall not be
obligated to pay any transfer taxes resulting from any transfer requested by any
holder in connection with any such conversion.

     (4)  Liquidation Preference.
          ---------------------- 

          (aa) In the event of any liquidation, dissolution or winding up of the
corporation, either voluntary or involuntary, the holders of the Series B
Preferred Stock and Series C Preferred Stock shall be entitled to receive, prior
and in preference to any distribution of any of the assets or surplus funds of
the corporation to the holders of the Series A Preferred Stock or Common Stock
by reason of their ownership thereof, the amount of (i) $1.4876 per share for
each share of Series B Preferred Stock then held by them, and (ii) $1.4876 per
share for each share of Series C Preferred Stock then held by them, and, in
addition, an amount equal to all declared but unpaid dividends on each such
series of Preferred Stock.  If, upon the occurrence of such event, the assets
and funds thus distributed among the holders of the Series B Preferred Stock and
Series C Preferred Stock shall be insufficient to permit the payment to such
holders of the full preferential amount, then the entire assets and funds of the
corporation legally available for distribution shall be distributed ratably
among the holders of the Series B Preferred Stock and Series C Preferred Stock.
After payment has been made to the holders of the Series B Preferred Stock and
Series C Preferred Stock of the full amounts to which they shall be entitled as
aforesaid, any remaining assets shall be distributed ratably to the holders of
the corporation's Series B Preferred Stock and Series C Preferred Stock and
Common Stock on an as-converted basis.

                                      -8-
<PAGE>
 
               (bb) Certain Acquisitions.
                    -------------------- 

                    (i)  Deemed Liquidation.
                         ------------------ 

                         (A) For purposes of this Section (C)(4), a liquidation,
dissolution or winding up of the corporation shall be deemed to occur if the
corporation shall sell, convey, or otherwise dispose of or encumber all or
substantially all of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any other transaction or series of related transactions in which more
than 50% of the voting power of the corporation is disposed of, provided that
                                                                --------  
this Section (C)(4)(bb)(i) shall not apply to a merger effected exclusively for
the purpose of changing the domicile of the corporation.

                         (B) In the event of a deemed liquidation as described
in Section (C)(4)(bb)(i)(A) above in which the aggregate consideration received
by the corporation is less than $8.00 per share on an as-converted basis,
provision shall be made in connection with such transaction and upon the
consummation thereof for the payment of the Series A Redemption Price (as
defined below) on or before December 31, 2002 to the holders of the Series A
Preferred Stock by the corporation or its successors or assigns.

                         (C) In the event of a deemed liquidation as described
in Section 4(bb)(i)(A) above in which the aggregate consideration received by
the corporation is equal to or greater than $8.00 per share on an as-converted
basis, the holders of Series A Preferred Stock shall be entitled to receive,
prior and in preference to any distribution of any of the assets or surplus
funds of the corporation to the holders of the Common Stock by reason of their
ownership thereof, but pari passu with any distribution to the holders of the
Series B Preferred Stock and Series C Preferred Stock, the amount of $1.00 per
share of each share of Series A Preferred Stock then held by them, plus an
amount equal to all declared but unpaid dividends on the Series A Preferred
Stock.

                    (ii) Valuation of Consideration.  In the event of a deemed
                         --------------------------
liquidation as described in Section (C)(4)(bb)(i) above, if the consideration
received by the corporation is other than cash or securities, its value will be
deemed its fair market value as determined in good faith by the Board of
Directors of the corporation. Any securities shall be valued as follows:

                         (A) Securities not subject to investment letter or
other similar restrictions on free marketability:

                             (1) If traded on a securities exchange or the
Nasdaq National Market, the value shall be deemed to be the average of the
closing prices of the securities on such exchange over the thirty-day period
ending three days prior to the closing;

                                      -9-
<PAGE>
 
                             (2) If actively traded over-the-counter, the value
shall be deemed to be the average of the closing bid or sale prices (whichever
is applicable) over the thirty-day period ending three days prior to the
closing; and

                             (3) If there is no active public market, the value
shall be the fair market value thereof, as mutually determined by the
corporation and the holders of at least a majority of the voting power of all
then outstanding shares of Series C Preferred Stock.

                         (B) The method of valuation of securities subject to
investment letter or other restrictions on free marketability (other than
restrictions arising solely by virtue of a shareholder's status as an affiliate
or former affiliate) shall be to make an appropriate discount from the market
value determined as above in Section (C)(4)(bb)(ii)(A) to reflect the
approximate fair market value thereof, as mutually determined by the corporation
and the holders of at least a majority of the voting power of all then
outstanding shares of Series C Preferred Stock.

                   (iii) Notice of Transaction.  The corporation shall give each
                         ---------------------                                  
holder of record of Series B Preferred Stock and Series C Preferred Stock
written notice of such impending transaction not later than 10 days prior to the
shareholders' meeting called to approve such transaction, or 10 days prior to
the closing of such transaction, whichever is earlier, and shall also notify
such holders in writing of the final approval of such transaction.  The first of
such notices shall describe the material terms and conditions of the impending
transaction and the provisions of this Section (C)(4), and the corporation shall
thereafter give such holders prompt notice of any material changes.  The
transaction shall in no event take place sooner than 10 days after the
corporation has given the first notice provided for herein or sooner than 10
days after the corporation has given notice of any material changes provided for
herein; provided, however, that such periods may be shortened upon the written
consent of the holders of Series C Preferred Stock that are entitled to such
notice rights or similar notice rights and that represent at least a majority of
the voting power of all then outstanding shares of such Series C Preferred
Stock.

                   (iv) Effect of Noncompliance.  In the event the requirements
                        ----------------------- 
of this Section (C)(4)(bb) are not complied with, the corporation shall
forthwith either cause the closing of the transaction to be postponed until such
requirements have been complied with, or cancel such transaction, in which event
the rights, preferences and privileges of the holders of Series B Preferred
Stock and Series C Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the date of the
first notice referred to in Section (C)(4)(bb)(iii) hereof.


              (5)  Protective Provisions.
                   --------------------- 

                   (aa) In addition to any other rights provided by law, so long
as any Series C Preferred Stock shall be outstanding, this corporation shall
not, without first obtaining 

                                      -10-
<PAGE>
 
the affirmative vote or written consent of the holders of not less than 66-2/3%
in voting interest of such outstanding shares of Series C Preferred Stock,
voting together as a single class:

          (i)    effect (x) any merger (other than a merger with or into a
wholly-owned subsidiary of the corporation), (y) a sale of all or substantially
all of the assets of the corporation (other than to a wholly-owned subsidiary of
the corporation) or (z) any transaction or series of related transactions (other
than a public offering of the corporation's securities) in which the corporation
will have issued shares representing more than 50% of the voting power of the
corporation after giving effect to such transaction or transactions;

          (ii)   amend or repeal any provision of, or add any provision to, this
corporation's Bylaws if such action would alter or change the rights,
preferences or privileges of, or restrictions provided for the benefit of, the
Series C Preferred Stock in a way that is adverse to the holders of the Series C
Preferred Stock;

          (iii)  amend or repeal any provision of, or add any provision
to, this corporation's Articles of Incorporation, including without limitation,
any of the rights, preferences, privileges or restrictions relating to the
Series A Preferred Stock, Series B Preferred Stock or Series C Preferred Stock;

          (iv)   increase the authorized number of shares of Common
Stock or Preferred Stock or of any series of Preferred Stock;

          (v)    authorize or issue shares of any class of stock having any
preference or priority superior to or on a parity with any preference or
priority of the Series C Preferred Stock, or authorize or issue shares of stock
of any class or any bonds, debentures, notes or other obligations convertible
into or exchangeable for, or having option rights to purchase, any shares of
stock of this corporation having any preference or priority superior to or on a
parity with any preference or priority of the Series C Preferred Stock;

          (vi)   do any act or thing that would result in taxation of the
holders of Series C Preferred Stock under Section 305 of the Internal Revenue
Code of 1986;

          (vii)  declare or pay any dividend;

          (viii) voluntarily dissolve, liquidate or wind up or carry out
any partial liquidation or distribution or transaction in the nature of a
partial liquidation or distribution; or

          (ix)   effect a repurchase of shares of Common Stock except a
repurchase at the original purchase price for such shares pursuant to Section
(C)(9) below, or except a repurchase that shall have been unanimously approved
by the Board of Directors.

                                      -11-
<PAGE>
 
          (6)  Redemption.
               ---------- 

               (aa) The Series C Preferred Stock shall not be redeemable.

               (bb) The corporation shall redeem Series A Preferred Stock, from
any source of funds legally available therefor, on the earlier of (i) the
closing of the corporation's sale of Common Stock pursuant to an Initial Public
Offering, (ii) December 31, 2002 or (iii) at any time at the option of the Board
of Directors (each, a "Series A Redemption Date"). The corporation shall effect
                       ------------------------                                 
such redemption on the applicable Redemption Date by paying in cash in exchange
for the shares of Series A Preferred Stock to be redeemed a sum equal to $1.00
per share of Series A Preferred Stock (as adjusted for any stock dividends,
combinations or splits with respect to such shares) plus all declared or
accumulated but unpaid dividends on such shares (the "Series A Redemption
                                                      -------------------
Price").  Any redemption effected pursuant to this Section (C)(6)(bb) shall be
-----
made on a pro rata basis among the holders of Series A Preferred Stock in
proportion to the number of shares of Series A Preferred Stock then held by such
holders.

               (cc) The corporation may redeem Series B Preferred Stock, from
any source of funds legally available therefor, as provided in this Section
(C)(6)(cc). The corporation may effect such redemption at any time after a vote
of the shareholders of the corporation has been taken with respect to a proposed
amendment to the corporation's Articles of Incorporation as to which the holders
of the Series B Preferred Stock are entitled to a series vote under applicable
law (a "Series Amendment"), and (1) at least 66-2/3% of the then outstanding
        ----------------                                                    
Series C Preferred Stock have voted in favor of the Series Amendment, (2) the
Series Amendment is not approved by the holders of the Series B Preferred Stock,
and (3) the Series Amendment has the same effect on the Series B Preferred Stock
and the Series C Preferred Stock.  The date of any such redemption of the Series
B Preferred Stock shall be referred to herein as the "Series B Redemption Date,"
                                                      ------------------------  
and together with the Series A Redemption Date, the "Redemption Date(s)."  The
                                                     ------------------       
corporation shall effect such redemption on the Series B Redemption Date by
paying in cash in exchange for the shares of Series B Preferred Stock to be
redeemed a sum equal to $1.4876 per share of Series B Preferred Stock (as
adjusted for any stock dividends, combinations or splits with respect to such
shares) plus all declared but unpaid dividends on such shares (the " Series B
                                                                     --------
Redemption Price," and together with the Series A Redemption Price, the
-----------------                                                      
"Redemption Price(s).").  Any redemption effected pursuant to this Section
--------------------                                                      
(C)(6)(cc) shall be made on a pro rata basis among the holders of Series B
Preferred Stock in proportion to the number of shares of Series B Preferred
Stock then held by such holders.

                (dd) At least 15 but no more than 30 days prior to the Series A
Redemption Date or Series B Redemption Date, written notice shall be mailed,
first class postage prepaid, to each holder of record (at the close of business
on the business day next preceding the day on which notice is given) of the
Preferred Stock to be redeemed, at the address last shown on the records of the
corporation for such holder, notifying such holder of the redemption to be
effected, specifying the number of shares to be redeemed from such holder, the
Redemption Date, the Redemption Price, the place at which payment may be
obtained and calling upon such holder to surrender to the corporation, in the
manner and at the place designated, his, her or its certificate or certificates
representing the shares to be redeemed (the "Redemption Notice").  
                                             -----------------              

                                      -12-
<PAGE>
 
Except as provided in Section (C)(6)(ee) below on or after any Redemption Date,
each holder of Series A Preferred Stock or Series B Preferred Stock, as
applicable, to be redeemed shall surrender to the corporation the certificate or
certificates representing such shares, in the manner and at the place designated
in the Redemption Notice, and thereupon the Redemption Price of such shares
shall be payable to the order of the person whose name appears on such
certificate or certificates as the owner thereof and each surrendered
certificate shall be canceled. In the event less than all the shares represented
by any such certificate are redeemed, a new certificate shall be issued
representing the unredeemed shares.

          (ee) From and after the Series A Redemption Date or Series B
Redemption Date, unless there shall have been a default in payment of the Series
A Redemption Price or Series B Redemption Price, respectively, all rights of the
holders of shares of Series A Preferred Stock or Series B Preferred Stock
designated for redemption in the Redemption Notice as holders of Series A
Preferred Stock or Series B Preferred Stock (except the right to receive the
Redemption Price upon surrender of their certificate or certificates) shall
cease with respect to such shares, and such shares shall not thereafter be
transferred on the books of the corporation or be deemed to be outstanding for
any purpose whatsoever.  Subject to the rights of series of Preferred Stock
which may from time to time come into existence, if the funds of the corporation
legally available for redemption of shares of Series A Preferred Stock or Series
B Preferred Stock on any Redemption Date are insufficient to redeem the total
number of shares of Series A Preferred Stock or Series B Preferred Stock to be
redeemed on such date, those funds which are legally available will be used to
redeem the maximum possible number of such shares ratably among the holders of
such shares to be redeemed based upon their holdings of Series A Preferred Stock
or Series B Preferred Stock.  The shares of Series A Preferred Stock or Series B
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein.  Subject to the rights of series of
Preferred Stock which may from time to time come into existence, at any time
thereafter when additional funds of the corporation are legally available for
the redemption of shares of Series A Preferred Stock or Series B Preferred
Stock, such funds will immediately be used to redeem the balance of the shares
which the corporation has become obliged to redeem on any Redemption Date but
which it has not redeemed.

          (7) No Reissuance of Preferred Stock.  No share or shares of Preferred
              --------------------------------                                  
Stock acquired by the corporation by reason of purchase, conversion or otherwise
shall be reissued, and all such shares shall be canceled, retired and eliminated
from the shares that the corporation shall be authorized to issue.  The
corporation may from time to time take such appropriate corporate action as may
be necessary to reduce the authorized number of shares of Preferred Stock
accordingly.

          (8) Residual Rights.  All rights accruing to the outstanding shares of
              ---------------                                                   
this corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.

          (9) Consent for Certain Repurchases of Common Stock Deemed to be
              ------------------------------------------------------------
Distributions.  Each holder of Preferred Stock shall be deemed to have
-------------                                                         
consented, for purposes of Sections 502, 503 and 506 of the California
Corporations Code, to distributions made by the 

                                      -13-
<PAGE>
 
corporation in connection with the repurchase of shares of Common Stock issued
to or held by employees or consultants upon termination of their employment or
services pursuant to agreements providing for such right of repurchase between
the corporation and such persons which have been approved by the Board of
Directors of the corporation.

     (D)  Common Stock.
          ------------ 

          (1) Dividend Rights.  Subject to the prior rights of holders of all
              ---------------                                                
classes of stock at the time outstanding having prior rights as to dividends,
the holders of the Common Stock shall be entitled to receive, when, if and as
declared by the Board of Directors of the corporation, out of any assets of the
corporation legally available therefor, such dividends as may be declared from
time to time by the Board of Directors.

          (2) Liquidation Rights.  Upon the liquidation, dissolution or winding
              ------------------                                               
up of the corporation, the assets of the corporation shall be distributed as
provided in Section III(C)(4) hereof.

          (3) Voting Rights.  The holder of each share of Common Stock shall
              -------------                                                 
have the right to one vote, and shall be entitled to notice of any shareholders'
meeting in accordance with Section III(C)(2)(bb) and the Bylaws of this
corporation, and shall be entitled to vote upon such matters and in such manner
as may be provided by law.

          (4) Protective Provision.  In addition to any other rights provided by
              --------------------                                              
law, so long as any shares of Common Stock shall be outstanding, this
corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority in voting interest of such
outstanding shares of Common Stock, voting separately as a class, amend or
repeal Section III(D)(3) of these Articles of Incorporation.


                                       IV


     (A) Limitation on Directors' Liability.  The liability of the directors of
         ----------------------------------                                    
the corporation for monetary damages shall be eliminated to the fullest extent
permissible under California law.

     (B) Indemnification of Corporate Agents.  The corporation is authorized to
         -----------------------------------                                   
provide indemnification of agents (as defined in Section 317 of the California
Corporations Code) through bylaw provisions, agreements with agents, vote of
shareholders or disinterested directors or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the California
Corporations Code, subject only to the applicable limits set forth in Section
204 of the California Corporations Code with respect to actions for breach of
duty to the corporation and its shareholders.

     (C) Repeal or Modification.  Any repeal or modification of the foregoing
         ----------------------                                              
provisions of this Article IV by the shareholders of the corporation shall not
adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification."

                                      -14-
<PAGE>
 
                                 *     *     *

    3.  The foregoing amendment has been approved by the Board of Directors of
this corporation.

    4.  The foregoing amendment was approved by the holders of the requisite
number of shares of this corporation in accordance with Sections 902 and 903 of
the California General Corporation Law. The total number of outstanding shares
entitled to vote with respect to the foregoing amendment was 22,719 shares of
Common Stock and 21,987,000 shares of Preferred Stock. The number of shares
voting in favor of the foregoing amendment equaled or exceeded the vote
required. The percentage vote required was a majority of the outstanding shares
of Common Stock and a majority of the outstanding shares of Preferred Stock,
voting separately.


                            (Signature Page Follows)

                                      -15-
<PAGE>
 
          The undersigned certify under penalty of perjury under the laws of the
State of California that the matters set forth herein are true and correct of
our own knowledge.

     Executed at Marina Del Rey, California, on January 7, 1998.



 
                                    ---------------------------
                                    Gregory Koss, President


                                    ---------------------------
                                    Craig W. Johnson, Secretary

                                      -16-
<PAGE>
 
                                 SONOMA SYSTEMS
                                        
                  SERIES C PREFERRED STOCK PURCHASE AGREEMENT
                  -------------------------------------------

     This Series C Preferred Stock Purchase Agreement (the "Agreement") is made
                                                            ---------          
as January 15, 1998 by and between Sonoma Systems, a California corporation (the
"Company"), the investors listed on Exhibit A attached hereto (each a
 -------                            ---------                        
"Purchaser" and together the "Purchasers"), and with respect to Section 2 and
 ---------                    ----------                                     
Section 6, by Retix, a California corporation ("Retix").
                                                -----   

     The parties hereby agree as follows:

     1.  PURCHASE AND SALE OF PREFERRED STOCK.
         ------------------------------------

          1.1  SALE AND ISSUANCE OF SERIES C PREFERRED STOCK.
               ---------------------------------------------

          (a) The Company shall adopt and file with the Secretary of State of
the State of California on or before the Initial Closing (as defined below) the
Amended and Restated Articles of Incorporation in the form attached hereto as
Exhibit B (the "Restated Articles").
---------       -----------------   

          (b) Subject to the terms and conditions of this Agreement, each
Purchaser severally agrees to purchase at the Closing and the Company agrees to
sell and issue to each Purchaser at the Closing that number of shares of Series
C Preferred Stock set forth opposite each such Purchaser's name on Exhibit A
                                                                   ---------
attached hereto at a purchase price of $1.4876 per share.  The shares of Series
C Preferred Stock issued to the Purchasers pursuant to this Agreement shall be
hereinafter referred to as the "Stock."
                                -----  


          1.2  CLOSING; DELIVERY.
               -----------------

               (a) The initial closing of the purchase and sale of the Stock
shall take place at the offices of Venture Law Group, A Professional
Corporation, 2800 Sand Hill Road, Menlo Park, California, on January 15, 1998
(the "Initial Closing") or at such other time and place as the Company and the 
      ------- -------   
Purchasers mutually agree upon, orally or in writing (the date of the Initial 
hereinafter referred to as the "Initial Closing Date").  The subsequent
                                --------------------                   
Closing is closing(s) of the purchase and sale of the Stock (the "Subsequent 
                                                                  ----------
Closing(s)") shall take place at a date and time agreed upon by the Company and
----------
the Purchasers participating in the respective Subsequent Closing (the date(s)
of the Subsequent Closing(s) is hereinafter referred to as the "Subsequent 
                                                                -----------
Closing Date(s)"), which shall occur in any event no later than February 28, 
--------------                                                               
1998). In the event that Newbury Ventures does not purchase the entire 504,157
shares of Stock available for issuance at a Subsequent Closing(s), then
Crosspoint Venture Partners 1997, VantagePoint Associates, L.L.C. and Lazard
Freres & Co. L.L.C. each agree, severally and not jointly, to purchase 33-1/3%
of such remaining shares of Stock in a Subsequent Closing on or before February
28, 1998.

          For purposes of this Agreement, the terms "Closing" and "Closing
                                                     -------       -------
Date," unless otherwise indicated, refer to the applicable closing and closing
----
date of the Initial Closing or the Subsequent Closing(s), as the case may be.

                                      -17-
<PAGE>
 
          (b) At each Closing, the Company shall deliver to each Purchaser a
certificate representing the Stock being purchased thereby against payment of
the purchase price therefor by check payable to the Company or by wire transfer
to the Company's bank account.

     2.  REPRESENTATIONS AND WARRANTIES OF THE COMPANY.  The Company and Retix 
         ---------------------------------------------
hereby jointly and severally represent and warrant to each Purchaser that,
except as set forth on a Schedule of Exceptions attached hereto as Exhibit C and
                                                                   ---------
subject to the limitations on liability with respect to Retix provided in
Section 6.18 of this Agreement:

          2.1  ORGANIZATION, GOOD STANDING AND QUALIFICATION.  The Company is a 
               ---------------------------------------------
corporation duly organized, validly existing and in good standing under the laws
of the State of California and has all requisite corporate power and authority
to carry on its business. Retix Europe, Ltd. and Sonoma Systems Europe, Ltd.
(together, the "European Subsidiaries") are duly organized, validly existing 
                ---------------------           
and in good standing under the laws of England and Wales and have all requisite
corporate power and authority to carry on their respective businesses. The
Company and each European Subsidiary are duly qualified to transact business and
are in good standing in each jurisdiction in which the failure so to qualify
would have a material adverse effect on each entity's respective business or
properties.

          2.2  CAPITALIZATION.  The authorized capital of the Company consists, 
               --------------
or will consist, immediately prior to the Initial Closing, of:

               (a) 19,250,000 shares of Preferred Stock, 1,000,000 shares of
which have been designated Series A Preferred Stock, all of which will be issued
and outstanding immediately prior to the Closing, 715,475 shares of which have
been designated Series B Preferred Stock, all of which will be issued and
outstanding immediately prior to the Closing, and 7,534,525 shares of which have
been designated Series C Preferred Stock, 1,484,525 of which will be issued and
outstanding immediately prior to the Closing. The rights, privileges and
preferences of the Preferred Stock are as stated in the Restated Articles. All
of the outstanding shares of Preferred Stock have been duly authorized, fully
paid and nonassessable and issued in compliance with all applicable federal and
state securities laws.

          (b) 25,000,000 shares of Common Stock, 12,154 shares of which will be
issued and outstanding immediately prior to the Closing.  All of  the
outstanding shares of Common Stock have been duly authorized, fully paid and are
nonassessable and issued in compliance with all applicable federal and state
securities laws.

          (c) The Company has reserved 2,750,000 shares of Common Stock for
issuance to officers, directors, employees and consultants of the Company
pursuant to its 1996 Stock Option Plan duly adopted by the Board of Directors
and approved by the Company shareholders (the "Stock Plan").  Of such reserved
                                               ----------                     
shares of Common Stock, 9,719 shares have been issued upon exercise of options
previously granted, options to purchase 1,705,000 shares have been granted and
are currently outstanding, and 1,045,000 shares of Common Stock remain available
for issuance to officers, directors, employees and consultants pursuant to the
Stock Plan.

                                      -18-
<PAGE>
 
               (d) Except for outstanding options issued pursuant to the Stock
Plan, there are no outstanding options, warrants, rights (including conversion
or preemptive rights and rights of first refusal or similar rights) or
agreements, orally or in writing, for the purchase or acquisition from the
Company, either directly or indirectly, of any shares of its capital stock.

          2.3  SUBSIDIARIES.  The Company does not currently own or control, 
               ------------
directly or indirectly, any interest in any other corporation, association, or
other business entity. Retix currently owns 100% of the outstanding capital
Stock of Retix Europe, Ltd. ("Retix Europe").  Retix Europe currently owns 
                              -------------
100% of the outstanding capital stock of Sonoma Systems Europe, Ltd. As soon as
reasonably practical after the Closing, Retix shall transfer to the Company all
of the capital stock of the European Subsidiaries, whereby the Company shall own
100% of the outstanding capital stock of the European Subsidiaries.

          2.4  AUTHORIZATION.  All corporate action on the part of the Company, 
               -------------
its officers, directors and shareholders necessary for the authorization,
execution and delivery of this Agreement, the Amended and Restated Rights
Agreement, in the form attached hereto as Exhibit D (the "Rights Agreement") and
                                          ---------       ----------------
together with this Agreement, the "Agreements"), the performance of all
                                   ----------
obligations of the Company hereunder and thereunder and the authorization,
issuance (or reservation for issuance), sale, and delivery of the Stock and the
Common Stock issuable upon conversion of the Stock (together, the "Securities")
                                                                   ----------
have been taken or will be taken prior to the Closing, and the Agreements, when
executed and delivered by the Company, shall constitute valid and legally
binding obligations of the Company, enforceable against the Company in
accordance with their terms except (i) as limited by applicable bankruptcy,
insolvency, reorganization, moratorium, fraudulent conveyance, and other laws of
general application affecting enforcement of creditors' rights generally, as
limited by laws relating to the availability of specific performance, injunctive
relief, or other equitable remedies, or (ii) to the extent the indemnification
provisions contained in the Rights Agreement may be limited by applicable
federal or state securities laws.

          2.5  VALID ISSUANCE OF SECURITIES. The Stock that is being issued to
               ----------------------------
the Purchasers hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, and all of the outstanding
capital stock of the European Subsidiaries as of the Closing, will be duly and
validly issued, fully paid and nonassessable and free of restrictions on
transfer other than restrictions on transfer under this Agreement, the Rights
Agreement and applicable state and federal securities laws. Based in part upon
the representations of the Purchasers in this Agreement and subject to the
provisions of Section 2.6 below, the Stock will be issued in compliance with all
applicable federal and state securities laws. The Common Stock issuable upon
conversion of the Stock has been duly and validly reserved for issuance, and
upon issuance in accordance with the terms of the Restated Articles, shall be
duly and validly issued, fully paid and nonassessable and free of restrictions
on transfer other than restrictions on transfer under this Agreement, the Rights
Agreement and applicable federal and state securities laws and will be issued in
compliance with all applicable federal and state securities laws.

          2.6  GOVERNMENTAL CONSENTS.  No consent, approval, order or 
               ---------------------
authorization of, or registration, qualification, designation, declaration or
filing with, any federal, state or local

                                      -19-
<PAGE>
 
governmental authority on the part of the Company is required in
connection with the consummation of the transactions contemplated by this
Agreement, except for filings pursuant to Section 25102(f) of the California
Corporate Securities Law of 1968, as amended, and the rules thereunder, other
applicable state securities laws and Regulation D of the Securities Act of 1933,
as amended (the "Securities Act").
                 --------------   

          2.7  LITIGATION.  There is no action, suit, proceeding or 
               ----------
investigation pending or, to the Company's knowledge, currently threatened
against the Company, Retix or either European Subsidiary, or with respect to the
Company's officers or directors, that questions the validity of the Agreements
or the right of the Company to enter into them, or to consummate the
transactions contemplated hereby or thereby, or that is reasonably likely to
result, either individually or in the aggregate, in any material adverse changes
in the assets, business, operations, condition or affairs of the Company or
either European Subsidiary or in any of their respective properties or assets,
financially or otherwise, or any change in the current equity ownership of the
Company or either European Subsidiary, nor is the Company aware that there is
any basis for the foregoing. Neither the Company, Retix or either European
Subsidiary nor, to the Company's knowledge, any of their respective officers or
directors, is a party or subject to, nor are any of the Company's nor either
European Subsidiary's respective assets or properties subject to, the provisions
of any order, writ, injunction, judgment or decree of any court or government
agency or instrumentality relating to the Company or either European
Subsidiary's assets. There is no action, suit, proceeding or investigation by
the Company, Retix or any of the Company's officers or directors relating to the
Company or its assets or any material impairment of the right or ability of the
Company or either European Subsidiary to carry on their respective business as
now conducted or as proposed to be conducted, or any material liability on the
part of the Company or either European Subsidiary, currently pending or which
the Company or either European Subsidiary or, to the knowledge of the Company,
any of their respective officers or directors, intend to initiate.

          2.8  INTELLECTUAL PROPERTY.  The Company owns or possesses 
               ---------------------
sufficient legal rights to all patents, patent applications, trademarks, service
marks, tradenames, copyrights, trade secrets, licenses, information and
proprietary rights and processes necessary for its business without any conflict
with, or infringement of, the rights of others. The Schedule of Exceptions
hereto contains a list or description of the registered trademarks, service
marks, tradenames, patents, patent applications and copyrights of the Company
and each European Subsidiary. There are no outstanding options, licenses or
agreements of any kind relating to the foregoing proprietary rights, other than
end-user licenses or agreements entered into in the ordinary course of business,
nor is the Company bound by or a party to any options, licenses or agreements of
any kind with respect to the patents, trademarks, service marks, trade names,
copyrights, trade secrets, licenses, information, proprietary rights or
processes of any other person or entity, other than end user licenses entered
into in the ordinary course of business. The Company is not aware of any third
party that is infringing or violating any of its patents, licenses, trademarks,
service marks, trade names, inventions, processes, formulae, trade secrets,
franchises, copyrights or other proprietary rights. Neither the Company nor
either European Subsidiary has received any communications alleging that the
Company has violated or, by conducting its business, would violate any of the
patents, trademarks, service marks, tradenames, copyrights, trade secrets or

                                      -20-
<PAGE>
 
other proprietary rights or processes of any other person or entity. The Company
is not aware that any of its employees or employees of either European
Subsidiary is obligated under or in violation of any contract (including
licenses, covenants or commitments of any nature) or other agreement, or subject
to any judgment, decree or order of any court or administrative agency, that
would interfere with the use of such employee's best efforts to promote the
interest of the Company or that would conflict with the Company's business.
Neither the execution or delivery of this Agreement, nor the carrying on of the
Company's business by the employees of the Company or employees of either
European Subsidiary, nor the conduct of the Company's business as proposed,
will, to the Company's knowledge, conflict with or result in a breach of the
terms, conditions, or provisions of, or constitute a default under, any
contract, covenant or instrument under which any such employee is now obligated.
The Company does not believe it is or will be necessary to use any inventions of
any of its employees or employees of either European Subsidiary (or persons it
currently intends to hire) made prior to their employment by the Company or
either European Subsidiary.

          2.9  COMPLIANCE WITH OTHER INSTRUMENTS.
               ---------------------------------

               (a) Neither European Subsidiary is in violation of any provisions
of their respective Memoranda and Articles of Association. The Company is not in
violation or default of any provisions of its Restated Articles or Bylaws nor is
the Company nor either European Subsidiary in violation or default of any
instrument, judgment, order, writ, decree or contract to which they are a party
or by which they are bound or, to the Company's knowledge, of any provision of
federal or state statute, rule or regulation applicable to them. The execution,
delivery and performance of the Agreements and the consummation of the
transactions contemplated hereby or thereby will not result in any such
violation or be in conflict with or constitute, with or without the passage of
time and giving of notice, either a default under any such provision,
instrument, judgment, order, writ, decree or contract or an event which results
in the creation of any lien, charge or encumbrance upon any assets of the
Company or either European Subsidiary.

               (b) To the Company's knowledge, the Company and each European
Subsidiary has avoided every condition, and has not performed any act, the
occurrence of which would result in the loss of any right granted under any
license, distribution agreement or other agreement.

               (c) Neither the Company nor either European Subsidiary is a party
to or bound by any judgment, order, writ or decree which materially affects, or,
so far as the Company may now reasonably foresee in the future, is reasonably
likely to adversely affect their respective business, their respective
properties or financial condition.

         2.10  AGREEMENTS; ACTION.
               ------------------

               (a) There are no agreements, understandings or proposed
transactions between the Company and any of its officers, directors, affiliates,
or any affiliate thereof. There are no agreements, understandings or proposed
transactions between either European Subsidiary and any of its respective
officers, directors, affiliates or any affiliate thereof.

                                      -21-
<PAGE>
 
          (b) Except for agreements explicitly contemplated by the Agreements,
there are no agreements, understandings,  instruments, contracts, commitments or
proposed transactions to which the Company or any of European Subsidiaries is a
party or by which it is bound that involve (i) obligations (contingent or
otherwise) of, or payments to, the Company or any of the European Subsidiaries
in excess of, $25,000, (ii) the license of any patent, copyright, trade secret
or other proprietary right to or from the Company or any of the European
Subsidiaries, other than end-user licenses granted in the ordinary course of
business, or (iii) the grant of rights to manufacture, produce, assemble,
license, market, or sell its products to any other person or affect the
Company's exclusive right to develop, manufacture, assemble, distribute, market
or sell its products (collectively, "Contracts").  All such Contracts are valid,
                                     ---------                                  
binding and in full force and effect in all material respects, without any
material breach by any party thereto.

          (c) Neither the Company nor either European Subsidiary has (i)
declared or paid any dividends, or authorized or made any distribution upon or
with respect to any class or series of their respective capital stock, (ii)
neither the Company nor either European Subsidiary has any indebtedness for
borrowed money, or other liabilities (fixed or contingent), which they have
directly or indirectly created, incurred, assumed, or guaranteed, or with
respect to which the Company or either European Subsidiary has otherwise become
directly or indirectly liable other than trade payables and leases entered into
in the ordinary course of business, (iii) made any loans or advances to any
person, other than ordinary advances for travel expenses, or (iv) sold,
exchanged or otherwise disposed of any of their respective assets or rights,
other than the sale of its inventory in the ordinary course of business.

          (d) Neither the Company nor either European Subsidiary is a party to
or is bound by any contract, agreement or instrument, or subject to any
restriction under its Restated Articles or Bylaws or Memorandum and Articles of
Association, as applicable, that adversely affects or, so far as the Company may
now reasonably foresee in the future, is reasonably likely to adversely affect
their respective business, assets, properties or financial condition.

          (e) Neither the Company nor either European Subsidiary has any
liability or obligation in connection with any Contract which has been
terminated by the Company or either European Subsidiary within the last three
years or for which notice of termination has been delivered by the Company or
other European Subsidiary.

    2.11  DISCLOSURE. The Company has fully provided the Purchasers with 
          ----------
all the information that the Purchasers have requested for deciding whether to
acquire the Stock and all information that the Company believes is reasonably
necessary to enable the Purchasers to make such a decision, including certain of
the Company's projections describing its business (collectively, the "Business
                                                                      --------
Plan"). No representation or warranty of the Company contained in this 
----
Agreement and the exhibits attached hereto, any certificate furnished or to be
furnished to Purchasers at the Closing, or the Business Plan (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.
The Business Plan and the financial and other projections contained in the

                                      -22-
<PAGE>
 
Business Plan were prepared in good faith and management of the Company
reasonably believes that the projections are attainable; however, neither the
Company nor Retix warrants that the Company will achieve such projections.

          2.12  NO CONFLICT OF INTEREST.  Neither the Company nor either 
                -----------------------
European Subsidiary is indebted, directly or indirectly, to, nor is the Company
or either European Subsidiary a party to any transaction or arrangement with
Retix, any of the officers or directors of the Company or to their respective
spouses or children, in any amount whatsoever other than in connection with
expenses or advances of expenses incurred in the ordinary course of business or
relocation expenses of employees. None of Retix's or the Company's or the
European Subsidiary's officers or directors, or any members of their immediate
families, are, directly or, to the Company's knowledge, indirectly, indebted to
the Company or either European Subsidiary (other than in connection with
purchases of the Company's or the European Subsidiary's stock) or, to the
Company's knowledge, have any direct or indirect ownership interest in any firm
or corporation with which the Company is affiliated or with which the Company
has a business relationship, or any firm or corporation which competes with the
Company except that officers, directors and/or shareholders of the Company may
own stock in (but not exceeding one percent of the outstanding capital stock of)
any publicly traded company that may compete with the Company. To the Company's
knowledge, none of the Company's or either European Subsidiary's officers or
directors or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company or either
European Subsidiary. Neither the Company nor either European Subsidiary is a
guarantor or indemnitor of any indebtedness of any other person, firm or
corporation.

          2.13  RIGHTS OF REGISTRATION AND VOTING RIGHTS.  Except as 
                ----------------------------------------
contemplated in the Rights Agreement, the Company has not granted or agreed to
grant any registration rights, including piggyback rights, to any person or
entity. To the Company's knowledge, except as contemplated in the Rights
Agreement, no shareholder of the Company has entered into any agreements with
respect to the voting of capital shares of the Company.

          2.14  TITLE TO PROPERTY AND ASSETS.  The Company and each European 
                ----------------------------
Subsidiary owns their respective property and assets free and clear of all
mortgages, liens, loans and encumbrances, except such encumbrances and liens
which arise in the ordinary course of business and do not materially impair the
Company's nor either European Subsidiary's ownership or use of such property or
assets. With respect to the property and assets each leases, the Company and
each European Subsidiary is in compliance with such leases and holds a valid
leasehold interest free of any liens, claims or encumbrances. All of such
property and assets are in good and operative condition, reasonable wear and
tear excepted.

          2.15  FINANCIAL STATEMENTS.  The Company has delivered to each 
                --------------------
Purchaser its unaudited consolidated financial statements (including balance
sheet, income statement and statement of cash flows) as of December 27, 1997 and
for the twelve-month period then ended (collectively, the "Financial
                                                           ---------
Statements"). The Financial Statements have been prepared in accordance with 
----------
generally accepted accounting principles applied on a consistent basis
throughout the periods indicated, except that the Financial Statements may not
contain all footnotes required by generally accepted accounting principles which
would not, individually, or in the aggregate, be material. The Financial
Statements fairly present the financial condition and operating results of the
Company and each European Subsidiary as of the dates, and for the periods,
indicated therein, subject to normal year-end audit adjustments which would not,
individually or

                                      -23-
<PAGE>
 
in the aggregate, be material. The Financial Statements: (i) contain and reflect
adequate provisions for all liabilities and all taxes, federal, state, local or
foreign, with respect to the periods then ended and all prior periods; (ii) with
respect to contracts and commitments, contain and reflect adequate reserves for
all reasonably anticipated losses and costs and expenses in excess of expected
receipts. Except as set forth in the Financial Statements, since December 27,
1997, neither the Company nor either European Subsidiary has accrued, and none
of their respective assets or properties are subject to, any liabilities or
obligations (accrued, absolute, contingent or otherwise), whether or not such
liabilities are normally shown or reflected on a balance sheet prepared in a
manner consistent with generally accepted accounting principles, other than
unsecured trade accounts payable arising in the ordinary course of business,
federal, or state income taxes accrued in respect of the operations of the
Company and each European Subsidiary or other normal expenses and liabilities
accrued in the ordinary course of business, which liabilities do not exceed
$50,000 in the aggregate. So far as the Company is aware, there are no facts in
existence which are reasonably likely to serve as the basis for any liabilities
or obligations of the Company nor either European Subsidiary not disclosed in
this Agreement, the Financial Statements or the Schedules attached hereto.

          2.16  CHANGES.  Since December 27, 1997, there has not been:
                -------
                (a) any change in the assets, liabilities, financial condition
or operating results of the Company from that reflected in the Financial
Statements, except changes in the ordinary course of business that have not been
individually, or in the aggregate, materially adverse;

                (b) any damage, destruction or loss, whether or not covered by
insurance, materially and adversely affecting the business, properties or
financial condition of the Company (as such business is presently conducted and
as it is proposed to be conducted in the Business Plan);

                (c) any waiver or compromise by the Company of a valuable right
or of a material debt owed to it;

                (d) any satisfaction or discharge of any lien, claim, or
encumbrance or payment of any obligation by the Company, except in the ordinary
course of business and that is not material to the business, properties or
financial condition of the Company (as such business is presently conducted and
it is proposed to be conducted in the Business Plan);

               (e) any material change to a material contract or agreement by
which the Company or any of its assets is bound or subject;

               (f) any material change in any compensation arrangement or
agreement with any employee, officer, director or shareholder;

                                      -24-
<PAGE>
 
          (g) any sale, assignment or transfer of any patents, trademarks,
copyrights, trade secrets or other intangible assets;

          (h) any resignation or termination of employment of any officer or key
employee of the Company; and the Company, is not aware of any impending
resignation or termination of employment of any such officer or key employee;

          (i) any mortgage, pledge, transfer of a security interest in, or lien,
created by the Company, with respect to any of its material properties or
assets, except liens for taxes not yet due or payable;

          (j) any loan or guarantee made by the Company to or for the benefit of
its employees, officers or directors, or any members of their immediate
families, other than travel advances and other advances made in the ordinary
course of its business;

          (k) receipt of notice that there has been a loss of, or material order
cancellation by, any major customer of the Company;

          (l) any declaration, setting aside or payment or other distribution in
respect to any of the Company's capital stock, or any direct or indirect
redemption, purchase, or other acquisition of any of such stock by the Company;

          (m) to the Company's knowledge, any other event or condition of any
character that is reasonably likely to materially and adversely affect the
business, properties or financial condition of the Company (as presently
conducted and as proposed to be conducted in the Business Plan); or

          (n) any arrangement or commitment by the Company to do any of the
things described in this Section 2.16.

          For the purposes of this Section 2.16, the term "Company" shall
include the European Subsidiaries.

    2.17  EMPLOYEE BENEFIT PLANS. There is no pension, health, profit 
          ----------------------
sharing, bonus, stock purchase, stock option, hospitalization, insurance,
severance, vacation, sick pay or any other employee benefit or welfare benefit
plan with respect to any officer or employee of the Company or either European
Subsidiary, including, without limitation, any Employee Benefit Plan as defined
in the Employee Retirement Income Security Act of 1974.

    2.18  TAX RETURNS AND PAYMENTS.  The Company and each European Subsidiary 
          ------------------------
have filed all tax returns and reports as required by applicable law. These
returns and reports are true and correct in all material respects. The Company
and each European Subsidiary have paid all taxes and other assessments due. The
Company has not elected to be treated as an S Corporation or a collapsible
corporation pursuant to Section 341(f) or Section 1362(a) of the Code, nor has
it made any other elections pursuant to the Internal Revenue Code of 1986, as
amended (other than elections that relate solely to methods of accounting,
depreciation or amortization) that would have a material effect on the Company,
its financial condition, its

                                      -25-
<PAGE>
 
business as presently conducted or proposed to be conducted in the Business Plan
or any of its properties or material assets.  Neither the Company or either
European Subsidiary has ever had any tax deficiency proposed or assessed against
it that has not been discharged and has not executed any waiver of any statute
of limitations on the assessment or collection of ant tax or governmental
charge.

          2.19  INSURANCE.  The Company and each European Subsidiary have 
                ---------
adequate insurance, with financially sound and reputable insurers, with respect
to their respective properties, business and operations, that are of a character
customarily insured by entities engaged in the same or a similar business
similarly situated, against loss or damage of the kinds customarily insured
against by such entities, which insurance is of such types (including public
liability insurance) as are customarily carried under similar circumstances by
such other entities. The Company has delivered a list of all of such insurance,
including coverage amounts and deductibles, to the Purchasers or their
representatives.

          2.20  LABOR AGREEMENTS AND ACTIONS.  Neither the Company nor either 
                ----------------------------
European Subsidiary is bound by or subject to (and none of their respective
assets or properties are bound by or subject to) any written or oral, express or
implied, contract, commitment or arrangement with any labor union, and no labor
union has requested or, to the knowledge of the Company, has sought to represent
any of the employees, representatives or agents of the Company. There is no
strike or other labor dispute involving the Company or either European
Subsidiary pending, or to the knowledge of the Company threatened, which could
have a material adverse effect on the assets, properties, financial condition,
operating results, or business of the Company or either European Subsidiary, nor
is the Company aware of any labor organization activity involving its employees.
The employment of each officer and employee of the Company and each European
Subsidiary is terminable at the will of the Company. The Company and each
European Subsidiary have complied in all material respects with all applicable
state and federal equal employment opportunity laws and with other laws related
to employment.

          2.21  CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENTS.
                ------------------------------------------------------------
Each employee, consultant and officer of the Company and each European
Subsidiary has executed an agreement with the Company and each European
Subsidiary, as applicable, regarding confidentiality and proprietary information
substantially in the form or forms delivered to the counsel for the Purchasers.
The Company is not aware that any of its employees or consultants is in
violation thereof, and the Company will use its best efforts to prevent any such
violation.

          2.22  PERMITS.  The Company and each European Subsidiary have all 
                -------
franchises, permits, licenses and any similar authority necessary for the
conduct of their respective business as presently proposed to be conducted in
the Business Plan, the lack of which could materially and adversely affect the
business, properties or financial condition of the Company. Such material
franchises, permits, licenses and similar authority are in full force and
effect, no material violations have been or are expected to have been recorded
in respect thereof, and no proceeding is pending or, to the knowledge of the
Company, threatened that could result in the revocation or limitation of any of
such franchises, permits, licenses or similar authority. 

                                      -26-
<PAGE>
 
The Company has conducted its business so as to comply in all material respects
with all such franchises, permits, licenses and similar authority.

          2.23  CORPORATE DOCUMENTS.  The Restated Articles and Bylaws of the 
                -------------------
Company are in the form provided to counsel for the Purchasers. The Memoranda
and Articles of Association for each European Subsidiary are in the form as
provided to Purchaser's counsel. The copy of the minute books of the Company and
each European Subsidiary provided to the Purchasers' counsel contains minutes of
all meetings of directors, committees thereof, and shareholders and all actions
by written consent without a meeting by the directors and shareholders since the
date of incorporation and reflects all actions by the directors, committees
thereof, and shareholders with respect to all transactions referred to in such
minutes accurately in all material respects.

          2.24  QUALIFIED SMALL BUSINESS STOCK.  The Company represents and 
                ------------------------------
warrants to the Purchasers that, to the Company's knowledge, the Stock should
qualify as "Qualified Small Business Stock" as defined in Section 1202(c) 
            ------------------------------
of the Internal Revenue Code of 1986, as amended as of the date hereof.

          2.25  REAL PROPERTY HOLDING COMPANY. The Company is not a real
                -----------------------------                           
property holding company within the meaning of section 897 of the Code.

          2.26  INVENTORIES.  All of the inventories of the Company and each
                -----------                                                 
European Subsidiary are, and on the Closing Date all of the items comprising the
inventories of the Company and each European Subsidiary will become usable and
saleable in the ordinary course of business of the Company, exclusive of
inventories against which reserves have been provided on the December 27, 1997
balance sheet.  No items included in the inventories have been pledged as
collateral or are held by the Company or either European Subsidiary on a
consignment from others.  All inventories shown in the Financial Statements are
valued at the lower of cost (determined on a first in first out basis,) or
market value.

          2.27  ACCOUNTS RECEIVABLE.  The Accounts Receivables reflected in the
                -------------------                                            
December 27, 1997 balance sheet and all accounts receivable created after the
date thereof, arose from valid sales in the ordinary course of business of the
Company and each European Subsidiary and have been collected or to the Company's
best knowledge are collectible in full, net of the allowance from uncollectible
amounts set forth on the December 27, 1997 balance sheet.

     3.  REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS.  Each Purchaser 
         ------------------------------------------------
hereby represents and warrants severally and not jointly to the Company that:

          3.1  AUTHORIZATION.  Such Purchaser has full power and authority 
               -------------
to enter into this Agreement. The Agreements, when executed and delivered by the
Purchaser, will constitute valid and legally binding obligations of the
Purchaser, enforceable in accordance with their terms, except (a) as limited by
applicable bankruptcy, insolvency, reorganization, moratorium, fraudulent
conveyance, and any other laws of general application affecting enforcement of
creditors' rights generally, and as limited by laws relating to the availability
of a specific performance, injunctive relief, or other equitable remedies, or
(b) to the extent the 

                                      -27-
<PAGE>
 
indemnification provisions contained in the Rights Agreement may be limited by
applicable federal or state securities laws.

          3.2  PURCHASE ENTIRELY FOR OWN ACCOUNT.  This Agreement is made 
               ---------------------------------
with the Purchaser in reliance upon the Purchaser's representation to the
Company, which by the Purchaser's execution of this Agreement, the Purchaser
hereby confirms, that the Securities to be acquired by the Purchaser will be
acquired for investment for the Purchaser's own account, not as a nominee or
agent, and not with a view to the resale or distribution of any part thereof,
and that the Purchaser has no present intention of selling, granting any
participation in, or otherwise distributing the same. By executing this
Agreement, the Purchaser further represents that the Purchaser does not
presently have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to any of the Securities. The Purchaser has not been formed
for the specific purpose of acquiring the Securities.

          3.3  DISCLOSURE OF INFORMATION.  The Purchaser believes that it, 
               -------------------------
or its representatives, have received all information as such Purchaser
considers necessary for evaluating the risks and merits of acquiring the
Securities and has had the opportunity to make further inquiries of the Company
and its representatives for additional information. The foregoing, however, does
not limit or modify the representations and warranties of the Company in Section
2 of this Agreement or the right of each Purchaser to rely thereon.

          3.4  RESTRICTED SECURITIES.  The Purchaser understands that the 
               ---------------------
Securities have not been, and will not be, registered under the Securities Act,
by reason of a specific exemption from the registration provisions of the
Securities Act which depends upon, among other things, the bona fide nature of
the investment intent and the accuracy of the Purchaser's representations as
expressed herein. The Purchaser understands that the Securities are "restricted
securities" under applicable U.S. federal and state securities laws and that,
pursuant to these laws, the Purchaser must hold the Securities indefinitely
unless they are registered with the Securities and Exchange Commission (the
"SEC") and qualified by state authorities, or an exemption from such 
 ---                                            
registration and qualification requirements is available. The Purchaser
acknowledges that the Company has no obligation to register or qualify the
Securities for resale except as set forth in the Rights Agreement. The Purchaser
further acknowledges that if an exemption from registration or qualification is
available, it may be conditioned on various requirements including, but not
limited to, the time and manner of sale, the holding period for the Securities,
and on requirements relating to the Company which are outside of the Purchaser's
control, and which the Company is under no obligation and may not be able to
satisfy.

          3.5  NO PUBLIC MARKET.  The Purchaser understands that no public 
               ----------------
market now exists for any of the securities issued by the Company, and that the
Company has made no assurances that a public market will ever exist for the
Securities.

          3.6  LEGENDS.  The Purchaser understands that the Securities, 
               -------
and any securities issued in respect of or exchange for the Securities, may bear
one or all of the following legends:

                                      -28-
<PAGE>
 
               (a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF.  NO SUCH SALE OR DISPOSITION MAY BE EFFECTED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL IN A
FORM SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER
THE SECURITIES ACT OF 1933."

               (b) Any legend set forth in the other Agreements.

               (c) Any legend required by the Blue Sky laws of any state to the
extent such laws are applicable to the shares represented by the certificate so
legended.


          3.7  ACCREDITED INVESTOR.  The Purchaser is an accredited investor 
               -------------------
as defined in Rule 501(a) of Regulation D promulgated under the Securities Act.

          3.8  FOREIGN INVESTORS.  If the Purchaser is not a United States 
               -----------------
person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986,
as amended), such Purchaser hereby represents that it has satisfied itself as to
the full observance of the laws of its jurisdiction in connection with any
invitation to subscribe for the Stock or any use of this Agreement, including
(i) the legal requirements within its jurisdiction for the purchase of the
Stock, (ii) any foreign exchange restrictions applicable to such purchase, (iii)
any governmental or other consents that may need to be obtained, and (iv) the
income tax and other tax consequences, if any, that may be relevant to the
purchase, holding, redemption, sale, or transfer of the Stock. Such Purchaser's
subscription and payment for and continued beneficial ownership of the Stock,
will not violate any applicable securities or other laws of the Purchaser's
jurisdiction.

      4.  CONDITIONS OF THE PURCHASERS' OBLIGATIONS AT CLOSING. The obligations 
          ----------------------------------------------------
of each Purchaser to the Company under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

          4.1  REPRESENTATIONS AND WARRANTIES.  The representations and 
               ------------------------------
warranties of the Company contained in Section 2 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the date of the
Closing.

          4.2  PERFORMANCE.  The Company shall have performed and complied with 
               -----------
all covenants, agreements, obligations and conditions contained in this
Agreement that are required to be performed or complied with by it on or before
the Closing.

          4.3  COMPLIANCE CERTIFICATE.  The President or Chief Financial 
               ----------------------
Officer of the Company shall deliver to the Purchasers at the Closing a
certificate certifying that the conditions specified in Sections 4.1 and 4.2
have been fulfilled.

                                      -29-
<PAGE>
 
          4.4  QUALIFICATIONS.  All authorizations, approvals or permits, 
               --------------
if any, of any governmental authority or regulatory body of the United States or
of any state that are required in connection with the lawful issuance and sale
of the Stock pursuant to this Agreement shall be obtained and effective as of
the Closing. No stop order or other order enjoining the sale of the Stock shall
have been issued and no proceedings for such purpose shall be pending or, to the
knowledge of the Company, threatened by the SEC, the California Commissioner of
Corporations, or similar of any other state having jurisdiction over this
transaction. At the time of the Closing, the sale and issuance of the Stock
shall be legally permitted by all laws and regulations to which the Purchasers
and the Company are subject.

          4.5  OPINION OF COMPANY COUNSEL.  The Purchasers shall have received 
               --------------------------
from Venture Law Group, counsel for the Company, an opinion, dated as of the
Closing, in substantially the form of Exhibit E.
                                      --------- 

          4.6  BOARD OF DIRECTORS.  As of the Closing, the Board shall be 
               ------------------
comprised of: Robert Hoff, Jeffrey Marshall and the Chief Executive Officer of
Sonoma Systems. As of the Closing, the Bylaws (or the Restated Articles) shall
provide that Board shall consist of not less than four nor more than seven
directors, with the initial number at five, which number shall not be changed
without the affirmative vote or written consent of the holders of not less than
66-2/3% in voting interest of the Stock. In addition, the Bylaws shall provide
indemnity to the Company's officers and directors to the fullest extent
authorized by law.

          4.7  RIGHTS AGREEMENT. The Company and each Purchaser shall have 
               ----------------
executed and delivered the Rights Agreement in substantially the form attached
as Exhibit D.
   --------- 

          4.8  RESTATED ARTICLES.  The Company shall have filed the Restated 
               -----------------
Articles with the Secretary of State of California on or prior to the Initial
Closing Date, which shall continue to be in full force and effect as of the
Closing Date.

          4.9  CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT.
               -----------------------------------------------------------
The Company and each of its employees shall have entered into the Company's
standard form Confidential Information and Invention Assignment Agreement, in
substantially the form provided to the Purchasers.

      5.  CONDITIONS OF THE COMPANY'S OBLIGATIONS AT CLOSING. The obligations 
          --------------------------------------------------
of the Company to each Purchaser under this Agreement are subject to the
fulfillment, on or before the Closing, of each of the following conditions,
unless otherwise waived:

          5.1  REPRESENTATIONS AND WARRANTIES.  The representations and 
               ------------------------------
warranties of each Purchaser contained in Section 3 shall be true and correct in
all material respects on and as of the Closing with the same effect as though
such representations and warranties had been made on and as of the Closing.

          5.2  PERFORMANCE.  All covenants, agreements and conditions contained 
               -----------
in this Agreement to be performed by the Purchasers on or prior to the Closing
shall have been performed or complied with in all material respects.

                                      -30-
<PAGE>
 
          5.3  QUALIFICATIONS.  All authorizations, approvals or permits, if
               --------------
any, of any governmental authority or regulatory body of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock pursuant to this Agreement shall be obtained and effective as of the
Closing. No stop order or other order enjoining the sale of the Stock shall have
been issued and no proceedings for such purpose shall be pending or, to the
knowledge of the Company, threatened by the SEC, the California Commissioner of
Corporations, or similar officer of any other state having jurisdiction over
this transaction. At the time of the Closing, the sale and issuance of the Stock
shall be legally permitted by all laws and regulations to which the Purchasers
and the Company are subject.

      6.  MISCELLANEOUS.
          -------------

          6.1  SURVIVAL OF WARRANTIES.  Unless otherwise set forth in this
               ----------------------
Agreement, the warranties, representations and covenants of the Company and the
Purchasers contained in or made pursuant to this Agreement shall survive the
execution and delivery of this Agreement, any investigation made by any
Purchaser, and the Closing of the transactions contemplated hereby and shall in
no way be affected by any investigation of the subject matter thereof made by or
on behalf of the Purchasers or the Company. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto shall be deemed to be representations and warranties
by the Company hereunder as of the date of such certificate or instrument.

          6.2  TRANSFER; SUCCESSORS AND ASSIGNS.  The terms and conditions of 
               --------------------------------
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties. Nothing in this Agreement, express or
implied, is intended to confer upon any party other than the parties hereto or
their respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

          6.3  GOVERNING LAW.  This Agreement and all acts and transactions 
               -------------
pursuant hereto and the rights and obligations of the parties hereto shall be
governed, construed and interpreted in accordance with the laws of the State of
California, without giving effect to principles of conflicts of law.

          6.4  COUNTERPARTS.  This Agreement may be executed in two or more 
               ------------
counterparts, each of which shall be deemed an original and all of which
together shall constitute one instrument.

          6.5  TITLES AND SUBTITLES.  The titles and subtitles used in this 
               --------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.

          6.6  NOTICES.  Any notice required or permitted by this Agreement 
               -------
shall be in writing and shall be deemed sufficient upon delivery, when delivered
personally or by overnight courier or sent by telegram or fax, or forty-eight
(48) hours after being deposited in the U.S. mail, as certified or registered
mail, with postage prepaid, addressed to the party to be notified at 

                                      -31-
<PAGE>
 
such party's address as set forth below or on Exhibit A hereto, or as
                                              ---------   
subsequently modified by written notice.

          6.7  FINDER'S FEE. Each party represents that it neither is nor will 
               ------------
be obligated for any finder's fee or commission in connection with this
transaction. Each Purchaser agrees to indemnify and to hold harmless the Company
from any liability for any commission or compensation in the nature of a
finder's fee (and the costs and expenses of defending against such liability or
asserted liability) for which each Purchaser or any of its officers, employees,
or representatives is responsible. The Company agrees to indemnify and hold
harmless each Purchaser from any liability for any commission or compensation in
the nature of a finder's fee (and the costs and expenses of defending against
such liability or asserted liability) for which the Company or any of its
officers, employees or representatives is responsible.

          6.8  FEES AND EXPENSES.  The Company shall pay at the Closing the 
               -----------------
reasonable fees and expenses of Stradling, Yocca, Carlson & Rauth, the counsel
for the Purchasers, incurred with respect to this Agreement, the documents
referred to herein and the transactions contemplated hereby and thereby,
provided such fees and expenses do not exceed $45,000.

          6.9  ATTORNEY'S FEES.  If any action at law or in equity (including 
               ---------------
arbitration) is necessary to enforce or interpret the terms of any of the
Agreements, the prevailing party shall be entitled to reasonable attorney's
fees, costs and necessary disbursements in addition to any other relief to which
such party may be entitled.

          6.10  AMENDMENTS AND WAIVERS.  Any term of this Agreement may be 
                ----------------------
amended (either generally or in a particular instance, either retroactively or
prospectively, and either for a specified period of time or indefinitely), with
the written consent of the Company and the holders of at least a majority of the
Common Stock issued or issuable upon conversion of the Stock, except that any
amendment to Section 2 herein or the Schedule of Exceptions relating thereto
which would result in an increase in the liability of Retix under Section 6.18
herein or otherwise, as well as any amendment to such Section 6.18, shall
require the further written consent of Retix. Any amendment or waiver effected
in accordance with this Section 6.10 shall be binding upon the Purchasers and
each transferee of the Stock (or the Common Stock issuable upon conversion
thereof), each future holder of all such securities, the Company, and, with
respect to Section 2 and Section 6.18 if amended as set forth in the prior
sentence, Retix.

          6.11  SEVERABILITY.  If one or more provisions of this Agreement 
                ------------
are held to be unenforceable under applicable law, the parties agree to
renegotiate such provision in good faith. In the event that the parties cannot
reach a mutually agreeable and enforceable replacement for such provision, then
(a) such provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.

          6.12  DELAYS OR OMISSIONS.  No delay or omission to exercise any 
                -------------------
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching

                                      -32-
<PAGE>
 
or non-defaulting party nor shall it be construed to be a waiver of any such
breach or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring. Any waiver, permit, consent or approval of any kind or
character on the part of any party of any breach or default under this
Agreement, or any waiver on the part of any party of any provisions or
conditions of this Agreement, must be in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under
this Agreement or by law or otherwise afforded to any party, shall be cumulative
and not alternative, except that with respect to Retix, such remedies shall be
restricted to those provided in Section 6.18 herein.

          6.13  ENTIRE AGREEMENT.  This Agreement, and the documents referred 
                ----------------
to herein constitute the entire agreement between the parties hereto pertaining
to the subject matter hereof, and any and all other written or oral agreements
relating to the subject matter hereof existing between the parties hereto are
expressly canceled.

          6.14  CORPORATE SECURITIES LAW.  THE SALE OF THE SECURITIES WHICH ARE 
                ------------------------
THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF THE SECURITIES OR
THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO THE
QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM THE
QUALIFICATION BY SECTION 25100, 25102 OR 25105 OF THE CALIFORNIA CORPORATIONS
CODE. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON
THE QUALIFICATION BEING OBTAINED UNLESS THE SALE IS SO EXEMPT.

          6.15  CONFIDENTIALITY.  Each party hereto agrees that, except with 
                ---------------
the prior written permission of the other party and except as required by
applicable law, it shall at all times keep confidential and not divulge, furnish
or make accessible to anyone any confidential information, knowledge or data
concerning or relating to the business or financial affairs of the other parties
to which such party has been or shall become privy by reason of this Agreement,
discussions or negotiations relating to this Agreement, the performance of its
obligations hereunder or the ownership of Stock purchased hereunder. The
provisions of this Section 6.15 shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement executed by the
parties hereto with respect to the transactions contemplated hereby.

          6.16  EXCULPATION AMONG PURCHASERS.  Each Purchaser acknowledges 
                ----------------------------
that it is not relying upon any person, firm or corporation, other than the
Company and its officers and directors, in making its investment or decision to
invest in the Company. Each Purchaser agrees that no Purchaser nor the
respective controlling persons, officers, directors, partners, agents, or
employees of any Purchaser shall be liable to any other Purchaser for any action
heretofore or hereafter taken or omitted to be taken by any of them in
connection with the purchase of the Securities.

          6.17  WAIVER OF CONFLICTS.  EACH PARTY TO THIS AGREEMENT ACKNOWLEDGES 
                -------------------
THAT VENTURE LAW GROUP, COUNSEL FOR THE COMPANY 

                                      -33-
<PAGE>
 
AND RETIX, HAS IN THE PAST PERFORMED AND MAY CONTINUE TO PERFORM LEGAL SERVICES
FOR CERTAIN OF THE PURCHASERS IN MATTERS UNRELATED TO THE TRANSACTIONS DESCRIBED
IN THIS AGREEMENT, INCLUDING THE REPRESENTATION OF SUCH PURCHASERS IN VENTURE
CAPITAL FINANCINGS AND OTHER MATTERS. ACCORDINGLY, EACH PARTY TO THIS AGREEMENT
HEREBY (A) ACKNOWLEDGES THAT THEY HAVE HAD AN OPPORTUNITY TO ASK FOR INFORMATION
RELEVANT TO THIS DISCLOSURE; AND (B) GIVES ITS INFORMED CONSENT TO VENTURE LAW
GROUP'S REPRESENTATION OF CERTAIN OF THE PURCHASERS IN SUCH UNRELATED MATTERS
AND TO VENTURE LAW GROUP'S REPRESENTATION OF THE COMPANY AND RETIX IN CONNECTION
WITH THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY.

          6.18 INDEMNIFICATION.
               --------------- 

               (a)  Indemnity.
                    --------- 

                    (i)  Retix shall indemnify the Company in the manner herein
provided against and in respect of any loss, cost, expense, liability, judgment
or damage (including reasonable legal fees and expenses) incurred by the
Company, directly or indirectly, caused by or arising from any breach of the
representations and warranties set forth in Section 2 of this Agreement
(collectively, the "Losses"). Retix will not be liable under this Section 6.18
                    ------ 
with respect to the first $150,000 in aggregate Losses. Solely for purposes of
illustration, in the event of an initial Loss totaling $150,000, or series of
Losses totaling $150,000 in the aggregate, Retix shall have no liability under
this Section 6.18; however, thereafter Retix shall be liable under this Section
6.18 for any and all further Losses up to the Indemnity Cap (as defined below).

                    (ii) Notwithstanding any other provision herein to the
contrary, in no event shall Retix be liable to the Company for Losses in excess
of $3,270,000 plus the total number of shares of the Company's Series A
Preferred Stock held by Retix as of the Closing (the "Indemnity Cap"). In
                                                      ------------- 
addition, Retix's liability under this Section 6.18 shall be net of the
following amounts: (1) Retix's liability for any Loss shall be net of amounts
refunded to the Company for taxes paid by Retix on behalf or for the account of
Retix Europe Ltd. or Sonoma Systems Europe Ltd., and (2) Retix's liability for
any Losses related to any of the Company's customers or distributors or the
Company's products shall be net of the aggregate amount of the Specified
Reserves. As used herein, the "Specified Reserves" shall mean all reserves and
                               ------------------   
allowances for doubtful accounts, sales returns, inventory shrinkage and
obsolescence and warranty claims reflected in the Company's balance sheet as of
December 27, 1997.

          (b) Payment of Claims.  If the Company shall have any claim of
              -----------------                                         
indemnification pursuant to this Section 6.18, the Company shall promptly give
formal written notice thereof to Retix, including a brief description of the
facts or other matters upon which such claim is based and the amount of the Loss
as reasonably determined by the Company.  The failure of the Company to give
prompt notice shall not limit the right of the Company to make a claim unless
Retix shall be materially prejudiced by such failure.  Retix shall within
fifteen (15) 

                                      -34-
<PAGE>
 
business days following receipt of such notice deliver to the Company (i) a
number of shares of the Company's Series A Preferred Stock, in whole shares,
most nearly equal to the sum of the amount of the Loss to be satisfied divided
by the Series A Price (as defined below), (ii) a number of shares of the
Company's Series B Preferred Stock, in whole shares, most nearly equal to the
sum of the amount of the Loss to be satisfied divided by the Series B Price (as
defined below), (iii) a number of shares of the Company's Series C Preferred
Stock, in whole shares, most nearly equal to the sum of the amount of the Loss
to be satisfied divided by the Series C Price (as defined below), (iv) an amount
of cash equal to the amount of the Loss to be satisfied, or (v) any combination
of the foregoing as determined by Retix in its discretion. As used herein, the
"Series A Price" shall be $1.00 per share, and the "Series B Price" and the 
 --------------                                     -------------- 
"Series C Price" shall each be equal to the most recent price at which the 
 --------------   
Company has sold its capital stock to professional or institutional investors in
a financing in which the Company has received aggregate net proceeds of at least
$5,000,000.

      (c) Dispute Resolution.  Disputes with respect to any claims of
          ------------------                                         
indemnification hereunder shall be resolved as follows:


          (i)   If Retix shall, in good faith, notify the Company in writing of
its objection to a claim of indemnification hereunder, including a brief
description of the facts or other matters upon which such objection is based,
the Company and Retix shall attempt in good faith to agree upon the rights of
the respective parties with respect to each of such claims.

          (ii)  If no such agreement can be reached after good faith
negotiation, either Retix or the Company may demand arbitration of the matter
unless the amount of the Loss is at issue in pending litigation with a third
party, in which event arbitration shall not be commenced until such amount is
ascertained or both parties agree to arbitration. Any arbitration hereunder
shall be conducted by three arbitrators. Retix and the Company shall each select
one arbitrator, and the two arbitrators so selected shall select a third
arbitrator. The decision of a majority of the three arbitrators as to the
validity and amount of any Loss shall be binding and conclusive upon the parties
to this Agreement. Such decision shall be written and shall be supported by
written findings of fact and conclusions which shall set forth the award,
judgment, decree or order awarded by the arbitrators.

          (iii) Judgment upon any award rendered by the arbitrators may
be entered in any court having jurisdiction.  Any such arbitration shall be held
in Los Angeles, California, under the rules then in effect of the American
Arbitration Association.

          (iv)  If the arbitrators shall determine that some or all of the
subject Loss is to be paid, Retix shall within fifteen (15) business days
following receipt of a copy of such determination deliver to the Company the
amount of the Loss to be satisfied in accordance with the provisions of Section
6.18(b) above.

      (d) Third Party Claims.  In the event the Company becomes aware of a
          ------------------                                              
third party claim which the Company believes may result in a claim of
indemnification under this Section 6.18, the Company shall notify Retix, which
shall be entitled, at its expense, to 

                                      -35-
<PAGE>
 
participate in any defense of such claim, or in its discretion, assume overall
control of such defense if the maximum liability (including attorneys' fees and
costs) under such claim would not exceed the Liability Cap. Retix shall have the
right in its sole discretion to settle any such claim so long as the settlement
does not result in Losses in excess of the Indemnity Cap and Retix has
acknowledged its responsibility under the indemnity provisions of this Section
6.18 for such claim.

          (e) Termination.  The obligations of Retix under this Section 6.18
              -----------                                                   
shall apply only to claims with respect to Losses made on or before January 15,
1999.

          (g) Exclusive Remedy.  In the absence of fraud, the indemnity provided
              ----------------                                                  
in this Section 6.18 shall be the sole and exclusive remedy of the Company and
the Investors against Retix with respect to all losses, costs or expenses
incurred by the Company or the Investors pursuant to the transactions
contemplated by this Agreement.

    6.19  CAPITAL CONTRIBUTION.  At the Closing, all indebtedness of the
          --------------------                                          
Company to Retix as of January 8, 1998 shall be discharged and canceled and
shall be treated as a capital contribution by Retix to the Company.  Any
indebtedness of the Company to Retix incurred after January 8, 1998 shall be
repaid by the Company in accordance with the terms thereof.



                            [Signature Pages Follow]

                                      -36-
<PAGE>
 
     The parties have executed this Series C Preferred Stock Purchase Agreement
as of the date first written above.


                                    COMPANY:

                                    SONOMA SYSTEMS


                                    By:_____________________________________

                                    Name:___________________________________
                                                (print)

                                    Title:__________________________________


                                    Address:  4640 Admiralty Way
                                              Marina del Rey, CA 90292-6695


                                    PURCHASERS:

                                    ________________________________________ 
                                    (Print Name of Purchaser)

                                    By:_____________________________________

                                    Name:___________________________________
                                                (print)

                                    Title:__________________________________

                                    Address:________________________________
                
                                            ________________________________



                                    As to Sections 2 and 6 Only:


                                    RETIX:

                                    By:_____________________________________

                                    Name:___________________________________
                                                (print)

                                    Title:__________________________________


                                    Address:   4640 Admiralty Way
                                               Marina del Rey, CA 90292-6695
                                          

                      SIGNATURE PAGE TO PURCHASE AGREEMENT
<PAGE>
 
                                    EXHIBITS
                                    --------



     Exhibit A -  Schedule of Purchasers

     Exhibit B -  Form of Amended and Restated Articles of Incorporation

     Exhibit C -  Schedule of Exceptions to Representations and Warranties
 
     Exhibit D -  Form of Amended and Restated Rights Agreement

     Exhibit E -  Form of Legal Opinion of Venture Law Group
<PAGE>
 
                                   EXHIBIT A
                                   ---------

                             SCHEDULE OF PURCHASERS
                                        

                                INITIAL CLOSING
                                ---------------
                                January 15, 1998

<TABLE>
<CAPTION>
         Name                                                    Number of Shares               Total Purchase Price
         ----                                                    ----------------               --------------------
<S>                                                            <C>                                <C>
Rock Ventures, L.L.C.                                                 33,611                          $49,999.73
Three Allied Drive
Suite 135
Dedham, MA 02026

VantagePoint Venture Associates 1996                               2,520,838                       $3,749,998.60
By:  VantagePoint Associates, L.L.C.
1001 Bayhill Drive
San Bruno, CA 94066
                                        
Crosspoint Venture Partners 1997                                   2,520,838                       $3,749,998.60
18552 MacArthur Boulevard
Suite 400
Irvine, CA 92612
                                        
Lazard Freres & Co. L.L.C.                                           470,556                         $699,999.10
30 Rockefeller Center
New York, NY 10022
                                        
Total:                                                             5,545,843                       $8,249,996.03
</TABLE> 
                                                                   
<TABLE> 
<CAPTION> 
                                                               SECOND CLOSING
                                                               --------------
                                                               ___________ ___, 1998
                                        
         Name                                                    Number of Shares                  Total Purchase Price
         ----                                                    ----------------                  --------------------
<S>                                                              <C>                             <C>  
                                                                     504,157                         $749,983.95

TOTAL:                                                             6,050,000                       $8,999,979.98    
-----
</TABLE>
                                        
<PAGE>
 
                                   EXHIBIT A
                                   ---------

                             SCHEDULE OF PURCHASERS
<PAGE>
 
                                   EXHIBIT B
                                   ---------
                                        

                             AMENDED AND RESTATED
                                        
                           ARTICLES OF INCORPORATION
                                        

                                      -3-
<PAGE>
 
                                   EXHIBIT C
                                   ---------
                                        

                           SCHEDULE OF EXCEPTIONS TO
                                        
                         REPRESENTATIONS AND WARRANTIES
                                        

                                      -4-
<PAGE>
 
                                   EXHIBIT D
                                   ---------
                                        

                     AMENDED AND RESTATED RIGHTS AGREEMENT
                                        

                                      -5-
<PAGE>
 
                                   EXHIBIT E
                                   ---------
                                        


                                 LEGAL OPINION
                                      OF
                               VENTURE LAW GROUP
                                        

                                      -6-
<PAGE>
 
SONOMA SYSTEMS

AMENDED AND RESTATED RIGHTS AGREEMENT

     This Amended and Restated Rights Agreement (the "Agreement") is entered
                                                      ---------             
into as of January 15, 1998, by and among Sonoma Systems, a California
corporation (the "Company"), the investors set forth on Exhibit A attached
                  -------                               ---------         
hereto (each an "Investor" and together "Investors"), and Retix, a California
                 --------                ---------                           
corporation.

     In consideration of the mutual promises and covenants hereinafter set
forth, the parties agree as follows:

     1.   RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS.
          ---------------------------------------------------- 

          1.1  CERTAIN DEFINITIONS.  As used in this Agreement, the following
               -------------------                                           
terms shall have the following respective meanings:

          "Registrable Securities" means (i) the Common Stock issuable upon
           ----------------------                                          
conversion of the Preferred Shares (the "Conversion Shares") and (ii) any Common
                                         -----------------                      
Stock issued or issuable in respect of the Preferred Shares or Conversion Shares
or other securities issued or issuable with respect to the Preferred Shares or
Conversion Shares upon any stock split, stock dividend, recapitalization or
similar event or any Common Stock otherwise issued or issuable with respect to
the Preferred Shares or Conversion Shares; provided, however, that shares of
                                           --------  -------                
Common Stock or other securities shall only be treated as Registrable Securities
(1) if and so long as they have not been (A) sold to or through a broker or
dealer or underwriter in a public distribution or a public securities
transaction, or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale, or (2) if with respect
to any Holder all shares of the Company's capital stock then held by Holder may
not be sold in any single three month period without registration pursuant to
Rule 144 promulgated under the Securities Act.

          "Holder" shall mean any person holding Registrable Securities and any
           ------                                                              
person holding Registrable Securities to whom the rights under this Agreement
have been transferred in accordance with Section 1.14 hereof.

          "Preferred Shares" shall mean the Series B Preferred Stock and the 
           ----------------                                             
Series C Preferred Stock of the Company.

          The terms "register," "registered" and "registration" refer to a
                     --------    ----------       ------------            
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.

                                      -7-
<PAGE>
 
          "Registration Expenses" shall mean all expenses incurred by the
           ---------------------                                         
Company in complying with Sections 1.5, 1.6 and 1.7 of this Agreement,
including, without limitation, all registration, qualification and filing fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, blue sky fees and expenses, and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).

          "Restricted Securities" shall mean the securities of the Company
           ---------------------                                          
required to bear the legend set forth in Section 1.3 of this Agreement.

          "Retix" shall mean Retix, a California corporation, and any of its 
           -----                                                        
successors, transferees or assigns.

          "Securities Act" shall mean the Securities Act of 1933, as amended, or
           --------------                                                       
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.

          "Selling Expenses" shall mean all underwriting discounts, selling
           ----------------                                                
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for the Holders (except as
provided by Section 1.9).

          "Qualifying IPO" shall mean the Company's first underwritten, firm
           --------------                                                   
commitment public offering of its Common Stock for sale to the public pursuant
to a registration statement under the Securities Act of 1933, as amended, the
anticipated aggregate offering price, net of underwriting discounts and
commissions, of which would exceed $20,000,000 and the offering price to the
public of which would be at least $8.00 per share, subject to adjustment for
stock splits, stock dividends or other recapitalizations.

          "Initiating Holders" shall mean the Holders or any transferees of the
           ------------------                                                  
Holders under Section 1.14 hereof who in the aggregate are Holders of not less
than 40% of the Registrable Securities.

          1.2  RESTRICTIONS.  The Preferred Shares and the Conversion Shares
               ------------                                                 
shall not be sold, assigned, transferred or pledged except upon the conditions
specified in this Agreement, which conditions are intended to ensure compliance
with the provisions of the Securities Act.  The Holders will cause any proposed
purchaser, assignee, transferee or pledgee of the Preferred Shares and the
Conversion Shares to agree to take and hold such securities subject to the
provisions and upon the conditions specified in this Agreement.

          1.3  RESTRICTIVE LEGEND.  Each certificate representing:  (i) the
               ------------------                                          
Preferred Shares; (ii) the Conversion Shares; (iii) the Series A Preferred Stock
of the Company; and (iv) any other securities issued in respect of the
securities referenced in clauses (i), (ii) and (iii) upon any stock split, stock
dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 1.4 below) be stamped
or 

                                      -8-
<PAGE>
 
otherwise imprinted with legends in the following form (in addition to any
legend required under applicable state securities laws):

               "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED
               FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
               ACT OF 1933, AS AMENDED.  SUCH SHARES MAY NOT BE SOLD,
               TRANSFERRED OR PLEDGED IN THE ABSENCE OF SUCH REGISTRATION OR
               UNLESS THE COMPANY RECEIVES AN OPINION OF COUNSEL (WHICH MAY BE
               COUNSEL FOR THE COMPANY) REASONABLY ACCEPTABLE TO IT STATING THAT
               SUCH SALE OR TRANSFER IS EXEMPT FROM THE REGISTRATION AND
               PROSPECTUS DELIVERY REQUIREMENTS OF SAID ACT."

                 "THE SHARES EVIDENCED HEREBY ARE SUBJECT TO VOTING RESTRICTIONS
               SET FORTH IN AN AMENDED AND RESTATED RIGHTS AGREEMENT DATED
               JANUARY ___, 1998 BY AND AMONG THE COMPANY AND CERTAIN
               SHAREHOLDERS OF THE COMPANY (A COPY OF WHICH MAY BE OBTAINED FROM
               THE COMPANY), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE
               PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND
               SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID AGREEMENT."

     Each Holder consents to the Company making a notation on its records and
giving instructions to any transfer agent of the Restricted Securities in order
to implement the restrictions on transfer established in this Section 1.

          1.4  NOTICE OF PROPOSED TRANSFERS.  The holder of each certificate
               ----------------------------                                 
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1.  Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities, unless there is in
effect a registration statement under the Securities Act covering the proposed
transfer, the holder thereof shall give written notice to the Company of such
holder's intention to effect such transfer, sale, assignment or pledge.  Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and shall be
accompanied at such holder's expense by either (i) a  written opinion of legal
counsel who shall, and whose legal opinion shall be, reasonably satisfactory to
the Company, to the effect that the proposed transfer of the Restricted
Securities may be effected without registration under the Securities Act, or
(ii) a "no action" letter from the Commission to the effect that the transfer of
such securities without registration will not result in a recommendation by the
staff of the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice delivered by
the holder to the Company.  The Company will not require such a legal opinion or
"no action" letter (a) in any transaction in compliance with Rule 144, (b) in
any transaction in which a Holder which is a corporation

                                      -9-
<PAGE>
 
distributes Restricted Securities after six months after the purchase thereof
solely to its majority-owned subsidiaries or affiliates for no consideration, or
(c) in any transaction in which a Holder which is a partnership distributes
Restricted Securities after six months after the purchase thereof solely to
partners thereof on a pro rata basis for no consideration, provided that each
transferee agrees in writing to be subject to the terms of this Agreement. Each
certificate evidencing the Restricted Securities transferred as above provided
shall bear, except if such transfer is made pursuant to Rule 144, the
appropriate restrictive legend set forth in Section 1.3 above, except that such
certificate shall not bear such restrictive legend if, in the opinion of counsel
for such holder and the Company, such legend is not required in order to
establish compliance with any provisions of the Securities Act.

          1.5  REQUESTED REGISTRATION.
               ---------------------- 

               (a) REQUEST FOR REGISTRATION.  In case the Company shall receive 
                   ------------------------                                   
from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to the Registrable
Securities, the Company will:

                   (i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and

                   (ii) as soon as practicable, use its best efforts to effect
such registration, qualification or compliance (including, without limitation,
the execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 30 days after receipt of such written notice from the
Company; provided, however, that the Company shall not be obligated to take any
         --------  -------                                                     
action to effect any such registration, qualification or compliance pursuant to
this Section 1.5:

                        (1) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;

                        (2) Prior to the expiration of the Company's market
stand-off agreements in connection with a Qualifying IPO;

                        (3) During the period starting with the date 60 days
prior to the Company's estimated date of filing of, and ending on the date 90
days immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of securities
in a Rule 145 transaction or with respect to an employee benefit plan), provided
that the Company is actively employing in good faith all reasonable

                                     -10-
<PAGE>
 
efforts to cause such registration statement to become effective and that the
Company's estimate of the date of filing such registration statement is made in
good faith;

                        (4) After the Company has effected two such
registrations pursuant to this Section 1.5(a), such registrations which have
been declared or ordered effective and the securities offered pursuant to such
registrations have been sold; or

                        (5) If the Company shall furnish to such Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.5 shall be deferred for a single period
not to exceed 120 days from the date of receipt of written request from the
Initiating Holders.

     Subject to the foregoing clauses (1) through (5) and this paragraph, the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Initiating Holders.  In the event that Holders of
Registrable Securities wish to join in the request of the Initiating Holders
made pursuant to this Section 1.5(a), the provisions of Section 1.5(b) of this
Agreement shall govern the ability of such Holders to join in such request.

          (b) UNDERWRITING.  In the event that a registration pursuant to
              ------------                                               
Section 1.5 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.5(a)(i).  The right of any Holder to registration pursuant to Section
1.5 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.5 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided in this Agreement.


     The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders (which managing underwriter shall
be reasonably acceptable to the Company).  Notwithstanding any other provision
of this Section 1.5, if the managing underwriter advises the Holders requesting
their Registrable Securities to be included in the registration, in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Initiating Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities requested to be to included by such Holders at
the time of filing the registration statement.  No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration.  To facilitate the allocation
of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest 100 shares.

                                     -11-
<PAGE>
 
     If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders.  The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to the expiration of the market
stand-off period as provided in Section 1.15.

          1.6  COMPANY REGISTRATION.
               -------------------- 

               (a) NOTICE OF REGISTRATION. If at any time or from time to time,
                   ----------------------
the Company shall determine to register any of its securities, either for its
own account or the account of a security holder or holders other than (i) a
registration relating solely to employee benefit plans, or (ii) a registration
relating solely to a Commission Rule 145 transaction, the Company will:

                    (i) promptly give to each Holder written notice thereof; and

                    (ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved in such registration, all the Registrable Securities specified in a
written request or requests made within 30 days after receipt of such written
notice from the Company by any Holder, but only to the extent that such
inclusion will not diminish the number of securities included by the Company or
by holders of the Company's securities who have demanded such registration.

               (b) UNDERWRITING. If the registration of which the Company gives
                   ------------                                                 
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.6(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.6 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company (or by the
holders who have demanded such registration). Notwithstanding any other
provision of this Section 1.6, if the managing underwriter determines that
marketing factors require a limitation of the number of shares to be
underwritten, the managing underwriter may limit the Registrable Securities to
be included in such registration or exclude them entirely. The Company shall so
advise all Holders, and the number of shares of Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among all Holders and other holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders and other securities held by other holders at the time of filing the
registration statement; provided, however, that no officer, director or employee
                        --------  -------                                       
shall be entitled to have any securities held personally by them included in the
registration until all Registrable Securities requested to have been included
are so included. To facilitate the allocation of shares in accordance with the
above provisions, the Company or the underwriters may round the 

                                     -12-
<PAGE>
 
number of shares allocated to any Holder or other holder to the nearest 100
shares. If any Holder or other holder disapproves of the terms of any such
underwriting, he or she may elect to withdraw therefrom by written notice to the
Company and the managing underwriter. Any securities excluded or withdrawn from
such underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to 180 days after the effective date
of the registration statement relating thereto.

               (c) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
                   ------------------------------- 
right to terminate or withdraw any registration initiated by it under this
Section 1.6 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.

          1.7  REGISTRATION ON FORM S-3.
               ------------------------ 

               (a) If any Holder requests that the Company file a registration
statement on Form S-3 (or any successor form to Form S-3) for a public offering
of shares of the Registrable Securities, the reasonably anticipated aggregate
price to the public of which, net of underwriting discounts and commissions,
would exceed $1,000,000, and the Company is a registrant entitled to use Form S-
3 to register the Registrable Securities for such an offering, the Company shall
use its best efforts to cause such Registrable Securities to be registered for
the offering on such form; provided, however, that the Company shall not be
                           --------  -------
required to effect more than two registrations pursuant to this Section 1.7 in
any 12 month period. The Company will (i) promptly give written notice of the
proposed registration to all other Holders, and (ii) as soon as practicable, use
its best efforts to effect such registration (including, without limitation, the
execution of an undertaking to file post-effective amendments, appropriate
qualification under applicable blue sky or other state securities laws and
appropriate compliance with applicable regulations issued under the Securities
Act and any other governmental requirements or regulations) as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion of the Registrable Securities of any Holder or
Holders joining in such request as are specified in a written request received
by the Company within 30 days after receipt of such written notice from the
Company. The provisions of Section 1.5(b) shall be applicable to each
registration initiated under this Section 1.7.

               (b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.7: (i) in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration, qualification or
compliance unless the Company is already subject to service in such jurisdiction
and except as may be required by the Securities Act, (ii) during the period
starting with the date 60 days prior to the filing of, and ending on a date 90
days following the effective date of, a registration statement (other than with
respect to a registration statement relating to a Rule 145 transaction, an
offering solely to employees or any other registration which is not appropriate
for the registration of Registrable Securities), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective, or (iii) if the Company shall
furnish to such Holder a certificate signed by the President

                                     -13-
<PAGE>
 
of the Company stating that, in the good faith judgment of the Board of
Directors, it would be seriously detrimental to the Company or its shareholders
for registration statements to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a single period not to exceed 120 days from the receipt of the
request to file such registration by such Holder or Holders.

          1.8  LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS.  From and after
               ---------------------------------------------                 
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement granting any holder or prospective holder
of any securities of the Company registration rights with respect to such
securities unless (i) such new registration rights, including standoff
obligations, are on a pari passu basis with those rights of the Holders under
this Agreement, or (ii) such new registration rights, including standoff
obligations, are subordinate to the registration rights granted Holders under
this Agreement.

          1.9  EXPENSES OF REGISTRATION.  All Registration Expenses incurred in
               ------------------------                                        
connection with any registration pursuant to Sections 1.5, 1.6 and 1.7 and the
reasonable cost of one special legal counsel to represent all of the Holders
together in any such registration under Section 1.5 shall be borne by the
Company, provided that the Company shall not be required to pay the Registration
Expenses of any registration proceeding begun pursuant to Section 1.5, the
request of which has been subsequently withdrawn by the Initiating Holders.  In
such case, the Holders of Registrable Securities to have been registered shall
bear all such Registration Expenses pro rata on the basis of the number of
shares to have been registered.  Notwithstanding the foregoing, however, if at
the time of the withdrawal, the Holders have learned of a material adverse
change in the condition, business or prospects of the Company from that known to
the Holders at the time of their request, then the Holders shall not be required
to pay any of said Registration Expenses and such registration shall not be
treated as a counted registration under Section 1.5.  Unless otherwise stated,
all other Selling Expenses relating to securities registered on behalf of the
Holders shall be borne by the Holders of the registered securities included in
such registration pro rata on the basis of the number of shares so registered.

          1.10 REGISTRATION PROCEDURES.  In the case of each registration,
               -----------------------                                    
qualification or compliance effected by the Company pursuant to this Section 1,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof.  At its expense the Company will:

               (a) Prepare and file with the Commission a registration statement
with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least 120 days or
until the distribution described in the registration statement has been
completed;

               (b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;

                                     -14-
<PAGE>
 
               (c) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;

               (d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such 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 or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that as thereafter delivered
to the purchasers of such shares, 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 or
incomplete in the light of the circumstances then existing;

               (e) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;

               (f) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant to such registration statement and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration; and

               (g) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable, an earnings statement covering the
period of at least 12 months, but not more than 18 months, beginning with the
first month after the effective date of the Registration Statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act.

          1.11 INDEMNIFICATION.
               --------------- 

               (a) The Company will indemnify each Holder, each of its officers
and directors and partners, and each person controlling such Holder within the
meaning of Section 15 of the Securities Act, with respect to which registration,
qualification or compliance has been effected pursuant to this Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all expenses, claims,
losses, damages or 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 

                                     -15-
<PAGE>
 
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 were made, not misleading, or any violation by the
Company of any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse each such Holder,
each of its officers and directors, 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 the Company 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 the Company by an instrument duly executed by such Holder,
controlling person or underwriter and stated to be specifically for use therein.
The indemnity provided under this Section 1.11(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if the
Company has defended such matter and if such settlement is effected without the
Company's consent, which consent shall not be unreasonably withheld.

               (b) Each Holder 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 the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities 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
Securities 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) of 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
the Company, such Holders, such directors, officers, persons, 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 the Company by an instrument duly executed by such Holder and
stated to be specifically for use therein. Notwithstanding any other term or
provision of this Agreement to the contrary, no Holder will be liable for any
amount under this Section 1.11 in excess of the net proceeds received by such
Holder in connection with such registration statement.

               (c) Each party entitled to indemnification under this Section
1.11 (the "Indemnified Party") shall give notice to the party required to
           ----------------- 
provide indemnification (the "Indemnifying Party") promptly after such
                              ------------------
Indemnified Party has actual knowledge 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

                                     -16-
<PAGE>
 
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided that the Indemnified Party may
participate in such defense (with the Indemnifying Party continuing to control
the defense) with its own counsel at the Indemnifying Party's expense if a
conflict of interest may exist between the Indemnifying Party and the
Indemnified Party; 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 Section 1 unless the failure to give such notice
is materially prejudicial to an Indemnifying Party's ability to defend such
action. 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 into 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, whether or not the Indemnified Party is a party to such claim or
litigation.

               (d) If the indemnification provided for in this Section 1.11 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.

          1.12 INFORMATION BY HOLDER.  The Holder or Holders of Registrable
               ---------------------                                       
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.

          1.13 RULE 144 REPORTING.  With a view to making available the benefits
               ------------------                                               
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to use its best efforts to:

               (a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the periodic
reporting requirements of the Securities Act or the Securities Exchange Act of
1934, as amended (the "Exchange Act");
                       ------------   

                                     -17-
<PAGE>
 
               (b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and

               (c) So long as a Holder owns any Restricted Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the Exchange Act (at any time after it has become
subject to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents of the
Company and other information in the possession of or reasonably obtainable by
the Company as a Holder may reasonably request in availing itself of any rule or
regulation of the Commission allowing a Holder to sell any such securities
without registration.

          1.14 TRANSFER OF REGISTRATION RIGHTS.  The rights to cause the Company
               -------------------------------                                  
to register securities granted Holders under Sections 1.5, 1.6 and 1.7 may be
assigned to a transferee or assignee reasonably acceptable to the Company in
connection with any transfer or assignment of Registrable Securities by a Holder
(together with any affiliate); provided, that (a) such transfer may otherwise be
                               --------                                         
effected in accordance with applicable securities laws, (b) notice of such
assignment is given to the Company, and (c) such transferee or assignee (i) is a
wholly-owned subsidiary, constituent partner (including limited partners),
shareholder, parent, child or spouse of such Holder or is Holder's estate, or
(ii) acquires from such Holder the lesser of (a) 250,000 or more shares of
Restricted Securities (as appropriately adjusted for stock splits and the like)
or (b) all of the Restricted Securities then owned by such Holder.

          1.15 STANDOFF AGREEMENT.  In connection with the initial public
               ------------------                                        
offering of the Company's securities and upon request of the Company or the
underwriters of such offering, each Holder agrees not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration) without
the prior written consent of the Company or such underwriters, as the case may
be, for such period of time (not to exceed 180 days) from the effective date of
such registration as may be requested by the Company or such managing
underwriters, provided that each of the Company's officers and directors shall
have agreed to be bound by the same restrictions in connection with the
Company's initial public offering.

          1.16 TERMINATION OF RIGHTS.  The rights of any particular Holder to
               ---------------------                                         
cause the Company to register securities under Sections 1.5, 1.6 and 1.7 shall
terminate with respect to such Holder following a Qualifying IPO at such time as
such Holder is able to dispose of all its Registrable Securities and other
shares of capital stock of the Company then held or then issuable upon exercise
of options or warrants in one three-month period pursuant to the provisions of
Rule 144; provided, that such Holder holds Registrable Securities and other
          --------                                                         
shares of capital stock of the Company then held or then issuable upon exercise
of options or warrants constituting less than 1% of the outstanding voting stock
of the Company.  Notwithstanding the 

                                     -18-
<PAGE>
 
foregoing, or any other provision herein to the contrary, the rights to cause
the Company to register its securities under this Agreement shall in any event
terminate five years after the closing of a Qualifying IPO.

2.   COVENANTS.
     --------- 

          2.1  COVENANTS OF RETIX.
               -------------------

               (a) Retix grants to each of the Investors the following rights
with respect to any proposed sale to a third party of the Company's capital
stock held by Retix:

                   (i) In the event that Retix desires to sell or transfer to
any person (the "Proposed Sale") any of the shares of the Company's capital
                 -------------  
stock held by Retix (the "Retix Shares"), then Retix first shall provide the
                          ------------
Investors, or a single representative designated by the Investors (the "Investor
                                                        --------
Representative"), with written notice (the "First Notice") of such intent.  The
                                            ------------                       
First Notice shall state in reasonable detail the terms and conditions of any
such Proposed Sale, including, without limitation, the number of Retix Shares to
be sold, the nature of such sale, the consideration to be paid, and the name of
each prospective purchaser or transferee (if any).  The Investors shall have the
right, exercisable upon written notice to Retix within 30 days after receipt of
the First Notice (the "First Notice Period"), to purchase the Retix Shares on
                       -------------------                                   
the same material terms and conditions specified in the First Notice.  Each
Investor may elect to purchase or obtain up to that portion of the Retix Shares
which equals the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Investor bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities).  Retix shall notify each Investor that
purchases all of the Retix shares available to it (each, a "Fully-Exercising
                                                            ----------------
Investor") of any other Investor's failure to do likewise.  After receipt of
--------                                                                    
such notice, but in any event prior to the expiration of the First Notice
Period, each Fully-Exercising Investor shall be entitled to obtain that portion
of the Retix Shares for which the Investors were entitled to subscribe but which
were not subscribed for that is equal to the proportion that the number of
shares of Common Stock issued and held, or issuable upon conversion and exercise
of all convertible or exercisable securities then held, by such Fully-Exercising
Investor bears to the total number of shares of Common Stock then held (assuming
full conversion and exercise of all convertible or exercisable securities) by
all of the other Fully Exercising Investors.  If the Investors elect not to
purchase any of the Retix Shares subject to the First Notice, then Retix may
enter into an agreement to sell such shares at a price and on terms and
conditions not materially more favorable to the prospective purchasers than
those described in the First Notice, which agreement must provide for the
closing of the sale of the Retix shares not later than 90 days from the date of
the First Notice.  Any proposed transfer on terms and conditions materially more
favorable to the prospective purchasers than those described in the First
Notice, as well as any subsequent proposed transfer of any of the Retix Shares
by Retix, shall be subject this Section 2.1(a)(i).  This Section 2.1(a)(i) shall
terminate upon the earlier of January 15, 1999, or the date specified in Section
2.4(a) below.

                                     -19-
<PAGE>
 
                   (ii) If this Section 2.1(a) has not been terminated earlier
pursuant to Section 2.4(a) below, in the event of a Proposed Sale by Retix after
January 15, 1999, Retix shall provide the Investors or the Investor
Representative with written notice (the "Second Notice") thereof. The Second
                                         -------------                     
Notice shall state in the terms and conditions of any such Proposed Sale,
including, without limitation, the number of Retix Shares to be sold, the nature
of such sale, the consideration to be paid, and the name of each prospective
purchaser or transferee, in each case to the extent such information is
reasonably known to Retix. Retix shall negotiate the terms of such Proposed Sale
with an Investor Representative in good faith and on a non-exclusive basis for a
period not to exceed 30 days after the date of the Second Notice (the
"Discussion Period"). Retix shall keep the Investor Representative generally
 -----------------    
informed of its discussions with any third parties regarding the Proposed Sale
during the Discussion Period to the extent that such disclosure does not violate
the terms of any contractual obligation of Retix. Retix and the Investors
acknowledge and agree that Retix shall have no obligation under this Section
2.1(a)(ii) to enter into a definitive agreement with the Investors concerning
any Proposed Sale if it so elects in its discretion. Following expiration of the
Discussion Period, in the event Retix has not entered into written, binding
letter of intent or definitive, written agreement regarding such Proposed Sale
with the Investors, Retix may thereafter enter into a definitive, written
agreement with a third party regarding such Proposed Sale within the next
succeeding 120 day period. Following expiration of such 120 day period, in the
event Retix has not entered into a definitive, written agreement regarding such
Proposed Sale, such sale shall again be subject to this Section 2.1(a)(ii).

                   (iii) Notwithstanding any other provision herein, the rights
created in this Section 2.1(a) shall not be deemed to apply to a bona fide
business acquisition of Retix, whether by merger, consolidation, sale of assets,
sale or exchange of a majority of the capital stock or otherwise.

          (b) Notwithstanding any other provision in this Agreement to the
contrary, Retix shall not transfer or otherwise distribute any of the
Registrable Securities held by Retix to its shareholders or any other transfer
which would result in the Company becoming subject to the periodic reporting
requirements of Sections 13 and 15(d) of the Exchange Act without the prior
approval of the Board of Directors of the Company.

          (c) In the event that shares of the Company's Series A Preferred Stock
or Series B Preferred Stock have a right to vote on any matter submitted to the
Company's shareholders under applicable law, then Retix shall vote any shares of
the Company's Series A Preferred Stock or Series B Preferred Stock, as
applicable, held by Retix consistent with the vote of 66-2/3% of the Company's
Series C Preferred Stock.  In the event that holders of at least 66-2/3% of the
then outstanding shares of Series C Preferred Stock elect to convert
automatically all shares of Series C Preferred Stock under Section
III(3)(aa)(iii) of the Company's Amended and Restated Articles of Incorporation,
Retix shall contemporaneously consent to the conversion of the then outstanding
shares of Series B Preferred Stock under the same conditions applicable to the
conversion of the Series C Preferred Stock.  Notwithstanding the foregoing,
Retix shall not be obligated to vote or provide its consent with respect to any
shares of the Company's Series A Preferred Stock or Series B Preferred Stock
held by Retix pursuant to this Section 2.1(c) with 

                                     -20-
<PAGE>
 
respect to any matter or action if the effect thereof would be to treat the
Series B Preferred Stock in a manner adversely and differently than the Series C
Preferred Stock or to materially and adversely affect the rights, preferences
and privileges of the Series A Preferred Stock.

          2.2  COVENANTS OF THE COMPANY.
               ------------------------ 

               (a) DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver
                   --------------------------------
to each Holder of at least 250,000 shares of Registrable Securities with respect
to clauses (i) and (ii) below and at least 1,000,000 shares of Registrable
Securities with respect to clause (iii) below (other than a Holder reasonably
deemed by the Company to be a competitor of the Company):

                   (i) as soon as practicable, but in any event within 90 days
after the end of each fiscal year of the Company, a consolidated income
statement for such fiscal year, a consolidated balance sheet of the Company and
statement of shareholder's equity as of the end of such year, and consolidated
statements of income and cash flows for such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles consistently applied ("GAAP"), and audited and
                                                      ----  
certified by an independent public accounting firm of nationally recognized 
standing selected by the Company;

                   (ii) as soon as practicable, but in any event within 30 days
after the end of each of the first three (3) quarters of each fiscal year of the
Company, an unaudited consolidated profit or loss statement, consolidated
statements of income and cash flows for such fiscal quarter and an unaudited
consolidated balance sheet as of the end of such fiscal quarter prepared in
accordance with GAAP consistently applied; and

                   (iii) as soon as practicable, but in any event 30 days prior
to the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company.

               (b)  INSPECTION. The Company shall permit each Holder of at 
                    ----------
least 1,000,000 shares of Registrable Securities or such Holder's representative
(except for a Holder reasonably deemed by the Company to be a competitor of the
Company), at such Holder's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such holder; provided, however, that the
                                                     --------  ------- 
Company shall not be obligated pursuant to this Section 2.2(b) to provide access
to any information which it reasonably considers to be a trade secret or similar
confidential information unless such Holder and its representative shall execute
a confidentiality agreement in customary form acceptable to the Company.

               (c) RIGHT OF FIRST OFFER. Subject to the terms and conditions
                   --------------------                                      
specified in this Section 2.2(c), the Company hereby grants to each Holder a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). A Holder who chooses to exercise the right of first
offer may designate as purchasers under such right itself or 

                                     -21-
<PAGE>
 
its partners or affiliates in such proportions as it deems appropriate. Each
time the Company proposes to offer any shares of, or securities convertible into
or exercisable for any shares of, any class of its capital stock ("Shares"), the
                                                                   ------    
Company shall first make an offering of such Shares to each Holder in accordance
with the following provisions:

                   (i) The Company shall deliver a notice as provided in Section
3.5 below (the "Notice") to the Holder stating (i) its bona fide intention to
                ------   
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms, if any, upon which it proposes to offer such Shares.

                   (ii) Within 15 calendar days after delivery of the Notice,
the Holder may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Holder bears to the total number of shares of
Common Stock then outstanding (assuming full conversion and exercise of all
convertible or exercisable securities). The Company shall promptly, in writing,
inform each Holder that purchases all the shares available to it (each, a 
"Fully-Exercising Holder") of any other Holder's failure to do likewise. During
 -----------------------
the 10-day period commencing after receipt of such information, each Fully-
Exercising Holder shall be entitled to obtain that portion of the Shares for
which Holders were entitled to subscribe but which were not subscribed for that
is equal to the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion and exercise of all convertible or exercisable
securities then held, by such Fully-Exercising Holder bears to the total number
of shares of Common Stock then outstanding (assuming full conversion and
exercise of all convertible or exercisable securities).

                   (iii) The Company may, during the 90-day period following the
expiration of the period provided in Section 2.2(c)(ii) hereof, offer the
remaining unsubscribed portion of the Shares to any person or persons at a price
not less than, and upon terms no more favorable to the offerees than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within 60 days of the execution thereof, the right provided hereunder shall be
deemed to be revived and such Shares shall not be offered unless first reoffered
to the Holders in accordance herewith.

                   (iv) The right of first offer in this Section 2.2(c) shall
not be applicable (i) to the issuance or sale of up to 2,750,000 shares (or such
greater number as is unanimously approved by the Board of Directors) of Common
Stock (or options therefor) to employees, consultants and directors, pursuant to
plans or agreements approved by the Board of Directors for the primary purpose
of soliciting or retaining their services, (ii) to or after consummation of a
Qualified IPO, (iii) to the issuance of securities pursuant to the conversion or
exercise of presently outstanding convertible or exercisable securities, (iv) to
the issuance of securities in connection with a bona fide business acquisition
of or by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise, (v) to the issuance of securities to financial
institutions or lessors in connection with commercial credit 

                                     -22-
<PAGE>
 
arrangements, equipment financings, or similar transactions, (vi) to the
issuance or sale of the Company's Series A Preferred Stock, Series B Preferred
Stock or Series C Preferred Stock, (vii) to the issuance of securities that,
with unanimous approval of the Board of Directors of the Company, are not
offered to any existing shareholder of the Company, or (viii) to any issuance as
to which Holders of 66-2/3% of the then outstanding Registrable Securities have
waived such right of first offer; provided, however, that (1) the Holders voting
                                  --------  -------   
to waive such right of first offer may not thereafter acquire shares of the
Company's capital stock in such issuance, and (2) the sale of the Company's
capital stock in such issuance shall not be less than $1,4876 per share (as
adjusted for stock splits, dividends and the like).

               (d) BOARD OBSERVER RIGHTS. Retix shall have the right to
                   ---------------------  
designate one representative to attend all meetings of the Company's Board of
Directors in a nonvoting observer capacity, and, in this respect, the Company
shall give Retix copies of all notices, minutes, consents, and other material
that the Company provides to its directors; provided, however, that the Company
reserves the right to exclude Retix from any meeting or portion thereof, and
deny Retix access to any material, if the Company believes upon advice of
counsel that such exclusion or denial of access is reasonably necessary to
preserve the attorney-client privilege, to protect highly confidential
proprietary information, or for other similar reasons. Retix agrees to hold in
confidence and trust and not use or disclose any confidential information
provided to Retix or learned in connection with Retix's rights under this
Section 2.2(d). Confidential information does not include information, technical
data or know-how which (i) is in the possession of Retix at the time of
disclosure as shown by Retix's files and records immediately prior to the time
of disclosure; (ii) prior or after the time of disclosure becomes public
knowledge, not as a result of any action or inaction of the receiving party;
(iii) is approved for release by Company; or (iv) is required to be produced by
Retix pursuant to statute, regulation, subpoena, criminal or civil investigative
demand or similar process, provided that Retix provides the Company with prompt
written notice of such requirement so that the Company may seek (with the
cooperation and reasonable efforts of Retix) a protective order, confidential
treatment or other appropriate remedy. Nothing in this Section 2.2(d) shall be
deemed, however, to abridge Retix' rights with respect to the election of
directors or access to information as provided by applicable law or the
Company's Bylaws.

          2.3  COVENANTS OF ALL INVESTORS.
               -------------------------- 

               (a) Notwithstanding any other provision in this Agreement to the
contrary, neither Retix nor any Investor shall sell, transfer or otherwise
dispose of any Registrable Securities to any of the following parties without
the prior written consent of the Company and the holders of 66-2/3% of the
Registrable Securities then outstanding: Ascend Communications, Inc., Sahara
Networks, Inc., Xylan Corporation, 3Com Corporation, Yurie Systems, Inc. or
Cisco Systems, Inc., or their respective successors or assigns.

               (b) Notwithstanding the foregoing, this Section 2.3 shall not be
applicable to (i) the sale, transfer or other disposition of any Registrable
Securities by Retix in connection with a bona fide business acquisition of
Retix, whether by merger, consolidation, sale of assets, sale or exchange of a
majority of the capital stock or otherwise, or (ii) the transfer by 

                                     -23-
<PAGE>
 
any Investor of any Registrable Securities by such Investor to any constituent
partner (including limited partners) thereof for no value.

          2.4  TERMINATION OF COVENANTS.
               ------------------------ 

               (a) The covenants set forth in Section 2.1 and Section 2.2(d)
shall be of no further force or effect (i) immediately prior to the consummation
of a Qualified IPO, or (ii) at such time as Retix owns less than 50% of the
capital stock of the Company held by Retix upon the consummation of the Series C
Preferred Stock financing of the Company.

               (b) The covenants set forth in Sections 2.1, 2.2 and 2.3 shall
terminate as to each Holder and be of no further force or effect (i) immediately
prior to the consummation of a Qualified IPO, (ii) when the Company shall sell,
convey, or otherwise dispose of all or substantially all of its property or
business or merge into or consolidate with any other corporation (other than a
wholly-owned subsidiary corporation) or effect any other transaction or series
of related transactions in which more than 50% of the voting power of the
Corporation is disposed of, provided that this subsection (ii) shall not apply
to a merger effected exclusively for the purpose of changing the domicile of the
Company, or (iii) when the Company first becomes subject to the periodic
reporting requirements of Sections 13 or 15(d) of the Exchange Act, if this
occurs earlier than the events described in Section 2.4(a) above or in this
Section 2.4(b).

     3.   MISCELLANEOUS.
          ------------- 

          3.1  ASSIGNMENT.  Except as otherwise provided in this Agreement, the
               ----------                                                      
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties to this
Agreement.

          3.2  THIRD PARTIES.  Nothing in this Agreement, express or implied, is
               -------------                                                    
intended to confer upon any party, other than the parties to this Agreement, and
their respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

          3.3  GOVERNING LAW.  This Agreement shall be governed by and construed
               -------------                                                    
under the laws of the State of California in the United States of America.

          3.4  COUNTERPARTS.  This Agreement may be executed in counterparts,
               ------------                                                  
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.

          3.5  NOTICES.  All notices or other communications which shall or may
               -------                                                         
be given pursuant to this Agreement shall be in writing, shall be effective upon
receipt, and shall be delivered by Federal Express or a similar courier,
personal delivery, certified or registered mail, or by facsimile transmission
(with confirmation of transmission receipt), addressed as set forth on the
signature page of this Agreement (or as is provided in the future by written
notice as provided herein).

                                     -24-
<PAGE>
 
          3.6  SEVERABILITY.  If one or more provisions of this Agreement are
               ------------                                                  
held to be unenforceable under applicable law, portions of such provisions, or
such provisions in their entirety, to the extent necessary, shall be severed
from this Agreement, and the balance of this Agreement shall be enforceable in
accordance with its terms.

          3.7  AMENDMENT AND WAIVER.  Any provision of this Agreement may be
               --------------------                                         
amended or waived, either prospectively or retroactively, with the written
consent of the Company, and the Holders of at least a majority of the
outstanding Registrable Securities; provided, however that no amendment or
waiver shall be made that adversely affects any Holder of Registrable Securities
in a manner that does not similarly affect all Holders of Registrable Securities
without the consent of the affected Holder.  Notwithstanding the foregoing, no
amendment to Section 2.1, Section 2.2(d) or Section 2.3(a) which increases
Retix' obligations or diminishes its rights may be amended or waived with
respect to Retix without Retix' written consent.  Any amendment or waiver
effected in accordance with this paragraph shall be binding upon each Holder of
Registrable Securities and the Company.  In addition, the Company may waive
performance of any obligation owing to it, as to some or all of the Holders of
Registrable Securities, or agree to accept alternatives to such performance,
without obtaining the consent of any Holder of Registrable Securities.   In the
event that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing from this
Agreement, as to any such Holder the terms of such underwriting agreement shall
govern.  This Agreement may also be amended by the Company solely to include
additional Purchasers at any Subsequent Closing under the Company's Series C
Preferred Stock Purchase Agreement of even date herewith as "Investors" and
"Holders" for all purposes hereunder.

          3.8  EFFECT OF AMENDMENT OR WAIVER.  The Holders and their successors
               -----------------------------                                   
and assigns acknowledge that by the operation of Section 3.7 of this Agreement
the holders of a majority of the outstanding Registrable Securities, acting in
conjunction with the Company, will have the right and power to diminish or
eliminate rights or increase obligations pursuant to this Agreement to the
extent provided in such Section 3.7.

          3.9  RIGHTS OF HOLDERS.  Each Holder of Registrable Securities shall
               -----------------                                              
have the absolute right to exercise or refrain from exercising any right or
rights that such Holder may have by reason of this Agreement, including, without
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such Holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.

          3.10 DELAYS OR OMISSIONS.  No delay or omission to exercise any right,
               -------------------                                              
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of or in any similar breach or
default thereafter occurring; nor shall any waiver of any single breach or
default be deemed a waiver of any other breach or default theretofore or
thereafter occurring.  Any waiver, permit, consent or approval of any kind or
character on the part of any party of any 

                                     -25-
<PAGE>
 
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.

          3.11 TERMINATION OF PRIOR AGREEMENT.  The Rights Agreement between
               ------------------------------                               
Retix and the Company dated May 31, 1996, as amended is hereby terminated and is
superseded in its entirety by the terms of this Agreement.

                            [SIGNATURE PAGE FOLLOWS]

                                     -26-
<PAGE>
 
     IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Rights Agreement as of the day and year first above written.



"COMPANY"

SONOMA SYSTEMS


By:_________________________________


Title:______________________________

Address:  4640 Admiralty Way
          Suite 600
          Marina del Rey, CA 90292-6695



"INVESTORS"                         RETIX



_____________________________       By:______________________________
(Print Name of Investor)


By:__________________________       Title:___________________________



Title:_______________________         Address:  4640 Admiralty Way
                                                Marina del Rey, CA 90292-6695
 

Address:_____________________

_____________________________ 

_____________________________  


                                     -27-
<PAGE>
 
                                   EXHIBIT A
                                   ---------
                                        

                                        
                             SCHEDULE OF INVESTORS

                       INITIAL CLOSING - JANUARY 15, 1998

<TABLE>
<CAPTION>
INVESTOR                                        NUMBER OF REGISTRABLE SECURITIES              T0TAL PURCHASE PRICE
--------                                        --------------------------------              --------------------
<S>                                             <C>                                           <C>

Rock Ventures, L.L.C.                                       33,611                                   $49,999.73
Three Allied Drive                                                          
Suite 135                                                                   
Dedham, MA 02026                                                            
                                                                             
VantagePoint Venture Associates 1996                     2,520,838                                $3,749,998.60
By:  VantagePoint Associates, L.L.C.                                        
1001 Bayhill Drive                                                          
San Bruno, CA 94066                                                         
                                                                             
Crosspoint Venture Partners 1997                         2,520,838                                $3,749,998.60
18552 MacArthur Boulevard                                                   
Suite 400                                                                   
Irvine, CA 92612                                                            
                                                                             
Lazard Freres & Co. L.L.C.                                 470,556                                  $699,999.10
30 Rockefeller Center                                                       
New York, NY 10022                                                          
                                                                             
Total:                                                   5,545,843                                 $8,249,996.03
</TABLE>
                                        


                                 SECOND CLOSING
                                 --------------
                                        
                               ___________ ___, 1998
                                        


<TABLE>
<CAPTION>
                  NAME                          NUMBER OF REGISTRABLE SECURITIES              T0TAL PURCHASE PRICE
                  ----                          --------------------------------              --------------------
                  <S>                           <C>                                           <C>

                  TBD                                      504,157                                  $749,983.95
                  ---                                                         
TOTAL:                                                   6,050,000                                $8,999,979.98    
------                                                             
 
</TABLE>
                                        
<PAGE>
 
                                January 15, 1998



To the Purchasers of Series C Preferred
Stock of Sonoma Systems Listed
on Exhibit A to the Series C Preferred Stock
   ---------                                
Purchase Agreement

Ladies and Gentlemen:

     We have acted as counsel for Sonoma Systems, a California corporation (the
"Company") and Retix, a California corporation ("Retix") in connection with the
 -------                                                                       
sale by the Company to you of 5,545,843 shares of the Company's Series C
Preferred Stock (the "Shares") pursuant to the Series C Preferred Stock Purchase
                      ------                                                    
Agreement (the "Purchase Agreement") dated January 15, 1998 among the Company,
                ------------------                                            
Retix, and the persons listed on Exhibit A attached thereto (the "Purchasers"),
                                 ---------                        ----------   
and the negotiation, execution and delivery by the Company of the Amended and
Restated Rights Agreement dated January 15, 1998 (the "Rights Agreement").  This
                                                       ----------------         
opinion is given to you in compliance with Section 4.5 of the Purchase
Agreement.  The Purchase Agreement and the Rights Agreement are referred to
herein collectively as the "Agreements."  Unless defined herein, capitalized
                            ----------                                      
terms have the meaning given them in the Agreements.



     In rendering this opinion, we have made such legal and factual examinations
and inquiries as we have deemed advisable or necessary for the purpose of
rendering this opinion.  In addition, we have examined originals or copies of
documents, corporate records and other writings which we consider relevant for
the purposes of this opinion.  In such examination, we have assumed the
genuineness of all signatures on original documents, the conformity to original
documents of all copies submitted to us and the due execution and delivery of
all documents, other than those executed and delivered by the Company and Retix,
where due execution and delivery are a prerequisite to the effectiveness
thereof.  In making our examination of documents executed by entities other than
the Company and Retix, we have assumed that each other entity had the power to
enter into and perform all its obligations thereunder and we also have assumed
the due authorization by each such other entity of all requisite actions and the
due execution and delivery of such documents by each such other entity.

     Whenever our opinion herein with respect to the existence or absence of
facts is indicated to be based on our knowledge or belief, it is intended to
signify that in the course of our representation of the Company and Retix in
connection with the transactions referred to in the first paragraph hereof after
an examination of documents made available to us by the Company and Retix, and
after inquiries of officers of the Company and Retix, and after such other
inquiry or investigation as we have deemed necessary or appropriate, no
information has come to the attention of Craig W. Johnson, Elias J. Blawie,
David M. Jargiello, Laura A. Gordon or Vivian P.

<PAGE>
 
Morris (the only lawyers at Venture Law Group working on this transaction) that
would give them actual knowledge of the existence or absence of such facts.
Except as otherwise indicated herein, we have not undertaken any independent
investigation to determine the existence or absence of such facts, and no
inference as to our knowledge of the existence or absence of such facts should
be drawn from the fact of our representation of the Company.

     In rendering the opinion set forth in paragraph (c) below relating to the
fully paid status of all of the issued shares of capital stock of the Company,
we have relied without independent verification on the Certificate of Gregory
Koss, President and Chief Executive Officer of the Company (the "Opinion
                                                                 -------
Certificate"), to the effect that the Company has received the consideration
-----------                                                                 
approved by the Board of Directors for all of the issued shares of capital stock
of the Company.

     In rendering the opinion set forth in paragraph (c) below, to the extent it
relates to the outstanding capital stock of the Company, we have relied on our
review of the minute books and stock records of the Company.  In rendering the
opinion set forth in paragraph (c) below, to the extent it relates to options,
warrants or any other conversion privileges or rights of the Company, we have
relied without further investigation on our review of the stock records of the
Company and statements in the Opinion Certificate relating to the capitalization
of the Company.

     In rendering the opinion set forth in paragraph (a) below, (1) in order to
determine in which states qualification is appropriate, we have assumed that
qualification may be required only in those states in which the Company owns or
leases real property, maintains offices, performs services or has employees, and
we have relied on the Company's listing of those states in the Opinion
Certificate, and (2) as to the qualification and good standing of the Company in
the states so identified in such Opinion Certificate, we have relied exclusively
on certificates of public officials, although we have not obtained tax good
standing certificates (other than a California franchise tax certificate for the
Company) and no opinion is provided with respect to tax good standing (other
than with respect to the Company in California).

     In rendering the opinion in paragraph (e) below, we have reviewed and are
providing an opinion only with respect to those judgments and orders set forth
in the Opinion Certificate and/or the Schedule of Exceptions to the Purchase
Agreement, if any.

     In rendering the opinion expressed in paragraph (h) below, we have assumed
and express no opinion with respect to the following:  (1) that the
representations and warranties of the Purchasers set forth in the Agreements are
true and complete; and (2) the accuracy and completeness of the information
provided by the Company to the Purchasers in connection with such offer and
sale.  We have also assumed the accuracy of, and have relied upon, the Company's
representations to us that the Company has made no offer to sell the Shares by
means of any "general solicitation," as defined in Regulation D under the
              --------------------                                       
Securities Act or the "publication of any advertisement" (as defined under the
                       --------------------------------                       
California Corporate Securities Law of 1968, as amended, and the regulations
thereunder) and that no offer or sale of the Shares has been made or will be
made in any states other than California.
<PAGE>
 
     The opinions hereinafter expressed are subject to the following further
qualifications:

          (i) Our opinions are qualified by the effect of bankruptcy,
insolvency, reorganization, arrangement, moratorium or other similar laws
relating to or affecting the rights of creditors generally, including, without
limitation, laws relating to fraudulent transfers or conveyances, preferences
and equitable subordination;

          (ii) Our opinions are qualified by the limitations imposed by general
principles of equity upon the availability of equitable remedies or the
enforcement of provisions of the Agreements; and the effect of judicial
decisions which have held that certain provisions are unenforceable when their
enforcement would violate the implied covenant of good faith and fair dealing,
or would be commercially unreasonable, or where their breach is not material;

          (iii)  A requirement that provisions of the Agreements may only be
waived in writing will not be enforced to the extent an oral agreement has been
executed modifying provisions of the Agreements;

          (iv) Our opinion is based upon current statutes, rules, regulations,
cases and official interpretive opinions;

          (v) The effect of judicial decisions which may permit the introduction
of extrinsic evidence to modify the terms or the interpretation of the
Agreements;

          (vi) The enforceability of provisions of the Agreements providing that
rights or remedies are not exclusive, that every right or remedy is cumulative,
or that the election of a particular remedy or remedies does not preclude
recourse to one or more other remedies.

          (vii)  We express no opinion as to compliance with applicable
antifraud statutes, rules or regulations of applicable state and federal laws
concerning the issuance or sale of securities;

          (viii)  Provisions in the Rights Agreement purporting to provide for
indemnification and contribution under certain circumstances may be
unenforceable; and

          (ix) We express no opinion as to the enforceability of Section 2.3(a)
or Section 2.1(c) of the Rights Agreement.


     Based upon and subject to the foregoing, and except as set forth in the
Schedule of Exceptions, we are of the opinion that:


     (a) The Company is a corporation duly organized and validly existing under
the laws of the State of California, and is in good standing under such laws.
The Company has the requisite corporate power to own and operate its properties
and assets, and to carry on its business as presently conducted.  The Company is
qualified to do business as foreign corporations in each state in which the
failure to be so qualified would have a material adverse effect on the Company.
<PAGE>
 
     (b) Each of Retix and the Company has the requisite legal and corporate
power to execute and deliver the Agreements and to carry out and perform its
obligations under the terms of the Agreements.  The Company has the requisite
legal and corporate power to sell and issue the Shares thereunder and to issue
the Common Stock issuable upon conversion of the Shares.

     (c) The authorized capital stock of the Company consists or will, upon the
filing of the Restated Articles, consist of 25,000,000 shares of Common Stock,
par value $0.01 per share, 12,154 of which are issued and outstanding as of the
Closing Date, and 19,250,000 shares of Preferred Stock, par value $0.01 per
share, 1,000,000 shares of which have been designated Series A Preferred Stock
("Series A Preferred"), all of which are issued and outstanding prior to the
  ------------------                                                        
Closing, 715,475 shares of which have been designated Series B Preferred Stock
("Series B Preferred"), all of which are issued and outstanding prior to the
  ------------------                                                        
Closing, and 7,534,525 shares of which have been designated Series C Preferred
Stock ("Series C Preferred"), 1,484,525 of which are issued and outstanding
        ------------------                                                 
prior to the Closing.  All such issued and outstanding shares of Common Stock
and Preferred Stock have been duly authorized and validly issued in compliance
with all applicable federal and state laws regarding the registration or
qualification of securities, and are fully paid and nonassessable and free of
any preemptive or similar rights contained in the Company's Amended and Restated
Articles of Incorporation, and Bylaws, as amended, or to our knowledge, in any
other agreement to which the Company is a party.  The Company has reserved
8,250,000 shares of Common Stock for issuance upon conversion of Preferred
Stock, and 6,050,000 shares of Series C Preferred for issuance under the
Purchase Agreement.  There are options outstanding for the purchase of 1,705,000
shares of Common Stock under the Company's 1996 Stock Option Plan, 9,719 shares
of Common Stock have been issued upon exercise of options granted thereunder,
and 1,045,000 shares of Common Stock are available for issuance thereunder.  To
our knowledge, except as described above, there are no preemptive rights,
options or warrants or other conversion privileges or rights presently
outstanding to purchase or otherwise acquire any of the authorized but unissued
shares of capital stock or other unissued securities of the Company or any other
agreements to issue any such securities or rights, other than the rights of
first offer set forth in Section 2.2 of the Rights Agreement.

     (d) All corporate action on the part of the Company and Retix, and their
respective directors and shareholders necessary for the authorization,
execution, delivery and performance of the Agreements by the Company and Retix,
the authorization, sale, issuance and delivery of the Shares (and the Common
Stock issuable upon conversion thereof) as to the Company, and the performance
of all of the obligations of the Company and Retix under the Agreements,
including, without limitation, the execution and filing with the Secretary of
State of the State of California of the Restated Articles, has been taken.  The
Agreements have been duly and validly authorized, executed and delivered by the
Company and Retix and constitute valid and binding obligations of the Company
and Retix enforceable in accordance with their terms.  The Shares have been
validly issued, and are fully paid and nonassessable and have the rights,
preferences and privileges described in the Restated Articles; the shares of
Common Stock issuable upon conversion of the Shares have been duly and validly
reserved and, when issued in compliance with the provisions of the Purchase
Agreement and the Restated Articles, will be duly authorized, validly issued,
fully paid and nonassessable and free of any liens, encumbrances and preemptive
or similar rights.
<PAGE>
 
     (e) The execution, delivery and performance of and compliance with the
Agreements, and the issuance of the Shares and the Common Stock issuable upon
conversion of the Shares, have not resulted and will not result in any material
violation of, or conflict with, or constitute a material default under, (i) the
Company's Articles of Incorporation or Bylaws, or (ii) to our knowledge, any
statute, rule or regulation or any judgment or order known to us of Federal or
California law to which the Company is a party, or by which the Company is
bound.

     (f) To our knowledge, there are no actions, suits, proceedings or
investigations pending against the Company or any of its officers or directors
or its properties before any court or governmental agency (nor, to our
knowledge, has the Company or Retix or any of their respective officers or
directors received any threat thereof), which, either in any case or in the
aggregate, are likely to result in any material adverse change in the business
or financial condition of the Company or any of its properties, or in any
material impairment of the right or ability of the Company to carry on its
business as now conducted, or which questions the validity of any of the
Agreements or any action taken or to be taken by the Company or any of its
officers or directors in connection therewith.

     (g) No consent, approval, permit or authorization of or designation,
qualification, registration, declaration or filing with any governmental
authority on the part of the Company or Retix is required in connection with the
valid execution and delivery of the Agreements or the offer, sale or issuance of
the Shares (and the Common Stock issuable upon conversion thereof) or the
consummation of any other transaction contemplated by the Agreements except (a)
filing of the Amended and Restated Articles of Incorporation in the Office of
the Secretary of the State of California, and (b) qualification (or taking such
action may be necessary to secure an exemption from qualification, if available)
under the California Corporate Securities Law of 1968, as amended, and other
applicable state blue sky laws (but excluding jurisdictions outside of the
United States) of the offer and sale of the Shares (and the Common Stock
issuable upon conversion thereof) and the modification of the rights of the
shareholders contemplated in the Agreements.  Our opinion herein is otherwise
subject to the timely and proper completion of all filings and other actions
contemplated by clause (b) of this paragraph where such filings and actions are
to be undertaken on or after the date hereof.

     (h) The offer, sale and issuance of the Shares in conformity with the terms
of the Purchase Agreement and the issuance of the Common Stock, if any, to be
issued upon conversion thereof, constitute transactions exempt from the
registration requirements of Section 5 of the Securities Act of 1933, as
amended, and exempt from the qualification requirements of the California
Corporate Securities Law of 1968, as amended.

     (i) The certificates representing the Shares purchased at the Closing are
in due and proper form and have been duly and validly executed by the officers
of the Company.

     We express no opinion as to matters governed by any laws other than the
laws of the State of California and the federal law of the United States of
America.  We express no opinion as to whether the laws of any particular
jurisdiction apply, and no opinion to the extent that the 
<PAGE>
 
laws of any jurisdiction other than those identified above are applicable to the
Agreements or the transactions contemplated thereby.

     This opinion is furnished to you pursuant to Section 4.5 of the Purchase
Agreement and is solely for your benefit and may not be relied on by, nor may
copies be delivered to, any other person without our prior written consent.  We
assume no obligation to inform you of any facts, circumstances, events or
changes in the law that may hereafter be brought to our attention that may
alter, affect or modify the opinion expressed herein.


                                   Sincerely,



                                   VENTURE LAW GROUP,
                                   A Professional Corporation



EJB
<PAGE>
 
                                 SONOMA SYSTEMS
                                        

                             SCHEDULE OF EXCEPTIONS


                                        
  This Schedule of Exceptions is made and given pursuant to Section 2 of the
Series C Preferred Stock Purchase Agreement (the "Agreement") by and between
                                                  ---------                 
Sonoma Systems and the Investors named therein dated as of January 15, 1998.
The Section numbers in this Schedule of Exceptions correspond to the Section
numbers in the Agreement; however, any information disclosed herein under any
Section number shall be deemed to be disclosed and incorporated into any other
Section number under the Agreement where the Purchasers could reasonably
determine that such disclosure would be appropriate.  Any terms used in this
Schedule of Exceptions shall have the meanings defined for them in the Agreement
unless otherwise defined herein.

SECTION 2.1 - ORGANIZATION, GOOD STANDING AND QUALIFICATION
-----------------------------------------------------------

  The Company has a sales office in Massachusetts, and has employees who reside
in Arizona, Rhode Island and Massachusetts.  The Company may be required to
qualify to do business in such states although it has not done so to date.  The
failure to so qualify, if required, will not have a material adverse effect on
the business or financial condition of the Company.

SECTION 2.2 - CAPITALIZATION
----------------------------

  The Company has in place a 1996 Directors' Option Plan (the "Plan"), pursuant
                                                               ----            
to which options to purchase 100,000 shares of the Company's Common Stock are
currently outstanding and 100,000 shares remain available for future grant under
the Plan.  The Company shall terminate the Plan, with the consent of its former
directors, and all outstanding options thereunder effective as of the Closing.

  The Company has reserved shares of Common Stock for issuance to officers,
directors, employees and consultants of the Company pursuant to its 1996 Stock
Option Plan and has issued options pursuant to this plan as follows:

<TABLE>
<CAPTION>
                                       Pre-Closing          Conversion Ratio         Post-Closing(1)
                                   --------------------   --------------------   --------------------
<S>                                <C>                    <C>                    <C>
Original Option Pool                    3,800,000            0.535088633               2,033,336
Options Granted                         3,037,214(2)         0.535088633               1,625,178
Options Committed, but not yet            535,000(3)         0.535088633                 286,272 
 granted                                     
</TABLE>
----------------------------
(1) Actual number of shares reserved may vary immaterially due to fractional
share rounding/truncation as a result of the reverse split effected by the
Restated Articles.
(2) Includes 9,719 shares issued upon exercise of options granted under the 1996
Stock Option Plan.
(3) Includes 200,000 options reserved for issuance to G. Koss upon completion of
one year of employment with the Company contingent upon Board of Directors
approval of Mr. Koss's performance during such period. Includes 335,000 options
reserved for issuance pursuant to outstanding offers of employment, of which
200,000 are reserved for Walter Mahla as Vice President of Technology.

<PAGE>
 
<TABLE> 
<S>                                <C>                    <C>                    <C>
Options to be added to Plan                   --                  --                     716,664
Total Option Pool Post-Closing                --                  --                   2,750,000
                                                     
</TABLE>


  As a result of the foregoing, options to purchase 838,550 shares remain
available for future issuance under the 1996 Stock Option Plan.  Copies of the
Company's stock option plans and schedule of granted, issued and outstanding
stock options as of December 17, 1997 have been made available to counsel for
the Purchasers.

SECTION 2.3 - SUBSIDIARIES
--------------------------

  Retix Europe Ltd., a wholly owned subsidiary of Retix, owns all of the
interests in Sonoma Systems Europe Ltd. (formerly Retix U.K. Ltd.).  The Company
and Retix shall transfer ownership of Retix Europe Ltd. to the Company in a tax
free transfer pursuant to Section 351 of the Internal Revenue Code of 1986, as
amended, as set forth in the Letter Agreement between Retix and the Company of
even date with the Agreement.  Corporate documents for such entities, including
stock records, charter documents and Board minutes have been provided to counsel
for the Purchasers.

  Raycom Systems, Inc. was merged into the Company on September 24, 1996.
Merger documents and the tax clearance certificate for Raycom Systems, Inc. have
been provided to counsel for the Purchasers.

SECTION 2.8 - INTELLECTUAL PROPERTY
-----------------------------------

  The Company is currently using and has applied for the following registered
trademarks, service marks and/or trade names:

  .  Sonoma
  .  Sonoma Systems
  .  Sonoma Systems Europe
  .  Sonoma Access
  .  Sonoma Access+/Plus

  The Company has abandoned applications for the following registered trademarks
based upon feedback from the U.S. Trademark Office and/or Company counsel:

  .  OIA - Open Internetworking Architecture
  .  OSA - Open Systems Architecture
  .  NLS - Native LAN Services
  .  TLS - Transparent LAN Services

  The Company is the registered user of the internet domain name "Sonoma
Systems."
<PAGE>
 
  The Company does not currently hold any patents and/or patent applications.
The Company is preparing a patent application related to its dynamically loading
software rules.

  The Company currently holds no registered copyrights.  The Company is in the
process of registering copyrights for Sonoma Systems' software and publications.

  Pursuant to the terms of the Master Agreement between the Company and Retix
dated May 31, 1996, the Company's technology was subject to a Grant-Back License
Agreement with Retix dated May 31, 1996 (the "Grant-Back License"), a copy of
                                              ------------------             
which has been made available to counsel for the Purchasers. Pursuant to the
terms of a Letter Agreement between the Company and Retix of even date with the
Agreement, the Grant-Back License has been terminated.

  Retix has licensed technology for incorporation into its products and the
Company's products, which licenses are licensed from the following:


  .  3Com (formerly through NICECOM/NICE Systems & BIRD Foundation)
  .  ISI (formerly Epilogue Technologies)
  .  Midnight Networks
  .  Network Managers
  .  Seagate Technologies
  .  Xerox
  .  Digital Technology
  .  JTEC
  .  Motorola
  .  RAD Network Devices
  .  Willemijn

  The Company shall succeed to all of Retix's rights, privileges and obligations
under such licenses.  The Company and Retix shall each use their best efforts to
obtain any consents required for the transfer of the license from Retix to the
Company.

  The Company is in compliance with and has paid all royalties due pursuant to
its technology license agreements, subject to amounts due in accordance with
future shipments of its products, with the exception of:


  .  Willemijn has requested that Retix enter a license agreement related to
     Raycom products.  Retix has responded to these requests by indicating
     that such products should be covered without further liability to the
     Company, with which Willemijn concurred, under Retix's existing license
     agreement with Willemijn.

  .  Motorola issued a letter to Retix in December of 1995 addressing possible
     "industry-wide" patent infringement involving various data compression
     communications protocol standards.  Upon internal investigation, Retix
     believes that the identified patents do not pertain to the technologies
     utilized in its internetworking products.  No subsequent follow-up has
     been made, to Retix's knowledge, by Motorola, nor has 
<PAGE>
 
     Retix or the Company received any further communications from Motorola
     regarding the possible patent infringement.

SECTION 2.9 - COMPLIANCE WITH OTHER INSTRUMENTS
-----------------------------------------------

  The Company, directly or through its parent Retix, has entered into the
reseller/distributor, marketing, OEM, development and technology license
contracts listed on Schedule 2.9A herein.  Copies of these contracts have been
made available to counsel for the Purchasers.  Third party consents to the
transactions contemplated by the Agreement are required from the entities listed
on Schedule 2.9B herein.  The Company will use its best efforts to acquire such
consents.

  At the Closing, Retix and the Company shall enter into an agreement pursuant
to which Retix shall transfer to Sonoma all of its rights and obligations under
the above-referenced contracts that are related to the Company's worldwide
internetworking/data networking equipment business and where Retix is listed as
a contracting party.  The Company shall succeed to all of Retix's rights,
privileges and obligations under such contracts.

SECTION 2.10 - AGREEMENTS; ACTION
---------------------------------

  Pursuant to the terms of a Letter Agreement between the Company and Retix of
even date with the Agreement, the Grant-Back License has been terminated.  A
copy of the Letter Agreement providing for such termination has been provided to
counsel for the Purchasers.

  Retix and the Company are parties to the following agreements, copies of which
have been made available to counsel for the Purchasers:


  . Master Agreement dated May 31, 1996;
  . Preferred Stock Purchase Agreement dated May 31, 1996;
  . Rights Agreement dated May 31, 1996, as amended on December 17, 1997;
  . Loan Agreement dated May 31, 1996, as amended on July 31, 1997 and December
  . 17, 1997;
  . Security Agreement dated May 31, 1996;
  . Grant-Back License Agreement dated May 31, 1996;
  . Intercompany License Agreement dated May 31, 1996;
  . Preferred Stock Purchase Agreement dated December 17, 1997;

  The Company has entered into standard indemnification agreements with its
officers and directors, copies of which have been made available to counsel for
the Purchasers.

  The agreements to which the Company is a party or is bound in excess of
$25,000 are as follows:
<PAGE>
 
  1)   Contracts related to the procurement or licensing of technology:
       --------------------------------------------------------------- 

  .  Agreements under negotiations include Maker Communications for licensing of
     circuit emulation technology, IMA and voice cards; Trillium Digital Systems
     for licensing of signaling, LANE and MPOA technologies

  .  Conclusion and termination of development contract with Wipro related to
     IMA, Token Ring and test scripts

  .  Compaq Computer for the purchase of Token Ring and FDDI I/O cards. The
     exact amount is not determinable as commitment pertains to bill-back for
     past purchases should annual minimum quantity purchases not be made by the
     Company, but the Company estimates that the maximum potential liability
     under such agreement to be approximately $300,000.

  2)   Contracts related to facility leases:
       ------------------------------------ 

  .  Boston Technology Center at $4,230/month through August 2002 with
     termination clause at month thirty-six (Sept. 2001)

  .  European sales headquarters in Guildford, UK at 4,677BP/month through
     October 1999, with break clause in October 1998

  .  Company headquarters in Marina del Rey at ~$25k/month through October 1999
     (through intercompany sublease with Retix)


  3)   Contracts related to office equipment:
       ------------------------------------- 

  .  Xerox 5100 copier (Marina del Rey offices) at $2,383/month through July
     2000.  The Company is currently attempting to sell and/or trade to reduce
     the monthly financial commitment relating to such copier.

  .  2 Minolta copiers (UK offices) with quarterly payment of 5,786 BP through
     September 1998

  4)   Commitments related to raising equity capital:
       --------------------------------------------- 

  .  Minimum commitment fee to raise equity capital for Sonoma Systems: $50k
     with Interactive   Capital Partners in Stamford, CT.

  .  Fairness opinion on behalf of Retix's Board of Directors:  Sonoma's portion
     of fee from Alliant Partners ($18,333)

  .  Professional fees incurred in connection with the representation of the
     Company for preparation of investment documents, due diligence, etc.:
     $75k-$125k for Venture Law Group, Stradling Yocca Carlson & Rauth and
     Deloitte and Touche



  5)   Commitments related to non-billable product warranty and customer 
       -----------------------------------------------------------------
       support:
       -------

  .  Product warranty costs average of $42k/quarter during 1997

  .  European product repair and services agreement with NetVantage (formerly
     MicroBug) for 5,625BP/month for one year term through October 1998

  .  The following open or potential customer/field product issues collectively
     could exceed $25,000, although, the Company believes aggregate costs
     related to these issues will be covered by warranty or sales returns
     reserves recorded in the Company's Financial Statements as of December
     27, 1997:

     . Memphis, Light Gas and Electric - FibeRing
     . Digital Solutions - FE/Full duplex issue with SMC controller chips
<PAGE>
 
     . Mid-Plains Telephone - ML2 & SwitchStak
     . Siemens Nixdorf- Support contract

  6)   Contracts related to the development of technology under OEM agreements:
       ----------------------------------------------------------------------- 

  .    JTEC:  The Company entered into a joint-development agreement with JTEC
       under which Retix would provide JTEC certain router functionality in
       exchange for access to certain ISDN products developed by JTEC.  The
       companies are currently in discussion to wind down the relationship.  The
       Company anticipates the outcome to involve the supply of certain elements
       of its source router code for use by JTEC in support of its installed
       customer base in exchange for the Company's continued right to
       distribute/resell certain of its JTEC's ISDN products in conjunction with
       its 7200 series router products.  No significant financial payments, if
       any, are anticipated to conclude this relationship.

SECTION 2.12 - NO CONFLICT OF INTEREST
--------------------------------------

  The Company and Retix are parties to a Loan Agreement dated May 31, 1996, as
amended, pursuant to which the Company may borrow up to $2,500,000 on or before
its fiscal year end, on December 27, 1997.  As of the Closing, the Company shall
have no outstanding balance under such Loan Agreement by operation of Section
6.19 of the Agreement.

  The Company has entered into standard indemnification agreements with its
officers and directors, copies of which have been made available to counsel for
the Purchasers.

  Jeffrey Drazan, a director of the Company and of Retix, is a general partner
of Sierra Ventures, a venture capital firm.  Sierra Ventures makes venture
capital investments in a variety of technology companies, some of which may be
competitors of the Company or Retix.

  Coincident with the Closing, the Company and Retix will enter into the
following intercompany agreements:
 
  .  The Letter Agreement of even date herewith providing for the sharing of
     administrative expenses (the "Shared Administrative Expenses Letter
                                   -------------------------------------
     Agreement"), a copy of which has been provided to the Purchaser's
     ---------                                                        
     counsel.

  .  Sublease of facilities, at terms and conditions identical to the primary
     lease, under which Retix is the contracting party and the Company is
     occupant, including 4601 Admiralty   Way, #600, Marina del Rey, CA.

  Certain intercompany accounts receivable and payable between Retix and the
European Subsidiaries will be settled in connection with the transfer of the
European Subsidiaries to the Company as set forth in the Shared Administrative
Expenses Letter Agreement.

SECTION 2.13 - RIGHTS OF REGISTRATION; VOTING RIGHTS
----------------------------------------------------
<PAGE>
 
  Retix and the Company are parties to a Rights Agreement dated May 31, 1996, as
amended December 17, 1997, which Rights Agreement is being amended and restated
concurrently with the execution and delivery with the Agreement.

SECTION 2.16 - CHANGES
----------------------

  Subsequent to December 27, 1997, the Company has made offers of employment, in
the ordinary course of business and in support of its 1998 Business Plan, for
positions within its Engineering and Marketing organizations.  Regarding key
employees, Walter Mahla has accepted an offer to join the Company as Vice
President of Technology with an anticipated start date of January __, 1998.

  Pursuant to the terms of a Letter Agreement between the Company and Retix of
even date with the Agreement, the Grant-Back License Agreement has been
terminated.  A copy of the Letter Agreement has been provided to counsel for the
Purchasers.

  Coincident with the Closing, the following employment and employee
compensation matters will require attention by the Company:

  .  Conversion of stock options currently granted to Company employees and
     consultants (and pending grants per offers of employment made since
     December 17, 1997) pursuant to its 1996 Stock Option Plan as a consequence
     of the recapitalization of the Company.
  .  Approximately 60 Retix employees transferred to the Company on December 29,
     1997 without liability for severance from Retix or for past service.
  .  Arrangements to carry forward current employee benefit plans (see Section
     2.17).

SECTION 2.17 - EMPLOYEE BENEFIT PLANS
-------------------------------------

  The Company has in place a 1996 Stock Option Plan (see Section 2.2).  The
Company had in place a 1996 Directors' Option Plan which will be terminated
immediately prior to the Initial Closing.

  The Company participates in the following employee benefit plans currently
under administration by Retix:

  .  Customary medical, dental, vision, EAP, life/ad&d, disability (std/LTD)
     plans (shared company/employee contributions to premium costs)
  .  Standard holiday, vacation, sick and maternity leave pay plans
  .  125 cafeteria plan (no company contributions)
  .  401(k) plan (contributions limited to employees only)
<PAGE>
 
  .  Group money purchase pension scheme (UK employees: company 8%; employee 7%
     of salary contributions).  The Company has no liability for any unfunded
     amounts payable under such pension plan.
  .  Workers compensation plans
  .  Immigration processing and reimbursements
  .  Car allowances: Some positions within the Company qualify for car
     allowances or    company provided cars (primarily European-
     based/international employees)

SECTION 2.18 - TAX RETURNS AND PAYMENTS
---------------------------------------

  For U. S. domestic taxing purposes, the Company's operations are included
within the consolidated/combined income, franchise, sales and use, personal
property, city and county tax returns of its parent corporation, Retix.  Upon
Closing, the Company will no longer qualify to file as part of Retix's
controlled group.  As such, the income tax loss carryforwards in the approximate
amount of $5,000,000 specific to the Company (generated since establishment of
separate legal entity in June 1996) will be subject to the restrictions and
limitations of tax regulations associated with a change-of-control.  Retix has
filed all tax returns as required by law and paid taxes and assessment due.
There has not been any separate tax deficiency proposed or assessed.  Statute of
limitation waivers have been signed for the following tax years:

        Federal           1991, 1990
        California        1991, 1990
        Georgia           1991, 1990
        Illinois          1991, 1990
        Mass.             1991, 1990
        New Jersey        1991, 1990
        Ohio              1991, 1990
        Pennsylvania      1991, 1990
        Texas             1991, 1990
        Virginia          1991, 1990 

SECTION 2.19 - INSURANCE
------------------------

  The Company's operations, for business, property and operations insurance
purposes, have been included within the consolidated operations of its parent
corporation, Retix.  All  relevant insurable aspects of the Company have been
separately identified within the December 1997 policy renewal documents for
Retix's combined entities.  After the Closing, the policies will be split and
issued in the Company's name.

SECTION 2.22 - PERMITS
----------------------

  The Company may be required to qualify to do business in Arizona, Rhode Island
and Massachusetts.  See Section 2.1 above.