Document:

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                                                                    Exhibit 10.5

          THIS MASTER AGREEMENT (this "Agreement") is entered into as of
February 22, 2000 (the "Effective Date"), by and among SUNRISE TELECOM, INC., a
California corporation ("Buyer") represented by Paolo Barozzi Esq. born Novara
on March 14, 1958, Fiscal Code BRZ PLA 58C14 F952B, domiciled at Milan, Via
Vivaio n. 6, duly appointed, to such extent, through Special Powers of Attorney
granted to the latter by virtue of Unanimous Written Consent of the Board of
Directors of Buyer on February 15, 2000, and FRANCO MESSORI, FRANCO CORRADINI,
ANGELO BACCARANI, and LUCIA BARBARA SILVANI (the "Shareholders").

          WHEREAS, the Shareholders own, as hereinafter set forth, the quotas
representing the 55% of the issued and outstanding stock capital (the "Quotas ")
of Pro. Tel. S.r.l., an Italian limited liability company (the "Company"):

          (i)    Franco Messori         40%;
          (ii)   Franco Corradini        5%;
          (iii)  Angelo Baccarani        5%;
          (iv)   Lucia Barbara Silvani   5%.

          WHEREAS, the Shareholders desire to sell to Buyer, and Buyer desires
to purchase from the Shareholders all of the Quotas.

          WHEREAS, the Board of Directors of Buyer has approved the acquisition
of the Quotas by Buyer on the terms and conditions hereinafter set forth.

          NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows :

                                   ARTICLE I
                                   ---------

                       Sale and Purchase of Common Stock
                       ---------------------------------

          SECTION 1.01.  Sale and Purchase.  Subject to the terms and conditions
                         -----------------
herein set forth, the Shareholders shall sell, assign and transfer to Buyer and
Buyer shall purchase from the Shareholders the Quotas.

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          SECTION 1.02.  Closing. The closing of the purchase and sale of the
                         -------
Quotas (the "Closing") will take place on February 22, 2000, at the offices of
Anna Pellegrino Notary Public in Milan, Via Torquato Tasso No. 1.

     (a)  Shareholder Deliveries. The Shareholders shall deliver to Buyer at the
          ----------------------
Closing:

          (i)    Consents executed by all necessary parties whose consent to the
     transactions contemplated hereby is required under the terms of the
     Company's contracts, licenses or rights as listed in Schedule 1.02 (a)
     hereto.

          (ii)   Noncompetition agreements in substantially the form of Exhibit
     A hereto executed by each of the Shareholders.

          (iii)  Employment Agreements in substantially the form of Exhibit B
     hereto executed by each of the Shareholders and any other person listed in
     Exhibit E hereto.

          (iv)   Lockup Agreements in substantially the form of Exhibit C hereto
     executed by each of the Shareholders.

          (v)    Confidential Information and Invention Assignment Agreements in
     substantially the form of Exhibit D hereto executed by each of the
     Shareholders and each of the Company's other employees.

     (b)  Buyer Deliveries. Buyer shall deliver to the Shareholders at the
          ----------------
Closing:

          (i)    Wire transfers payable to the Shareholders in the respective
     amounts indicated on Schedule 1.02(b) attached hereto and in the aggregate
     amount of $ 2.145 million

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          (ii)   Stock certificates registered in the names of the Shareholders
     in the respective amounts indicated on Schedule 1.02(b) attached hereto and
     evidencing a total of No. 91.668 Common Stock of Buyer.

          (iii)  Noncompetition agreements in substantially the form of Exhibit
     A hereto with each of the Shareholders executed by Buyer.

           (iv)  Employment Agreements in substantially the form of Exhibit B
     hereto with each of the persons listed in Exhibit E hereto executed by
     Buyer.

           (v)   Stock Option Agreements in substantially the form of Exhibit F
     hereto with each of the persons listed in Exhibit E hereto executed by
     Buyer

     (c)  Short-form. At the Closing, the Buyer and the Shareholders
          ----------
(hereinafter jointly the "Parties") shall execute before the Italian Notary
Public the agreement for the sale and purchase of the Quotas, the contents
thereof being similar to those referred in Exhibit G (hereinafter the "Short-
form"). The Parties acknowledge that the Short-form shall be executed in
compliance with the provisions of article 2479 of the Italian Civil Code. It is
also agreed by the Parties that this Agreement shall, in any case and for all
legal purposes, prevail over the Short-form.

          SECTION 1.03.  The Purchase Price. For purposes hereof the Purchase
                         ------------------
Price shall consist of the sum of $ 2.145 million, plus 91,668 shares of Buyer
Common Stock (the "Buyer Common Stock") and shall be divided among and paid to
each of the Shareholders as follows:

          (i)    Franco Messori $1,560,000 plus No 66,667 of shares of Buyer
Common Stock;

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          (ii)   Franco Corradini $195,000 plus No 8,333 of shares of Buyer
Common Stock;

          (iii)  Angelo Baccarani $195,000 plus No 8,334 of shares of Buyer
Common Stock;

          (iv)   Lucia Barbara Silvani $195,000 plus No 8,334 of shares of
Buyer Common Stock.

The Purchase Price shall be subject to adjustment as provided in Section 1.04
hereof.

          SECTION 1.04.  Adjustments to Purchase Price. After the Closing,
                         -----------------------------
Buyer's accountants will prepare an audited balance sheet of the Company as of
the Closing (the "Closing Balance Sheet"). If the Closing Balance Sheet reflects
(i) the absence of any debt other than ordinary course trade payables, (ii)
Positive Net Assets and, (iii) in any case, the absence of any decline in Net
Assets from the net assets reflected in the balance sheet of the Company as of
December 31, 1999 audited by KPMG there shall be no adjustment to the Purchase
Price. The Purchase Price shall be adjusted downward on a dollar-for-dollar
basis by (i) the amount of debt other than ordinary course trade payables
reflected on the Closing Balance Sheet, and (ii) the amount of any Negative Net
Assets. For purposes hereof, Net Assets shall mean the sum of cash, accounts
receivable and inventory less total liabilities; and the amount of any positive
(or negative) Net Assets shall be the amount by which the Net Assets are greater
than (or less than) zero.

          SECTION 1.05.  Repayment.  In the event of a Purchase Price adjustment
                         ---------
pursuant to Section 1.04, each Shareholder shall promptly pay his pro rata
portion of such Purchase Price adjustment to Buyer in cash and/or Buyer Common
Stock.  In the event that any Shareholder fails to make any such repayment,
Buyer, at its election may (i) cancel the

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corresponding number of shares of Buyer Common Stock held by such Shareholder,
(ii) set off the amount of any such repayment obligation against any amounts
owed to such Shareholder by Buyer or the Company pursuant to the Noncompetition
Agreement with such Shareholder or (iii) take such other action as Buyer deems
appropriate.

          SECTION 1.06.  Further Cooperation. From time to time after the
                         -------------------
Closing, the Shareholders at Buyer's request and without further consideration,
agrees to take or cause to be taken such further or other action as may
reasonably be necessary or appropriate in order to effectuate the quotas
purchase and sale contemplated by this Agreement.

                                  ARTICLE II
                                  ----------

                        Representations and Warranties
                        ------------------------------

          SECTION 2.01.  Representations and Warranties of the Shareholders. The
                         --------------------------------------------------
Shareholders hereby jointly and severally represent and warrant to Buyer as
follows:

          (a)  Organization.  The Company is a limited liability company duly
               ------------
organized, validly existing and in good standing under the laws of Italy.

          (b)  Authority To Do Business. The Company has all requisite power and
               ------------------------
authority to own or lease and operate its properties and to carry on its
business as now conducted.

          (c)  Binding Obligation.  This Agreement has been duly executed and
               ------------------
delivered by the Shareholders and constitutes a valid and binding obligation of
the Shareholders enforceable in accordance with its terms.  The execution,
delivery and performance by the Shareholders of this Agreement does not and will
not conflict with, or result in any violation of or default under, any provision
of the Articles of Incorporation or By-laws of the Company or any ordinance,
rule, regulation, judgment, order, decree, agreement, instrument or license
applicable to the Company or to any of its respective properties or assets.  No
consent, approval,

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order or authorization of, or registration, declaration or filing with, any
court, administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by or with respect to the
Shareholders or the Company in connection with the Shareholders' execution,
delivery of this Agreement or the performance by the Shareholders or the Company
of the obligations contemplated hereby.

          (d)  Title to Quotas.  The Shareholders have good and marketable title
               ---------------
to all of the Quotas, free and clear of all claims, liens, security interests,
pledges, charges or encumbrances of any nature whatsoever, and the transfer of
the Quotas  to Buyer pursuant to this Agreement will pass good and marketable
title to the Quotas , free and clear of all claims, liens, security interests,
pledges, charges or encumbrances of any nature whatsoever.

          (e)  Capitalization.  The Company's authorized capital stock is equal
               --------------
to ITL 500,000,000 and it is fully subscribed and paid in.  No other equity
securities of the Company other than the Quotas are authorized, issued or
outstanding, and there are no outstanding options, warrants, agreements,
contracts, calls, commitments, or demands of any character, preemptive or
otherwise, other than the Agreement, relating to any of the Common Stock.

          (f)  Real Property.  Schedule 2.01(f) includes a complete list of all
               -------------
real property used by the Company, all of which real property is leased by the
Company ("Leased Real Property").  Except as set forth on Schedule 2.01(f), the
Company has valid lease hold interests in all the Leased Real Property.

          (g)  Title to Assets.  The Company has good and marketable title to
               ---------------
all of its assets, in each case free and clear of all mortgages, liens, security
interests, pledges, charges or encumbrances of any nature whatsoever.

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          (h)  Contracts.  Except as described in Schedule 2.01(h) and except,
               ---------
in the case of contracts primarily involving the receipt or payment of money,
for contracts involving the receipt of or payment of less than $25,000, the
Company is not a party to or bound by any lease, agreement, contract or other
commitment which relates in any way to the business of the Company
(collectively, the "Contracts"). Each Contract is a valid and binding obligation
of the Company and is in full force and effect. The Company has performed all
material obligations required to be performed by it to date under the Contracts,
is not (with or without the lapse of time or the giving of notice, or both) in
breach or default in any material respect thereunder and is not alleged to be in
breach or default in any material respect thereunder. All Contracts are in the
name of the Company.

          Except as described in Schedule 2.01(h) and except, in the case of
contracts primarily involving the receipt or payment of money, for contracts
involving the receipt of or payment of less than $25,000, the Company is not a
party to or bound by any of the types of agreement enumerated below:

          (i)   agreement or contract not made in the ordinary course of
business;

          (ii)  agreement or contract with any Shareholders, director or
employee of the Company or any of its subsidiaries, except for those agreements
required by the Italian laws;

          (iii) agreement or contract which is oral; or

          (iv)  agreement or contract the terms of which are known by the
Shareholders to be unfavorable to the Company.

          (i)  Litigation. There are no lawsuits, claims, proceedings or
               ----------
investigations pending or, to the best knowledge of the Company, threatened by
or against or affecting the Company or any of its properties, assets, operations
or business which could in any way adversely affect the

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transactions contemplated by this Agreement or the value to the Buyer of the
business being acquired by it, and the Shareholders are not aware of any
reasonable basis for any such lawsuit, claim, proceeding or investigation.

     (j)  Licenses.  The Company holds each license, permit or other
          --------
governmental authorization (collectively hereinafter referred to as "Licenses")
which is required for the operation of its business and, all such Licenses are
in full force and effect and will remain in full force and effect
notwithstanding the closing of the transactions contemplated hereby.

     (k)  Employee and Related Matters.  There are no employment-related claims,
          ----------------------------
actions, proceedings or investigations pending or, to the best knowledge of the
Shareholders, threatened against or relating to the Company before any court,
governmental, regulatory or administrative authority or body, or arbitrator or
arbitration panel. The Company is not subject to any outstanding order, writ,
judgment, injunction, decision, award, compliance order, consent decree,
conciliation agreement, settlement agreement, affirmative action plan,
determination letter or advisory of any court, governmental, regulatory or
administrative authority or body, or arbitrator or arbitration panel. The
Company is in compliance with all contracts, laws and regulatory requirements
relating to employment matters.

     (l)  Absence of Changes or Events.  Since December 31, 1998, the business
          ----------------------------
of the Company has been conducted in the ordinary course and there has not been
any material adverse change in the financial condition, results of operations,
business, assets or prospects of the Company. Without limiting the generality of
the foregoing, since December 31, 1998 the Company has not, except as described
in Schedule 2.01(l)(i):

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        (i)    acquired or agreed to acquire any assets which are material,
   individually or in the aggregate, to the Company, except in the ordinary
   course of business consistent with prior practice;

        (ii)   sold, leased or otherwise disposed of any of its assets, which
   are material, individually or in the aggregate, to the Company, except in the
   ordinary course of business consistent with prior practice;

        (iii)  adopted or amended in any material respect any agreement with
   employees or benefit plans, other than in the ordinary course of business
   consistent with prior practice and in compliance with the Italian laws;

        (iv)   increased the compensation of any employee other than in the
   ordinary course of business consistent with prior procedure and in
   compliance with the Italian laws;

        (v)    sustained any material loss or damage to its properties, whether
   or not insured;

        (vi)   issued capital stock or declared or paid a dividend or made any
   other payment from capital or surplus or other distribution of any nature, or
   directly or indirectly, redeemed, purchased or otherwise acquired or
   recapitalized or reclassified any of its capital stock or liquidated in whole
   or in part;

        (vii)  merged or consolidated with another corporation;

        (viii) created, incurred or assumed or committed to create, incur or
   assume indebtedness or other liability, except for accounts payable or other
   current liabilities which (1) are not for borrowed money, (2) were incurred
   in the usual and ordinary course of business and (3) have not been and will
   not be materially adverse to the general affairs,

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   business, prospects, properties, financial condition, results of operations
   or net worth of the Company;

        (ix)  altered or amended its articles of incorporation or bylaws; or

        (x)   entered into, materially amended or terminated any material
   contract, agreement, franchise, permit or license, except for those set forth
   into Schedule 2.01 (l)(ii).

   (m)  Compliance with Laws. The Company is not in violation of any law, order,
        --------------------
ordinance, rule or regulation of any governmental authority.

   (n)  No Broker's or Finder's Fees.  No agent, broker, investment banker,
        ----------------------------
person or firm acting on behalf of the Shareholders, the Company or any related
entity is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated herein.

   (o)  Employee Benefit Plans. Except as set forth on Schedule 2.01(o),
        ----------------------
neither the Company nor any entity under common control with the Company
maintains, is required to contribute to, or is required to provide benefits
under, any plan, fund or program providing any pension, profit sharing, deferred
compensation, severance pay, bonuses, incentive compensation, stock options,
stock purchases, or any other form of retirement or deferred benefit, or any
health, accident, dependent care, or other welfare benefit (a "Plan"), save as
provided for by the Italian laws.

   (p)  Customers. Schedule 2.01(p) contains a true and correct list of the
        ---------
Company's largest 20 customers (as determined by dollar amount of orders) for
each of the last two years. The Company has no information which would cause it
to believe that any such customer will not

                                       10

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continue to do business with Buyer after the Closing upon substantially the same
terms and at such volumes as such customer did business with the Company prior
to the Reference Date.

     (q)  Condition of Equipment. The equipment of the Company is in good
          ----------------------
operating condition, normal wear and tear excepted.

     (r)  Trademarks and Other Intellectual Property.  Except as set forth in
          ------------------------------------------
Schedule 2.01(r), there are no patents, trademarks, service marks, trade names,
or applications therefor or registrations thereof ("Intellectual Property"),
which have been used or owned within the last three years by the Company.
Schedule 2.01(r) contains a true and complete description of the rights of the
Company with respect to each of such items of Intellectual Property.  Except as
set forth in Schedule 2.01(r), the Company has sole, full and clear title to all
of such items of Intellectual Property, without any liens, encumbrances or
restrictions whatsoever, and upon closing of the transactions contemplated
hereby, the Company will continue to possess sole, full and clear title to all
of such items of Intellectual Property, without any liens, encumbrances or
restrictions whatsoever.  The Company is not and, during the last two years, has
not (i) infringed or violated any trademark, service mark, trade name, patent or
copyright or other Intellectual Property right; or (ii) unlawfully or improperly
used any trade secrets belonging to any third party.  Without limiting the
generality of the foregoing, with respect to the Ghepardo product:

           (1)   The Company is the sole and rightful owner of all right, title
     and interest in and to any and all technology which is necessary or
     desirable in connection with such product (the "Technology") and, it has
     the unrestricted right to market, license and exploit the Technology;

           (2)   At all times prior to Closing, the Company has taken and shall
     take all necessary steps to secure all right and title to and protect the
     Technology

                                       11
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     (including, without limitation, obtaining executed non-disclosure
     agreements with any third party having access to the Technology, and
     executed confidentiality and proprietary right assignment agreements with
     all employees and independent contractors performing work for the Company)
     and to prevent the disclosure of, publication of or other activity that
     would jeopardize any trade secret or confidential information related to
     the Technology;

          (3)    There has been no disclosure of, publication of or other
     activity that would jeopardize any trade secret or confidential information
     related to the Technology;

          (4)    The Technology does not infringe or misappropriate any third-
     party proprietary right;

          (5)    No claims have been made in respect of the Technology and no
     demands of any third party have been made pertaining to the Technology, and
     no proceedings have been instituted or are pending or threatened that
     challenge the rights of the Company in respect thereof; and

          (6)    All software, firmware and systems containing software or
     firmware related to the Technology (collectively, "Software Systems") shall
     accurately and automatically handle and process all dates (including
     without limitation all leap years), date values, and date-related data,
     including, without limitation, interpreting, calculating, comparing and
     sequencing and prior to, during, and after January 1, 2000.

     (s) Environmental Matters.  There have been no private or governmental
         ---------------------
claims, citations, complaints, notices of violation or letters made, issued to
or threatened against the Company by any governmental entity or private or other
party for the impairment or diminution

                                       12
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of, or damage, injury or other adverse effects to, the environment or public
health resulting, in whole or in part, from the ownership, use or operation of
any of the facilities used by the Company past or present (the "Property").

          There are no hazardous materials or hazardous waste on, under, in or
about the Property, including but not limited to the soil and groundwater at and
below the Property, and surface water on and running through the Property.

          The Company has duly complied with, and the Property is in compliance
with, the provisions of all Italian state and local environmental, health and
safety laws, codes and ordinances and all rules and regulations promulgated
thereunder.

          The Company has been issued and maintains all required federal, state
and local permits, licenses, certificates and approvals with respect to the
Property relating to (i) air emissions, (ii) discharges to surface water or
groundwater, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the
use, generation, storage, transportation or disposal of hazardous materials or
hazardous wastes, or (vi) other environmental, health or safety matters.

          The Company has received no notice of, and neither knows of nor
suspects, any fact(s) which might constitute violation(s) of any or Italian
state or local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder, which relate to the use,
ownership or occupancy of the Property, and is not in violation of any
covenants, conditions, easements, rights of way or restrictions affecting the
Property or any rights appurtenant thereto.

          Except as set forth in Schedule 2.01(s), the Company has no
information in its possession which pertains to the environmental history of the
Property which has not been furnished to Buyer.

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     (t) Tax Returns and Payments.  All VAT and any and all other Italian or
         ------------------------
Foreign, state and local tax returns and reports of the Company required by law
to be filed (including without limitation returns and reports relating to
required social funds, employment taxes, withholding and VAT) have been duly and
timely filed, and all VAT, withholding taxes, employment taxes and any and all
other taxes, required social funds, fees or other governmental charges of any
nature shown on such returns and reports have been timely paid.  All such filed
tax returns and reports were correct and complete in all material respects.
There is no asserted, or to the knowledge of the Shareholders proposed,
deficiency for additional tax or governmental charge, and there is no tax
proceeding pending before any agency or court to which the Company or the
Shareholders is a party.  There are no unpaid taxes of the Company which are a
lien on its properties and assets, except liens for taxes not yet due and
payable.  All taxes not yet due and payable which require accrual under
generally accepted accounting principles have been properly accrued on the books
of account of the Company and are reflected in the Company's financial
statements.  The Company has incurred no tax obligations of any kind except in
the ordinary course of business.  No consents extending the statute of
limitations have been filed by the Company with respect to the Company's tax
liability for any fiscal year.  The Company is currently not a beneficiary of
any extension of time within which to file a tax return or report.  All monies
required to be collected or withheld by the Company in connection with amounts
paid or owing to any employee, independent contractor, creditor, stockholder or
other third party have been collected or withheld, and either paid to the
respective governmental agencies or set aside in accounts for such purpose.  The
Company has no tax liability for the taxes of any other taxpayer, including as a
transferee or successor, by contract or otherwise.

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<PAGE>

     (u)  Other Activities of the Shareholders. Neither the Shareholders nor any
          ------------------------------------
officer, director or other Key Employee of the Company owns, directly or
indirectly, any interest or has any investment or profit participation in a
corporation or other entity which is a competitor or potential competitor of or
which otherwise, directly or indirectly, does business with the Company or
Buyer, except as set forth in Schedule 2.01 (u), as well as possible
shareholdings not exceeding the 0,25% of the stock capital of public companies.

     (v)  Related Party Transactions. The Company does not have outstanding
          --------------------------
loans or other advances to any of the Shareholders or any officer, director or
other employee of the Company or to any entity in which any of the Shareholders
or the Company has a direct or indirect interest, other than travel advances in
the usual and ordinary course of business.

     (w)  No Undisclosed Liabilities. The Company has no obligations or
          --------------------------
liabilities except (i) liabilities and obligations which are described in
Schedule 2.01(w), and (ii) liabilities and obligations under any contracts set
forth in Schedule 2.01(h).

     (x)  The Shareholder List. Set forth as Schedule 2.01(x) is a true and
          --------------------
accurate copy of the list of Shareholders of the Company.

     (y)  Disclosure. No representation or warranty made by the Shareholders in
          ----------
this Agreement and no statement contained in a certificate, schedule, list or
other instrument or document specified in or delivered pursuant to this
Agreement, whether heretofore furnished to the Buyer or hereafter required to be
furnished to the Buyer (all such documents being taken as a whole), contains or
will contain any untrue statement of a material fact or omits or will omit to
state any material fact necessary to make the statements contained herein or
therein not misleading.

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<PAGE>

     (z)  Corporate Securities Law.  THE SALE OF THE BUYER COMMON STOCK WHICH
          -----------------------
ARE TO BE INTENDED AS A MEANS OF PAYMENT OF A PART OF THE PURCHASE PRICE OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL.  THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED.

     (aa) Investment Representation.  Each of the  Shareholders acknowledges
          -------------------------
that he is aware that the Buyer Common Stock has not been registered under the
Securities Act of 1933 (the "Securities Act").  In this connection, each
Shareholder represents and warrants to Buyer that he is acquiring the Buyer
Common Stock for investment and not with a view to or for sale in connection
with any distribution thereof or with any present intention of selling any such
Buyer Common Stock in connection with a distribution.

     (bb) Restricted Securities.  Each of the Shareholders understands that the
          ---------------------
Buyer Common Stock will be characterized as "Restricted Securities" under the
federal securities laws inasmuch as the Buyer Common Stock is being acquired
from the Buyer in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances.

     (cc) Legends.
          -------

     (i)  Unless and until otherwise permitted, each certificate representing
the Buyer Common Stock shall be stamped or otherwise imprinted with any legends
restricting transfer

                                       16
<PAGE>

required by the California Commissioner of Corporations, and the Buyer Common
Stock may not be transferred except in compliance with the regulations of the
Commissioner.

     (ii)  The certificates representing the Buyer Common Stock shall be stamped
or otherwise imprinted with a legend in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD PURSUANT TO REGULATION S UNDER
THE ACT. THESE SECURITIES MAY NOT BE TRANSFERRED OR SOLD IN THE UNITED STATES OR
TO U.S. PERSONS UNLESS IN ACCORDANCE WITH REGULATION S, OR PURSUANT TO
REGISTRATION UNDER THE ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED, SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT.  HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED
UNLESS IN COMPLIANCE WITH THE ACT.

THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS AS SET FORTH IN
THE LOCKUP AGREEMENT DATED AS OF FEBRUARY 22, 2000.  COPIES OF THIS AGREEMENT
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST OF THE HOLDER OF RECORD OF THE
CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE COMPANY.

     Such legend shall be removed by Buyer from  any certificate upon delivery
     to it of an opinion by counsel satisfactory to Buyer, in form and substance
     satisfactory to Buyer, that a registration statement under the Securities
     Act is at the time in effect with respect to the shares evidenced by such
     certificate or that the shares evidenced by such certificate can be freely
     transferred without such registration statement being in effect and that
     such transfer will not jeopardize the exemption or exemptions from
     registration pursuant to which the Buyer Common Stock is issued.

                                       17
<PAGE>

     (iii) The certificates representing the Buyer Common Stock shall be stamped
     or otherwise imprinted with the legend referred to in the Lockup Agreement.

             (dd) Affiliates. Shareholders represent and guarantee to Buyer that
                  ----------
     all representations and warranties given to Buyer under Section 2.01 are
     also referred to and given with respect to all other entities under control
     of or related to  the Company.

 SECTION 2.02 Representations and Warranties of Buyer.  Buyer represents and
 ----------------------------------------------------
warrants to, and agrees with, the Shareholders as follows:

             (a)  Organization.  Buyer is a corporation duly organized, validly
                  ------------
     existing and in good standing under the laws of the state of its
     incorporation.

             (b)  Binding Obligation. Buyer has all requisite corporate power
                  ------------------
and authority to enter into and perform its obligations under this Agreement.
All corporate acts and other proceedings required to be taken by Buyer to
authorize the execution, delivery and performance by Buyer of this Agreement and
the transactions contemplated hereby, have been duly and properly taken. This
Agreement has been duly executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. The execution, delivery and performance by Buyer of
this Agreement does not and will not conflict with, or result in any violation
of, any provision of the Articles of Incorporation or By-laws of Buyer, or any
provision of any law, ordinance, rule, regulation, judgment, order, decree,
agreement, instrument or license applicable to Buyer or to its property or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other governmental authority or instrumentality, domestic or foreign, is
required by or with respect to Buyer in connection with its execution, delivery
or performance of this Agreement.

                                       18
<PAGE>

          (c)  Buyer Stock. The shares of Buyer Common Stock to be issued to the
               -----------
Shareholders pursuant to this Agreement will be validly issued, fully paid and
nonassessable.  At Closing, the Shareholders will acquire good and marketable
title to all of such Buyer Commons Stock, free and clear of any lien,
encumbrance, pledge, security interest or claim whatsoever.

     (d)  Right to the Shareholders. The Shareholders will have the right to
          ---------------------------
cause the Buyer to purchase the Buyer Common Stock at a per-share exercise price
of $ 30 per share, on and only on the 90/th/  day (on May 22, 2000 only) from
the Closing, provided that such a right be exercised by the Shareholders jointly
with the other shareholders of the Company Mr. Giuliano Sala, Mr. Gian Piero
Brandolini, Mr. Pietro Zucchini, Mr. Aldo Baccarani and Mr. Franco Montanari.
Such right will expire if written notice signed by all of the Shareholders
referred to in this Section 2.02 (d) is not received by Buyer on or before the
close of business on May 22, 2000. The $ 30 per share price shall be
appropriately adjusted to reflect any stock splits or similar transactions
occurring prior to May 22, 2000.

                                  ARTICLE III
                                  -----------

                             Additional Agreements
                             ---------------------

          SECTION 3.01. Legal Conditions.  The Shareholders and Buyer will take
          ------------------------------
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on the Company or Buyer with respect to the transactions
contemplated hereby and will promptly cooperate with and furnish information to
the other party in connection with any such requirements imposed upon such other
party in connection with the transactions contemplated hereby.  Each party will
take all reasonable actions to obtain (and to cooperate with the other party in
obtaining) any consent, authorization, order or approval of, or any exemption
by, any governmental agency, commission, board, authority, court or other
entity, or other third party,

                                       19
<PAGE>

required to be obtained or made by the Company or by Buyer in connection with
the transactions contemplated hereby or the taking of any action contemplated
thereby or by this Agreement.

          SECTION 3.02.Expenses.  Whether or not the transactions contemplated
          ---------------------
hereby are consummated, all costs and expenses incurred by Buyer or the
Shareholders in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs.  Without limiting the
generality of the foregoing, the Shareholders shall be solely responsible for
the fees and expenses of their counsel in connection with the transactions
contemplated hereby.

          SECTION 3.03. Additional Agreements.  Subject to the terms and
          -----------------------------------
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all reasonable action and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, whether before or after the
Closing.

          SECTION 3.04. Press Releases.  None of the parties hereto shall issue
          ----------------------------
a press release or other publicity announcing the transactions contemplated
hereby without the prior written approval of the other party, unless such
disclosure is required by applicable law.

                                  ARTICLE IV
                                  ----------

                                Indemnification
                                ---------------

          SECTION 4.01. Warranty Claims.  Indemnification for Warranty Claims
          -----------------------------
shall be governed by this Section 4.01.

          (a)  By the Shareholders.  Except as hereinafter set forth, the
               -------------------
Shareholders shall jointly and severally indemnify and hold harmless on an
after-tax basis Buyer, and its successors and assigns and its and their
respective officers, directors, shareholders, employees and agents, against, and
in respect of, any and all damages, claims, losses, liabilities and

                                       20
<PAGE>

expenses, which arise out of: (i) any breach or violation of this Agreement by
the Shareholders; or (ii) any breach of any of the representations, warranties
or covenants made in this Agreement by the Shareholders; or (iii) any inaccuracy
or misrepresentation in the Schedules hereto or in any certificate or document
delivered in accordance with the terms of this Agreement by the Shareholders
(collectively, "Warranty Claims"); provided however, that Buyer shall be
entitled to indemnification hereunder only when, and only with respect to
amounts by which, the aggregate of all such Warranty Claims exceeds $25,000.

     (b)  By Buyer.  Except as hereinafter set forth, Buyer shall indemnify and
          --------
hold harmless on an after-tax basis the Shareholders and their heirs,
beneficiaries and estates against, and in respect of, any and all damages,
claims, losses, liabilities and expenses, including, without limitation,
reasonable legal, accounting and other expenses, which arise out of:  (i) any
breach or violation of this Agreement by Buyer; or (ii) any breach of any of the
representations, warranties or covenants made in this Agreement by Buyer; or
(iii) any inaccuracy or misrepresentation in the Schedules hereto or in any
certificate or document delivered in accordance with the terms of this Agreement
by Buyer (collectively, "Warranty Claims"); provided however, that the
Shareholders shall be entitled to indemnification hereunder only when, and only
with respect to amounts by which, the aggregate of all such Warranty Claims
exceeds $25,000.

          SECTION 4.02 Third Party Claims.  Without regard to the limitations
          -------------------------------
set forth in Section 4.01 hereof, the Shareholders shall jointly and severally
indemnify and hold Buyer and its successors and assigns and its and their
respective officers, directors, shareholders, employees and agents harmless on
an after-tax basis against any and all damages, claims, losses, liabilities and
expenses, including, without limitation, reasonable legal, accounting and other

                                       21
<PAGE>

expenses, arising out of any legal, governmental or administrative actions, suit
or proceeding against Buyer, including those included in Schedule 2.01(i)
hereto, which legal governmental or administrative action, suit or proceeding
arises from the conduct of the business of the Company or the ownership or
condition of the properties owned or leased by the Company prior to Closing.

          SECTION 4.03. Notice of Claim.  Upon obtaining knowledge thereof, the
          -----------------------------
indemnified party shall within 60 days from said acknowledgement,  notify the
indemnifying party in writing of any damage, claim, loss, liability or expense
which the indemnified party has determined has given or could give rise to a
claim under Sections 4.01 or 4.02 (such written notice being  hereinafter
referred to as a "Notice of Claim").  A Notice of Claim shall contain a brief
description of the nature and estimated amount of any such claim giving rise to
a right of indemnification.

          SECTION 4.04. Defense of Third Party Claims.  With respect to any
          -------------------------------------------
claim or demand set forth in a Notice of Claim relating to a third party claim,
the indemnifying party may defend, in good faith and at its expense, any such
claim or demand, and the indemnified party, at its expense, shall have the right
to participate in the defense of any such third party claim.  So long as the
indemnifying party is defending in good faith any such third party claim, the
indemnified party shall not settle or compromise such third party claim.  If the
indemnifying party does not so elect to defend any such third party claim, the
indemnified party shall have no obligation to do so.

                                   ARTICLE 5
                                   ---------

                              General Provisions
                              ------------------

          SECTION 5.01. Survival of Representations and Warranties.  All
          --------------------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall

                                       22
<PAGE>

survive the Closing for a period of two years, and, thereafter, to the extent a
claim is made prior to such expiration with respect to any breach of such
representation, warranty or agreement, until such claim is finally determined or
settled; provided, however, that all claims with respect to the tax matters or
resulting from any action or threatened action by any federal, state or local
taxing authority and all claims with respect to litigation by former
Shareholders of the Company regardless of whether or not disclosed shall expire
when the applicable period under the statute of limitations therefor (including
any waivers thereof) shall have expired and cannot thereafter be asserted.

          SECTION 5.02. Notices.  All notices and other communications hereunder
          ---------------------
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):

          (a)  if to Buyer to

               SUNRISE TELECOM, INC.
               22 Great Oaks Boulevard
               P.O. Box 899
               San Jose, CA 95119
               Attention:  Peter L. Eidelman

          with a copy to:  John F. Seegal, Esq.

               ORRICK, HERRINGTON & SUTCLIFFE LLP
               The Old Federal Reserve Bank Building
               400 Sansome Street
               San Francisco, California  94111

             (b) if to the Shareholders, to

                                       23
<PAGE>

               Mr Franco Messori
               Via San Lorenzo n. 20
               41051 Castelnuovo Rangone (MO)

          All notices given hereunder shall be deemed given at the time of
personal delivery or, if mailed, on the earlier of actual receipt as shown on
the registry receipt or three business days after the date of such mailing.

          SECTION 5.03. Interpretation.  When a reference is made in this
          ----------------------------
Agreement to Sections, Schedules or Exhibits, such reference shall be to a
Section, Schedule or Exhibit to this Agreement unless otherwise indicated.  The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.  For purposes of contract interpretation, the parties agree that
they are joint authors of this document.

          SECTION 5.04. Counterparts.  This Agreement may be executed in one or
          --------------------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart.

          SECTION 5.05. Miscellaneous.  This Agreement, the documents and
          ---------------------------
instruments and other agreements between the parties hereto required by this
Agreement (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the subject matter
hereof, (b) is not intended to confer upon any other person any rights or
remedies hereunder and (c) shall not be assigned by operation of law or
otherwise except as otherwise specifically provided.

                                       24
<PAGE>

          SECTION 5.06. Governing Law.  This Agreement shall be governed in all
          ---------------------------
respects, including validity, interpretation and effect, by the substantive laws
of the State of California.

          SECTION 5.07. No Waiver.  No term or provision of this Agreement shall
          -----------------------
be waived or any breach of this Agreement excused except in writing signed by
the party that is claimed to have so waived or excused.  No waiver of any
provision of this Agreement shall constitute a waiver of any other provision.
Any consent or waiver by any party to any breach of this Agreement by the other
party, whether expressed or implied, shall not constitute a consent to, waiver
of, or excuse for, any other breach.  The failure of any party to give notice to
the other party, or to take any other step in respect of, any breach of any
provision of this Agreement shall not constitute a waiver thereof.  Acceptance
of payment by a party after the breach of any provision of this Agreement by the
other party shall not constitute a waiver thereof.

          SECTION 5.08. Prevailing version. This agreement has been duly signed
          --------------------------------
by the parties also into the Italian version, provided that the Buyer and the
Shareholders agree that in any case of disputes referred to the interpretation,
fulfillment and/or termination of the Agreement, the English version shall
apply.

          IN WITNESS WHEREOF, Buyer and the Shareholders have executed this
Agreement, all as of the date first written above.

                              SUNRISE TELECOM, INC.

                              By_________________________________

                              SHAREHOLDERS:

                              ___________________________________

                                       25
<PAGE>

                              FRANCO MESSORI

                              ___________________________________
                              FRANCO CORRADINI

                              ___________________________________
                              ANGELO BACCARANI

                              ___________________________________
                              LUCIA BARBARA SILVANI

                                       26
<PAGE>

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

                               MASTER  AGREEMENT

                       Effective as of February 22, 2000

                                     among

              FRANCO MESSORI, FRANCO CORRADINI, ANGELO BACCARANI,
                             LUCIA BARBARA SILVANI

                                      and

                             SUNRISE TELECOM, INC.

--------------------------------------------------------------------------------
<PAGE>

<TABLE>
<S>                                                                             <C>
ARTICLE I   Sale and Purchase of Common Stock

     SECTION 1.01.  Sale and Purchase.......................................... 1

     SECTION 1.02.  Closing.................................................... 1

            (a)  Shareholder Deliveries........................................ 1

            (b)  Buyer Deliveries.............................................. 2

            (c)  Short-form.................................................... 2

     SECTION 1.03.  The Purchase Price......................................... 2

     SECTION 1.04.  Adjustments to Purchase Price.............................. 2

     SECTION 1.05.  Repayment.................................................. 3

     SECTION 1.06.  Further Cooperation........................................ 3

ARTICLE II  Representations and Warranties

     SECTION 2.01.  Representations and Warranties of the Shareholders......... 3

            (a)  Organization.................................................. 3

            (b)  Authority To Do Business...................................... 3

            (c)  Binding Obligation............................................ 3

            (d)  Title to Quotas............................................... 3

            (e)  Capitalization................................................ 3

            (f)  Real Property................................................. 4

            (g)  Title to Assets............................................... 4

            (h)  Contracts..................................................... 4

            (i)  Litigation.................................................... 4

            (j)  Licenses...................................................... 4

            (k)  Employee and Related Matters.................................. 4

            (l)  Absence of Changes or Events.................................. 5

            (m)  Compliance with Laws.......................................... 5

            (n)  No Broker's or Finder's Fees.................................. 5

            (o)  Employee Benefit Plans........................................ 5

            (p)  Customers..................................................... 6

            (q)  Condition of Equipment........................................ 6

            (r)  Trademarks and Other Intellectual Property.................... 6

            (s)  Environmental Matters......................................... 7

            (t)  Tax Returns and Payments...................................... 7

            (u)  Other Activities of the Shareholders.......................... 8
</TABLE>
<PAGE>

<TABLE>
<S>                                                                             <C>
            (v)  Related Party Transactions.................................... 8

            (w)  No Undisclosed Liabilities.................................... 8

            (x)  The Shareholder List.......................................... 8

            (y)  Disclosure.................................................... 8

            (z)  Corporate Securities Law...................................... 8

            (aa) Investment Representation..................................... 8

            (bb) Restricted Securities......................................... 8

            (cc) Legends....................................................... 9

            (dd) Affiliates.................................................... 9

     SECTION 2.02.  Representations and Warranties of Buyer.................... 9

            (a)  Organization.................................................. 10

            (b)  Binding Obligation............................................ 10

            (c)  Buyer Stock................................................... 10

            (d)  Right to the Shareholders..................................... 10

ARTICLE III Additional Agreements

     SECTION 3.01.  Legal Conditions........................................... 10

     SECTION 3.02.  Expenses................................................... 10

     SECTION 3.03.  Additional Agreements...................................... 11

     SECTION 3.04.  Press Releases............................................. 11

ARTICLE IV  Indemnification

     SECTION 4.01.  Warranty Claims............................................ 11

            (a)  By the Shareholders........................................... 11

            (b)  By Buyer...................................................... 11

     SECTION 4.02.  Third Party Claims......................................... 11

     SECTION 4.03.  Notice of Claim............................................ 12

     SECTION 4.04.  Defense of Third Party Claims.............................. 12

ARTICLE V   General Provisions

     SECTION 5.01.  Survival of Representations and Warranties................. 12

     SECTION 5.02.  Notices.................................................... 12

     SECTION 5.03.  Interpretation............................................. 13

     SECTION 5.04.  Counterparts............................................... 13

     SECTION 5.05.  Miscellaneous.............................................. 13

     SECTION 5.06.  Governing Law.............................................. 13
</TABLE>
<PAGE>

<TABLE>
<S>                                                                             <C>
     SECTION 5.07.  No Waiver.................................................. 13

     SECTION 5.08. Prevailing version.......................................... 13

EXHIBIT A    NONCOMPETITION AGREEMENT..........................................
EXHIBIT B    EMPLOYMENT AGREEMENT..............................................
EXHIBIT C    LOCKUP AGREEMENT..................................................
EXHIBIT D    CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT.......
EXHIBIT E    SCHEDULE OF STOCK OPTION GRANTS...................................
EXHIBIT F    FORM OF STOCK OPTION AGREEMENT....................................
EXHIBIT G    SHORT-FORM........................................................
</TABLE>

<PAGE>

          THIS MASTER  AGREEMENT (this "Agreement") is entered into as of
February 22, 2000 (the "Effective Date"), by and among SUNRISE TELECOM, INC., a
California corporation ("Buyer") represented by Paolo Barozzi Esq., born Novara
on March 14, 1958, Fiscal Code BRZ PLA 58C14 F952B, domiciled at Milan, Via
Vivaio n. 6, duly appointed, to such extent, through Special Powers of Attorney
granted to the latter by virtue of Unanimous Written Consent of the Board of
Directors of Buyer on February 15, 2000, and GIULIANO SALA, GIAN PIERO
BRANDOLINI, PIETRO ZUCCHINI, ALDO BACCARANI, and FRANCO MONTANARI (the
"Shareholders").

          WHEREAS, the Shareholders own, as hereinafter set forth, the quotas
representing the 45% of the issued and outstanding stock capital (the "Quotas ")
of Pro. Tel. S.r.l., an Italian limited liability company (the "Company"):

          (i)      Giuliano Sala             5%;
          (ii)     Gian Piero Brandolini  25,6%;
          (iii)    Pietro Zucchini         3,2%;
          (iv)     Aldo Baccarani            8%;
          (v)      Franco Montanari        3,2%;

          WHEREAS, the Shareholders desire to sell to Buyer, and Buyer desires
to purchase from the Shareholders all of the Quotas .

          WHEREAS, the Board of Directors of Buyer has approved the acquisition
of the Quotas  by Buyer on the terms and conditions hereinafter set forth.

          NOW, THEREFORE, in consideration of the premises and the
representations, warranties and agreements herein contained, the parties agree
as follows:

                                   ARTICLE I

                       Sale and Purchase of Common Stock
                       ---------------------------------

          SECTION 1.01.  Sale and Purchase. Subject to the terms and conditions
                         -----------------
herein set forth, the Shareholders shall sell, assign and transfer to Buyer and
Buyer shall purchase from the Shareholders the Quotas.

                                       1
<PAGE>

          SECTION 1.02.  Closing. The closing of the purchase and sale of the
                         -------
Quotas (the "Closing") will take place on February 22, 2000, at the offices of
Anna Pellegrino Notary Public in Milan, Via Torquato Tasso No. 1.

     (a)  Shareholder Deliveries.  The Shareholders shall deliver to Buyer
          ----------------------
at the Closing:

          (i)   Consents executed by all necessary parties whose consent to the
     transactions contemplated hereby is required under the terms of the
     Company's contracts, licenses or rights as listed in Schedule 1.02 (a)
     hereto.

          (ii)  Lockup Agreements in substantially the form of Exhibit A hereto
     executed by each of the Shareholders.

          (iii) Confidential Information and Invention Assignment Agreements in
     substantially the form of Exhibit B hereto executed by each of the
     Shareholders and each of the Company's other employees.

     (b)  Buyer Deliveries.  Buyer shall deliver to the Shareholders at the
          ----------------
Closing:

          (i)   Wire transfers payable to the Shareholders in the respective
     amounts indicated on Schedule 1.02(b) attached hereto and in the aggregate
     amount of $ 1.755 million

          (ii)  Stock certificates registered in the names of the Shareholders
     in the respective amounts indicated on Schedule 1.02(b) attached hereto and
     evidencing a total of No. 74,999 Common Stock of Buyer.

     (c)  Short-form. At the Closing, the Buyer and the Shareholders
          ----------
(hereinafter jointly the "Parties") shall execute before the Italian Notary
Public the agreement for the sale and purchase of the Quotas, the contents
thereof being similar to those referred in Exhibit C

                                       2
<PAGE>

(hereinafter the "Short-form"). The Parties acknowledge that the Short-form
shall be executed in compliance with the provisions of article 2479 of the
Italian Civil Code. It is also agreed by the Parties that this Agreement shall,
in any case and for all legal purposes, prevail over the Short-form.

          SECTION 1.03.  The Purchase Price. For purposes hereof the Purchase
                         ------------------
Price shall consist of the sum of $ 1.755 million, plus 74,999 shares of Buyer
Common Stock (the "Buyer Common Stock") and shall be divided among and paid to
each of the Shareholders as follows:

          (i)   Giuliano Sala           $ 195,000 plus No. 8,333 of shares of
Buyer Common Stock;

          (ii)  Gian Piero Brandolini   $ 998,400 plus No. 42,667 of shares of
Buyer Common Stock;

          (iii) Pietro Zucchini         $ 124,800 plus No. 5,333 of shares of
Buyer Common Stock;

          (iv)  Aldo Baccarani          $ 312,000 plus No. 13,333 of shares of
Buyer Common Stock;

          (v)   Franco Montanari        $ 124,800 plus No. 5,333 of shares of
Buyer Common Stock.

The Purchase Price shall be subject to adjustment as provided in Section 1.04
hereof.

          SECTION 1.04.  Adjustments to Purchase Price.  After the Closing,
                         -----------------------------
Buyer's accountants will prepare an audited balance sheet of the Company as of
the Closing (the "Closing Balance Sheet"). If the Closing Balance Sheet reflects
(i) the absence of any debt other than ordinary course trade payables, (ii)
Positive Net Assets and, (iii) in any case, the absence of

                                       3
<PAGE>

any decline in Net Assets from the net assets reflected in the balance sheet of
the Company as of December 31, 1999 audited by KPMG there shall be no adjustment
to the Purchase Price. The Purchase Price shall be adjusted downward on a
dollar-for-dollar basis by (i) the amount of debt other than ordinary course
trade payables reflected on the Closing Balance Sheet, and (ii) the amount of
any Negative Net Assets. For purposes hereof, Net Assets shall mean the sum of
cash, accounts receivable and inventory less total liabilities; and the amount
of any positive (or negative) Net Assets shall be the amount by which the Net
Assets are greater than (or less than) zero.

          SECTION 1.05.  Repayment.  In the event of a Purchase Price adjustment
                         ---------
pursuant to Section 1.04, each Shareholder shall promptly pay his pro rata
portion of such Purchase Price adjustment to Buyer in cash and/or Buyer Common
Stock.  In the event that any Shareholder fails to make any such repayment,
Buyer, at its election may (i) cancel the corresponding number of shares of
Buyer Common Stock held by such Shareholder, (ii) or  take such other action as
Buyer deems appropriate.

          SECTION 1.06.  Further Cooperation.  From time to time after the
                         -------------------
Closing, the Shareholders at Buyer's request and without further consideration,
agrees to take or cause to be taken such further or other action as may
reasonably be necessary or appropriate in order to effectuate the quotas
purchase and sale contemplated by this Agreement.

                                  ARTICLE II

                        Representations and Warranties
                        ------------------------------

          SECTION 2.01.  Representations and Warranties of the Shareholders. The
                         --------------------------------------------------
Shareholders hereby jointly and severally represent and warrant to Buyer as
follows:

          (a)  Organization.  The Company is a limited liability company duly
               ------------
organized, validly existing and in good standing under the laws of Italy.

                                       4
<PAGE>

          (b)  Authority To Do Business.  The Company has all requisite power
               ------------------------
and authority to own or lease and operate its properties and to carry on its
business as now conducted.

          (c)  Binding Obligation.  This Agreement has been duly executed and
               ------------------
delivered by the Shareholders and constitutes a valid and binding obligation of
the Shareholders enforceable in accordance with its terms. The execution,
delivery and performance by the Shareholders of this Agreement does not and will
not conflict with, or result in any violation of or default under, any provision
of the Articles of Incorporation or By-laws of the Company or any ordinance,
rule, regulation, judgment, order, decree, agreement, instrument or license
applicable to the Company or to any of its respective properties or assets. No
consent, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other
governmental authority or instrumentality, domestic or foreign, is required by
or with respect to the Shareholders or the Company in connection with the
Shareholders' execution, delivery of this Agreement or the performance by the
Shareholders or the Company of the obligations contemplated hereby.

          (d)  Title to Quotas.  The Shareholders have good and marketable title
               ---------------
to all of the Quotas, free and clear of all claims, liens, security interests,
pledges, charges or encumbrances of any nature whatsoever, and the transfer of
the Quotas to Buyer pursuant to this Agreement will pass good and marketable
title to the Quotas , free and clear of all claims, liens, security interests,
pledges, charges or encumbrances of any nature whatsoever.

          (e)  Capitalization.  The Company's authorized capital stock is equal
               --------------
to ITL 500,000,000 and it is fully subscribed and paid in. No other equity
securities of the Company other than the Quotas are authorized, issued or
outstanding, and there are no outstanding options,

                                       5
<PAGE>

warrants, agreements, contracts, calls, commitments, or demands of any
character, preemptive or otherwise, other than the Agreement, relating to any of
the Common Stock.

          (f)  Real Property.  Schedule 2.01(f) includes a complete list of all
               -------------
real property used by the Company, all of which real property is leased by the
Company ("Leased Real Property"). Except as set forth on Schedule 2.01(f), the
Company has valid lease hold interests in all the Leased Real Property.

          (g)  Title to Assets.  The Company has good and marketable title to
               ---------------
all of its assets, in each case free and clear of all mortgages, liens, security
interests, pledges, charges or encumbrances of any nature whatsoever.

          (h)  Contracts.  Except as described in Schedule 2.01(h) and except,
               ---------
in the case of contracts primarily involving the receipt or payment of money,
for contracts involving the receipt of or payment of less than $25,000, the
Company is not a party to or bound by any lease, agreement, contract or other
commitment which relates in any way to the business of the Company
(collectively, the "Contracts"). Each Contract is a valid and binding obligation
of the Company and is in full force and effect. The Company has performed all
material obligations required to be performed by it to date under the Contracts,
is not (with or without the lapse of time or the giving of notice, or both) in
breach or default in any material respect thereunder and is not alleged to be in
breach or default in any material respect thereunder. All Contracts are in the
name of the Company.

          Except as described in Schedule 2.01(h) and except, in the case of
contracts primarily involving the receipt or payment of money, for contracts
involving the receipt of or payment of less than $25,000, the Company is not a
party to or bound by any of the types of agreement enumerated below:

                                       6
<PAGE>

          (i)   agreement or contract not made in the ordinary course of
business;

          (ii)  agreement or contract with any Shareholders, director or
employee of the Company or any of its subsidiaries, except for those agreements
required by the Italian laws;

          (iii) agreement or contract which is oral; or

          (iv)  agreement or contract the terms of which are known by the
Shareholders to be unfavorable to the Company.

     (i)  Litigation.  There are no lawsuits, claims, proceedings or
          ----------
investigations pending or, to the best knowledge of the Company, threatened by
or against or affecting the Company or any of its properties, assets, operations
or business which could in any way adversely affect the transactions
contemplated by this Agreement or the value to the Buyer of the business being
acquired by it, and the Shareholders are not aware of any reasonable basis for
any such lawsuit, claim, proceeding or investigation.

     (j)  Licenses.  The Company holds each license, permit or other
          --------
governmental authorization (collectively hereinafter referred to as "Licenses")
which is required for the operation of its business and, all such Licenses are
in full force and effect and will remain in full force and effect
notwithstanding the closing of the transactions contemplated hereby.

     (k)  Employee and Related Matters.  There are no employment-related claims,
          ----------------------------
actions, proceedings or investigations pending or, to the best knowledge of the
Shareholders , threatened against or relating to the Company before any court,
governmental, regulatory or administrative authority or body, or arbitrator or
arbitration panel. The Company is not subject to any outstanding order, writ,
judgment, injunction, decision, award, compliance order, consent decree,
conciliation agreement, settlement agreement, affirmative action plan,
determination letter or advisory of any court, governmental, regulatory or
administrative authority or body, or arbitrator

                                       7
<PAGE>

or arbitration panel. The Company is in compliance with all contracts, laws and
regulatory requirements relating to employment matters.

     (l)  Absence of Changes or Events.  Since December 31, 1998, the business
          ----------------------------
of the Company has been conducted in the ordinary course and there has not been
any material adverse change in the financial condition, results of operations,
business, assets or prospects of the Company. Without limiting the generality of
the foregoing, since December 31, 1998 the Company has not, except as described
in Schedule 2.01(l)(i):

          (i)   acquired or agreed to acquire any assets which are material,
     individually or in the aggregate, to the Company, except in the ordinary
     course of business consistent with prior practice;

          (ii)  sold, leased or otherwise disposed of any of its assets, which
     are material, individually or in the aggregate, to the Company, except in
     the ordinary course of business consistent with prior practice;

          (iii) adopted or amended in any material respect any agreement with
     employees or benefit plans, other than in the ordinary course of business
     consistent with prior practice and in compliance with the Italian laws;

          (iv) increased the compensation of any employee other than in the
     ordinary course of business consistent with prior procedure and in
     compliance with the Italian laws;

          (v)  sustained any material loss or damage to its properties, whether
     or not insured;

          (vi) issued capital stock or declared or paid a dividend or made any
     other payment from capital or surplus or other distribution of any nature,
     or directly or

                                       8
<PAGE>

     indirectly, redeemed, purchased or otherwise acquired or recapitalized or
     reclassified any of its capital stock or liquidated in whole or in part;

          (vii)  merged or consolidated with another corporation;

          (viii) created, incurred or assumed or committed to create, incur or
     assume indebtedness or other liability, except for accounts payable or
     other current liabilities which (1) are not for borrowed money, (2) were
     incurred in the usual and ordinary course of business and (3) have not been
     and will not be materially adverse to the general affairs, business,
     prospects, properties, financial condition, results of operations or net
     worth of the Company;

          (ix)   altered or amended its articles of incorporation or bylaws; or

          (x)    entered into, materially amended or terminated any material
     contract, agreement, franchise, permit or license, except for those set
     forth into Schedule 2.01 (l)(ii).

     (m) Compliance with Laws. The Company is not in violation of any law,
         --------------------
order, ordinance, rule or regulation of any governmental authority.

     (n) No Broker's or Finder's Fees. No agent, broker, investment banker,
         ----------------------------
person or firm acting on behalf of the Shareholders, the Company or any related
entity is or will be entitled to any broker's or finder's fee or any other
commission or similar fee in connection with any of the transactions
contemplated herein.

     (o) Employee Benefit Plans.  Except as set forth on Schedule 2.01(o),
         ----------------------
neither the Company nor any entity under common control with the Company
maintains, is required to contribute to, or is required to provide benefits
under, any plan, fund or program providing any pension, profit sharing, deferred
compensation, severance pay, bonuses, incentive compensation,

                                       9

<PAGE>

stock options, stock purchases, or any other form of retirement or deferred
benefit, or any health, accident, dependent care, or other welfare benefit (a
"Plan"), save as provided for by the Italian laws.

     (p) Customers.  Schedule 2.01(p) contains a true and correct list of the
         ---------
Company's largest 20 customers (as determined by dollar amount of orders) for
each of the last two years.  The Company has no information which would cause it
to believe that any such customer will not continue to do business with Buyer
after the Closing upon substantially the same terms and at such volumes as such
customer did business with the Company prior to the Reference Date.

     (q) Condition of Equipment.  The equipment of the Company is in good
         ----------------------
operating condition, normal wear and tear excepted.

     (r) Trademarks and Other Intellectual Property.  Except as set forth in
         ------------------------------------------
Schedule 2.01(r), there are no patents, trademarks, service marks, trade names,
or applications therefor or registrations thereof ("Intellectual Property"),
which have been used or owned within the last three years by the Company.
Schedule 2.01(r) contains a true and complete description of the rights of the
Company with respect to each of such items of Intellectual Property.  Except as
set forth in Schedule 2.01(r), the Company has sole, full and clear title to all
of such items of Intellectual Property, without any liens, encumbrances or
restrictions whatsoever, and upon closing of the transactions contemplated
hereby, the Company will continue to possess sole, full and clear title to all
of such items of Intellectual Property, without any liens, encumbrances or
restrictions whatsoever.  The Company is not and, during the last two years, has
not (i) infringed or violated any trademark, service mark, trade name, patent or
copyright or other Intellectual Property right; or (ii) unlawfully or improperly
used any trade secrets belonging to any third party.  Without limiting the
generality of the foregoing, with respect to the Ghepardo product:

                                      10

<PAGE>

          (1)  The Company is the sole and rightful owner of all right, title
     and interest in and to any and all technology which is necessary or
     desirable in connection with such product (the "Technology") and, it has
     the unrestricted right to market, license and exploit the Technology;

          (2)  At all times prior to Closing, the Company has taken and shall
     take all necessary steps to secure all right and title to and protect the
     Technology (including, without limitation, obtaining executed non-
     disclosure agreements with any third party having access to the Technology,
     and executed confidentiality and proprietary right assignment agreements
     with all employees and independent contractors performing work for the
     Company) and to prevent the disclosure of, publication of or other activity
     that would jeopardize any trade secret or confidential information related
     to the Technology;

          (3)  There has been no disclosure of, publication of or other activity
     that would jeopardize any trade secret or confidential information related
     to the Technology;

          (4)  The Technology does not infringe or misappropriate any third-
     party proprietary right;

          (5)  No claims have been made in respect of the Technology and no
     demands of any third party have been made pertaining to the Technology, and
     no proceedings have been instituted or are pending or threatened that
     challenge the rights of the Company in respect thereof; and

          (6)  All software, firmware and systems containing software or
     firmware related to the Technology (collectively, "Software Systems") shall
     accurately

                                      11

<PAGE>

     and automatically handle and process all dates (including without
     limitation all leap years), date values, and date-related data, including,
     without limitation, interpreting, calculating, comparing and sequencing and
     prior to, during, and after January 1, 2000.

     (s) Environmental Matters.  There have been no private or governmental
         ---------------------
claims, citations, complaints, notices of violation or letters made, issued to
or threatened against the Company by any governmental entity or private or other
party for the impairment or diminution of, or damage, injury or other adverse
effects to, the environment or public health resulting, in whole or in part,
from the ownership, use or operation of any of the facilities used by the
Company past or present (the "Property").

          There are no hazardous materials or hazardous waste on, under, in or
about the Property, including but not limited to the soil and groundwater at and
below the Property, and surface water on and running through the Property.

          The Company has duly complied with, and the Property is in compliance
with, the provisions of all Italian state and local environmental, health and
safety laws, codes and ordinances and all rules and regulations promulgated
thereunder.

          The Company has been issued and maintains all required federal, state
and local permits, licenses, certificates and approvals with respect to the
Property relating to (i) air emissions, (ii) discharges to surface water or
groundwater, (iii) noise emissions, (iv) solid or liquid waste disposal, (v) the
use, generation, storage, transportation or disposal of hazardous materials or
hazardous wastes, or (vi) other environmental, health or safety matters.

          The Company has received no notice of, and neither knows of nor
suspects, any fact(s) which might constitute violation(s) of any or Italian
state or local environmental, health or safety laws, codes or ordinances, and
any rules or regulations promulgated thereunder, which

                                      12
<PAGE>

relate to the use, ownership or occupancy of the Property, and is not in
violation of any covenants, conditions, easements, rights of way or restrictions
affecting the Property or any rights appurtenant thereto.

          Except as set forth in Schedule 2.01(s), the Company has no
information in its possession which pertains to the environmental history of the
Property which has not been furnished to Buyer.

     (t) Tax Returns and Payments.  All VAT and any and all other Italian or
         ------------------------
Foreign, state and local tax returns and reports of the Company required by law
to be filed (including without limitation returns and reports relating to
required social funds, employment taxes, withholding and VAT) have been duly and
timely filed, and all VAT, withholding taxes, employment taxes and any and all
other taxes, required social funds, fees or other governmental charges of any
nature shown on such returns and reports have been timely paid.  All such filed
tax returns and reports were correct and complete in all material respects.
There is no asserted, or to the knowledge of the Shareholders proposed,
deficiency for additional tax or governmental charge, and there is no tax
proceeding pending before any agency or court to which the Company or the
Shareholders is a party.  There are no unpaid taxes of the Company which are a
lien on its properties and assets, except liens for taxes not yet due and
payable.  All taxes not yet due and payable which require accrual under
generally accepted accounting principles have been properly accrued on the books
of account of the Company and are reflected in the Company's financial
statements.  The Company has incurred no tax obligations of any kind except in
the ordinary course of business.  No consents extending the statute of
limitations have been filed by the Company with respect to the Company's tax
liability for any fiscal year.  The Company is currently not a beneficiary of
any extension of time within which to file a tax return or report.

                                      13
<PAGE>

All monies required to be collected or withheld by the Company in connection
with amounts paid or owing to any employee, independent contractor, creditor,
stockholder or other third party have been collected or withheld, and either
paid to the respective governmental agencies or set aside in accounts for such
purpose. The Company has no tax liability for the taxes of any other taxpayer,
including as a transferee or successor, by contract or otherwise.

     (u) Other Activities of the Shareholders.  Neither the Shareholders nor any
         ------------------------------------
officer, director or other Key Employee of the Company owns, directly or
indirectly, any interest or has any investment or profit participation in a
corporation or other entity which is a competitor or potential competitor of or
which otherwise, directly or indirectly, does business with the Company or
Buyer, except as set forth in Schedule 2.01 (u), as well as possible
shareholdings not exceeding the 0,25% of the stock capital of public companies.

     (v) Related Party Transactions.  The Company does not have outstanding
         --------------------------
loans or other advances to any of the Shareholders or any officer, director or
other employee of the Company or to any entity in which any of the Shareholders
or the Company has a direct or indirect interest, other than travel advances in
the usual and ordinary course of business.

     (w) No Undisclosed Liabilities.  The Company has no obligations or
         --------------------------
liabilities except (i) liabilities and obligations which are described in
Schedule 2.01(w), and (ii) liabilities and obligations under any contracts set
forth in Schedule 2.01(h).

     (x) The Shareholder List.  Set forth as Schedule 2.01(x) is a true and
         --------------------
accurate copy of the list of Shareholders of the Company.

     (y) Disclosure.  No representation or warranty made by the Shareholders in
         ----------
this Agreement and no statement contained in a certificate, schedule, list or
other instrument or document specified in or delivered pursuant to this
Agreement, whether heretofore furnished to

                                      14
<PAGE>

the Buyer or hereafter required to be furnished to the Buyer (all such documents
being taken as a whole), contains or will contain any untrue statement of a
material fact or omits or will omit to state any material fact necessary to make
the statements contained herein or therein not misleading.

     (z)  Corporate Securities Law. THE SALE OF THE BUYER COMMON STOCK WHICH ARE
          ------------------------
TO BE INTENDED AS A MEANS OF PAYMENT OF A PART OF THE PURCHASE PRICE OF THIS
AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR
RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS
UNLAWFUL. THE RIGHTS OF ALL PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED
UPON SUCH QUALIFICATION BEING OBTAINED.

     (aa) Investment Representation.  Each of the  Shareholders acknowledges
          -------------------------
that he is aware that the Buyer Common Stock has not been registered under the
Securities Act of 1933 (the "Securities Act").  In this connection, each
Shareholder represents and warrants to Buyer that he is acquiring the Buyer
Common Stock for investment and not with a view to or for sale in connection
with any distribution thereof or with any present intention of selling any such
Buyer Common Stock in connection with a distribution.

     (bb) Restricted Securities.  Each of the Shareholders understands that the
          ---------------------
Buyer Common Stock will be characterized as "Restricted Securities" under the
federal securities laws inasmuch as the Buyer Common Stock is being acquired
from the Buyer in a transaction not involving a public offering and that under
such laws and applicable regulations such securities may be resold without
registration under the Securities Act only in certain limited circumstances.

                                      15
<PAGE>

     (cc) Legends.
          -------
     (i)   Unless and until otherwise permitted, each certificate representing
the Buyer Common Stock shall be stamped or otherwise imprinted with any legends
restricting transfer required by the California Commissioner of Corporations,
and the Buyer Common Stock may not be transferred except in compliance with the
regulations of the Commissioner.

     (ii)  The certificates representing the Buyer Common Stock shall be stamped
or otherwise imprinted with a legend in the following form:

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933 (THE "ACT"), OR THE SECURITIES LAWS OF ANY STATE OR
OTHER JURISDICTION AND ARE BEING OFFERED AND SOLD PURSUANT TO REGULATION S UNDER
THE ACT. THESE SECURITIES MAY NOT BE TRANSFERRED OR SOLD IN THE UNITED STATES OR
TO U.S. PERSONS UNLESS IN ACCORDANCE WITH REGULATION S, OR PURSUANT TO
REGISTRATION UNDER THE ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM
REGISTRATION.

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE OFFERED, SOLD,
MORTGAGED, PLEDGED, HYPOTHECATED, OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT OR AN OPINION
OF COUNSEL SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED UNDER
SUCH ACT.  HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED
UNLESS IN COMPLIANCE WITH THE ACT.

THESE SECURITIES ARE SUBJECT TO CERTAIN TRANSFER RESTRICTIONS AS SET FORTH IN
THE LOCKUP AGREEMENT DATED AS OF FEBRUARY 22, 2000.  COPIES OF THIS AGREEMENT
MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST OF THE HOLDER OF RECORD OF THE
CERTIFICATE TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES
OF THE COMPANY.

     Such legend shall be removed by Buyer from  any certificate upon delivery
     to it of an opinion by counsel satisfactory to Buyer, in form and substance
     satisfactory to Buyer, that a registration statement under the Securities
     Act is at the time in effect with respect to the shares evidenced by such
     certificate or that the shares evidenced by such certificate

                                      16
<PAGE>

     can be freely transferred without such registration statement being in
     effect and that such transfer will not jeopardize the exemption or
     exemptions from registration pursuant to which the Buyer Common Stock is
     issued.

     (iii) The certificates representing the Buyer Common Stock shall be stamped
     or otherwise imprinted with the legend referred to in the Lockup Agreement.

               (dd) Affiliates. Shareholders represent and guarantee to Buyer
                    ----------
     that all representations and warranties given to Buyer under Section 2.01
     are also referred to and given with respect to all other entities under
     control of or related to the Company.

SECTION 2.02  Representations and Warranties of Buyer.  Buyer represents and
-----------------------------------------------------
warrants to, and agrees with, the Shareholders as follows:

               (a) Organization. Buyer is a corporation duly organized, validly
                   ------------
     existing and in good standing under the laws of the state of its
     incorporation.

               (b) Binding Obligation. Buyer has all requisite corporate power
                   ------------------
and authority to enter into and perform its obligations under this Agreement.
All corporate acts and other proceedings required to be taken by Buyer to
authorize the execution, delivery and performance by Buyer of this Agreement and
the transactions contemplated hereby, have been duly and properly taken. This
Agreement has been duly executed and delivered by Buyer and constitutes the
legal, valid and binding obligation of Buyer, enforceable against Buyer in
accordance with its terms. The execution, delivery and performance by Buyer of
this Agreement does not and will not conflict with, or result in any violation
of, any provision of the Articles of Incorporation or By-laws of Buyer, or any
provision of any law, ordinance, rule, regulation, judgment, order, decree,
agreement, instrument or license applicable to Buyer or to its property or
assets. No consent, approval, order or authorization of, or registration,
declaration or filing with, any court,

                                      17
<PAGE>

administrative agency or commission or other governmental authority or
instrumentality, domestic or foreign, is required by or with respect to Buyer in
connection with its execution, delivery or performance of this Agreement.

          (c) Buyer Stock. The shares of Buyer Common Stock to be issued to the
              -----------
Shareholders pursuant to this Agreement will be validly issued, fully paid and
nonassessable. At Closing, the Shareholders will acquire good and marketable
title to all of such Buyer Commons Stock, free and clear of any lien,
encumbrance, pledge, security interest or claim whatsoever.

     (d)  Right to the Shareholders. The Shareholders will have the right to
          -------------------------
cause the Buyer to purchase the Buyer Common Stock at a per-share exercise price
of $ 30 per share, on and only on the 90th day (on May 22, 2000 only) from the
Closing, provided that such a right be exercised by the Shareholders jointly
with the other shareholders of the Company Mr.Franco Messori, Mr. Franco
Corradini, Mr. Angelo Baccarani and Mrs. Lucia Barbara Silvani. Such right will
expire if written notice signed by all of the Shareholders referred to in this
Section 2.02 (d) is not received by Buyer on or before the close of business on
May 22, 2000. The $ 30 per share price shall be appropriately adjusted to
reflect any stock splits or similar transactions occurring prior to May 22,
2000.

                                  ARTICLE III
                                  -----------

                             Additional Agreements
                             ---------------------

          SECTION 3.01. Legal Conditions.  The Shareholders and Buyer will take
          ------------------------------
all reasonable actions necessary to comply promptly with all legal requirements
which may be imposed on the Company or Buyer with respect to the transactions
contemplated hereby and will promptly cooperate with and furnish information to
the other party in connection with any such requirements imposed upon such other
party in connection with the transactions contemplated hereby.  Each party will
take all reasonable actions to obtain (and to cooperate with the other

                                      18
<PAGE>

party in obtaining) any consent, authorization, order or approval of, or any
exemption by, any governmental agency, commission, board, authority, court or
other entity, or other third party, required to be obtained or made by the
Company or by Buyer in connection with the transactions contemplated hereby or
the taking of any action contemplated thereby or by this Agreement.

          SECTION 3.02. Expenses.  Whether or not the transactions contemplated
          ----------------------
hereby are consummated, all costs and expenses incurred by Buyer or the
Shareholders in connection with this Agreement and the transactions contemplated
hereby shall be paid by the party incurring such costs.  Without limiting the
generality of the foregoing, the Shareholders shall be solely responsible for
the fees and expenses of their counsel in connection with the transactions
contemplated hereby.

          SECTION 3.03. Additional Agreements.  Subject to the terms and
          -----------------------------------
conditions of this Agreement, each of the parties hereto agrees to use all
reasonable efforts to take, or cause to be taken, all reasonable action and to
do, or cause to be done, all things reasonably necessary, proper or advisable
under applicable laws and regulations to consummate and make effective the
transactions contemplated by this Agreement, whether before or after the
Closing.

          SECTION 3.04. Press Releases.  None of the parties hereto shall issue
          ----------------------------
a press release or other publicity announcing the transactions contemplated
hereby without the prior written approval of the other party, unless such
disclosure is required by applicable law.

                                  ARTICLE IV
                                  ----------

                                Indemnification
                                ---------------

          SECTION 4.01. Warranty Claims.  Indemnification for Warranty Claims
          -----------------------------
shall be governed by this Section 4.01.

          (a) By the Shareholders. Except as hereinafter set forth, the
Shareholders shall jointly and severally indemnify and hold harmless on an
after-tax basis Buyer, and its

                                      19
<PAGE>

successors and assigns and its and their respective officers, directors,
shareholders, employees and agents, against, and in respect of, any and all
damages, claims, losses, liabilities and expenses, including, without
limitation, reasonable legal, accounting and other expenses, which arise out of:
(i) any breach or violation of this Agreement by the Shareholders; or (ii) any
breach of any of the representations, warranties or covenants made in this
Agreement by the Shareholders; or (iii) any inaccuracy or misrepresentation in
the Schedules hereto or in any certificate or document delivered in accordance
with the terms of this Agreement by the Shareholders (collectively, "Warranty
Claims"); provided however, that Buyer shall be entitled to indemnification
hereunder only when, and only with respect to amounts by which, the aggregate of
all such Warranty Claims exceeds $25,000.

          (b) By Buyer. Except as hereinafter set forth, Buyer shall indemnify
              --------
and hold harmless on an after-tax basis the Shareholders and their heirs,
beneficiaries and estates against, and in respect of, any and all damages,
claims, losses, liabilities and expenses, including, without limitation,
reasonable legal, accounting and other expenses, which arise out of: (i) any
breach or violation of this Agreement by Buyer; or (ii) any breach of any of the
representations, warranties or covenants made in this Agreement by Buyer; or
(iii) any inaccuracy or misrepresentation in the Schedules hereto or in any
certificate or document delivered in accordance with the terms of this Agreement
by Buyer (collectively, "Warranty Claims"); provided however, that the
Shareholders shall be entitled to indemnification hereunder only when, and only
with respect to amounts by which, the aggregate of all such Warranty Claims
exceeds $25,000.

          SECTION 4.02 Third Party Claims.  Without regard to the limitations
          -------------------------------
set forth in Section 4.01 hereof, the Shareholders shall jointly and severally
indemnify and hold Buyer and its successors and assigns and its and their
respective officers, directors, shareholders,

                                      20
<PAGE>

employees and agents harmless on an after-tax basis against any and all damages,
claims, losses, liabilities and expenses, including, without limitation,
reasonable legal, accounting and other expenses, arising out of any legal,
governmental or administrative actions, suit or proceeding against Buyer,
including those included in Schedule 2.01(i) hereto, which legal governmental or
administrative action, suit or proceeding arises from the conduct of the
business of the Company or the ownership or condition of the properties owned or
leased by the Company prior to Closing.

          SECTION 4.03. Notice of Claim.  Upon obtaining knowledge thereof, the
          -----------------------------
indemnified party shall within 60 days from said acknowledgement,  notify the
indemnifying party in writing of any damage, claim, loss, liability or expense
which the indemnified party has determined has given or could give rise to a
claim under Sections 4.01 or 4.02 (such written notice being  hereinafter
referred to as a "Notice of Claim").  A Notice of Claim shall contain a brief
description of the nature and estimated amount of any such claim giving rise to
a right of indemnification.

          SECTION 4.04. Defense of Third Party Claims.  With respect to any
          -------------------------------------------
claim or demand set forth in a Notice of Claim relating to a third party claim,
the indemnifying party may defend, in good faith and at its expense, any such
claim or demand, and the indemnified party, at its expense, shall have the right
to participate in the defense of any such third party claim.  So long as the
indemnifying party is defending in good faith any such third party claim, the
indemnified party shall not settle or compromise such third party claim.  If the
indemnifying party does not so elect to defend any such third party claim, the
indemnified party shall have no obligation to do so.

                                      21
<PAGE>

                                   ARTICLE 5
                                   ---------

                              General Provisions
                              ------------------

          SECTION 5.01. Survival of Representations and Warranties.  All
          --------------------------------------------------------
representations and warranties in this Agreement or in any instrument delivered
pursuant to this Agreement shall survive the Closing for a period of two  years,
and, thereafter, to the extent a claim is made prior to such expiration with
respect to any breach of such representation, warranty or agreement, until such
claim is finally determined or settled; provided, however, that all claims with
respect to the tax matters or resulting from any action or threatened action by
any federal, state or local taxing authority and all claims with respect to
litigation by former Shareholders of the Company regardless of whether or not
disclosed shall expire when the applicable period under the statute of
limitations therefor (including any waivers thereof) shall have expired and
cannot thereafter be asserted.

          SECTION 5.02. Notices.  All notices and other communications hereunder
          ---------------------
shall be in writing and shall be deemed given if delivered personally or mailed
by registered or certified mail (return receipt requested) to the parties at the
following addresses (or at such other address for a party as shall be specified
by like notice):

          (a)  if to Buyer to

               SUNRISE TELECOM, INC.
               22 Great Oaks Boulevard
               P.O. Box 899
               San Jose, CA 95119

               Attention: Peter L. Eidelman

          with a copy to: John F. Seegal, Esq.

               ORRICK, HERRINGTON & SUTCLIFFE LLP

                                      22
<PAGE>

                The Old Federal Reserve Bank Building
                Sansome Street
                400 San Francisco, California 94111

           (b) if to the Shareholders, to

                Mr Giuliano Sala
                Via P. Vitruvio n. 34
                41100 Modena

          All notices given hereunder shall be deemed given at the time of
personal delivery or, if mailed, on the earlier of actual receipt as shown on
the registry receipt or three business days after the date of such mailing.

          SECTION 5.03. Interpretation.  When a reference is made in this
          ----------------------------
Agreement to Sections, Schedules or Exhibits, such reference shall be to a
Section, Schedule or Exhibit to this Agreement unless otherwise indicated.  The
table of contents and headings contained in this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.  For purposes of contract interpretation, the parties agree that
they are joint authors of this document.

          SECTION 5.04. Counterparts.  This Agreement may be executed in one or
          --------------------------
more counterparts, all of which shall be considered one and the same agreement
and shall become effective when one or more counterparts have been signed by
each of the parties and delivered to the other party, it being understood that
all parties need not sign the same counterpart.

          SECTION 5.05. Miscellaneous.  This Agreement, the documents and
          ---------------------------
instruments and other agreements between the parties hereto required by this
Agreement (a) constitute the entire agreement among the parties with respect to
the subject matter hereof and supersede all prior agreements and understandings,
both written and oral, among the parties with respect to the

                                      23
<PAGE>

subject matter hereof, (b) is not intended to confer upon any other person any
rights or remedies hereunder and (c) shall not be assigned by operation of law
or otherwise except as otherwise specifically provided.

          SECTION 5.06. Governing Law.  This Agreement shall be governed in all
          ---------------------------
respects, including validity, interpretation and effect, by the substantive laws
of the State of California.

          SECTION 5.07. No Waiver.  No term or provision of this Agreement shall
          -----------------------
be waived or any breach of this Agreement excused except in writing signed by
the party that is claimed to have so waived or excused.  No waiver of any
provision of this Agreement shall constitute a waiver of any other provision.
Any consent or waiver by any party to any breach of this Agreement by the other
party, whether expressed or implied, shall not constitute a consent to, waiver
of, or excuse for, any other breach.  The failure of any party to give notice to
the other party, or to take any other step in respect of, any breach of any
provision of this Agreement shall not constitute a waiver thereof.  Acceptance
of payment by a party after the breach of any provision of this Agreement by the
other party shall not constitute a waiver thereof.

          SECTION 5.08. Prevailing version. This agreement has been duly signed
          --------------------------------
by the parties also into the Italian version, provided that the Buyer and the
Shareholders agree that in any case of disputes referred to the interpretation,
fulfillment and/or termination of the Agreement, the English version shall
apply.

          IN WITNESS WHEREOF, Buyer and the Shareholders have executed this
Agreement, all as of the date first written above.

                                               SUNRISE TELECOM, INC.

                                               By ______________________________

                                      24
<PAGE>

                                           SHAREHOLDERS:

                                           _____________________________________
                                           GIULIANO SALA

                                           _____________________________________
                                           GIAN PIERO BRANDOLINI

                                           _____________________________________
                                           PIERO ZUCCHINI

                                           _____________________________________
                                           ALDO BACCARANI

                                           _____________________________________
                                           FRANCO MONTANARI

                                      25
<PAGE>

________________________________________________________________________________

                               MASTER AGREEMENT

                       Effective as of February 22, 2000

                                     among

            GIULIANO SALA, GIAN PIERO BRANDOLINI, PIETRO ZUCCHINI,
                       ALDO BACCARANI, FRANCO MONTANARI

                                      and

                             SUNRISE TELECOM, INC.

________________________________________________________________________________

<PAGE>

<TABLE>
<S>                                                                          <C>
ARTICLE I Sale and Purchase of Common Stock

     SECTION 1.01.  Sale and Purchase....................................... 1

     SECTION 1.02.  Closing................................................. 1

          (a)  Shareholder Deliveries....................................... 1

          (b)  Buyer Deliveries............................................. 1

          (c)  Short-form................................................... 2

     SECTION 1.03.  The Purchase Price...................................... 2

     SECTION 1.04.  Adjustments to Purchase Price........................... 2

     SECTION 1.05.  Repayment............................................... 2

     SECTION 1.06.  Further Cooperation..................................... 3

ARTICLE II Representations and Warranties

     SECTION 2.01.  Representations and Warranties of the Shareholders...... 3

          (a)  Organization................................................. 3

          (b)  Authority To Do Business..................................... 3

          (c)  Binding Obligation........................................... 3

          (d)  Title to  Quotas............................................. 3

          (e)  Capitalization............................................... 3

          (f)  Real Property................................................ 3

          (g)  Title to Assets.............................................. 3

          (h)  Contracts.................................................... 3

          (i)  Litigation................................................... 4

          (j)  Licenses..................................................... 4

          (k)  Employee and Related Matters................................. 4

          (l)  Absence of Changes or Events................................. 4

          (m)  Compliance with Laws......................................... 5

          (n)  No Broker's or Finder's Fees................................. 5

          (o)  Employee Benefit Plans....................................... 5

          (p)  Customers.................................................... 5

          (q)  Condition of Equipment....................................... 5

          (r)  Trademarks and Other Intellectual Property................... 6

          (s)  Environmental Matters........................................ 6

          (t)  Tax Returns and Payments..................................... 6

          (u)  Other Activities of the Shareholders......................... 6
</TABLE>
<PAGE>

<TABLE>
<S>                                                                          <C>
          (v)  Related Party Transactions................................... 8

          (w)  No Undisclosed Liabilities................................... 8

          (x)  The Shareholder List......................................... 8

          (y)  Disclosure................................................... 8

          (z)  Corporate Securities Law..................................... 8

          (aa) Investment Representation.................................... 8

          (bb) Restricted Securities........................................ 8

          (cc) Legends...................................................... 8

          (dd) Affiliates................................................... 9

     SECTION 2.02.  Representations and Warranties of Buyer................. 9

          (a)  Organization................................................. 9

          (b)  Binding Obligation........................................... 9

          (c)  Buyer Stock.................................................. 10

          (d)  Right to the Shareholders.................................... 10

ARTICLE III Additional Agreements

     SECTION 3.01.  Legal Conditions........................................ 10

     SECTION 3.02.  Expenses................................................ 10

     SECTION 3.03.  Additional Agreements................................... 10

     SECTION 3.04.  Press Releases.......................................... 11

ARTICLE IV Indemnification

     SECTION 4.01.  Warranty Claims......................................... 11

          (a)  By the Shareholders.......................................... 11

          (b)  By Buyer..................................................... 11

     SECTION 4.02.  Third Party Claims...................................... 11

     SECTION 4.03.  Notice of Claim......................................... 11

     SECTION 4.04.  Defense of Third Party Claims........................... 12

ARTICLE V General Provisions

     SECTION 5.01.  Survival of Representations and Warranties.............. 12

     SECTION 5.02.  Notices................................................. 12

     SECTION 5.03.  Interpretation.......................................... 13

     SECTION 5.04.  Counterparts............................................ 13

     SECTION 5.05.  Miscellaneous........................................... 13

     SECTION 5.06.  Governing Law........................................... 13
</TABLE>
<PAGE>

<TABLE>
<S>                                                                          <C>
     SECTION 5.07.  No Waiver............................................... 13

     SECTION 5.08.  Prevailing version...................................... 13

EXHIBIT A    LOCKUP AGREEMENT...............................................
EXHIBIT B    CONFIDENTIAL INFORMATION AND INVENTION ASSIGNMENT AGREEMENT....
EXHIBIT C    SHORT-FORM.....................................................
</TABLE><PAGE>

                                                                    EXHIBIT 10.7

                          SUNRISE TELECOM INCORPORATED

                                2000 STOCK PLAN

                        EFFECTIVE AS OF [EFFECTIVE DATE]
<PAGE>

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

                                                                        Page
                                                                        ----

SECTION 1.        INTRODUCTION........................................   1

SECTION 2.        DEFINITIONS.........................................   1

         (a)      "Affiliate".........................................   1

         (b)      "Award".............................................   1

         (c)      "Board".............................................   1

         (d)      "Change In Control".................................   1

         (e)      "Code"..............................................   2

         (f)      "Committee".........................................   2

         (g)      "Common Stock"......................................   2

         (h)      "Company"...........................................   2

         (i)      "Consultant"........................................   3

         (j)      "Director"..........................................   3

         (k)      "Disability"........................................   3

         (l)      "Employee"..........................................   3

         (m)      "Exchange Act"......................................   3

         (n)      "Exercise Price"....................................   3

         (o)      "Fair Market Value".................................   3

         (p)      "Grant".............................................   3

         (q)      "Incentive Stock Option" or "ISO"...................   3

         (r)      "Key Employee"......................................   4

         (s)      "Non-Employee Director".............................   4

         (t)      "Nonstatutory Stock Option" or "NSO"................   4

         (u)      "Option"............................................   4

         (v)      "Optionee"..........................................   4

         (w)      "Parent"............................................   4

         (x)      "Participant".......................................   4

         (y)      "Plan"..............................................   4

         (z)      "Restricted Stock"..................................   4

         (aa)     "Restricted Stock Agreement"........................   4

         (bb)     "Securities Act"....................................   4

         (cc)     "Service"...........................................   4

         (dd)     "Share".............................................   4

                                      -i-
<PAGE>

                                                                        Page
                                                                        ----

         (ee)     "Stock Option Agreement"............................   4

         (ff)     "Subsidiary"........................................   4

         (gg)     "10-Percent Shareholder"............................   5

SECTION 3.        ADMINISTRATION......................................   5

         (a)      Committee Composition...............................   5

         (b)      Authority of the Committee..........................   5

         (c)      Indemnification.....................................   6

         (d)      Financial Reports...................................   6

SECTION 4.        ELIGIBILITY.........................................   6

         (a)      General Rules.......................................   6

         (b)      Incentive Stock Options.............................   6

         (c)      Non-Employee Directors..............................   6

SECTION 5.        SHARES SUBJECT TO PLAN..............................   7

         (a)      Basic Limitation....................................   7

         (b)      Annual Addition.....................................   7

         (c)      Additional Shares...................................   7

         (d)      Dividend Equivalents................................   7

         (e)      Limits on Options...................................   8

         (f)      Limits on Restricted Stock..........................   8

SECTION 6.        TERMS AND CONDITIONS OF OPTIONS.....................   8

         (a)      Stock Option Agreement..............................   8

         (b)      Number of Shares....................................   8

         (c)      Exercise Price......................................   8

         (d)      Exercisability and Term.............................   8

         (e)      Modifications or Assumption of Options..............   9

         (f)      Transferability of Options..........................   9

         (g)      No Rights as Stockholder............................   9

         (h)      Restrictions on Transfer............................   9

SECTION 7.        PAYMENT FOR OPTION SHARES...........................   9

         (a)      General Rule........................................   9

         (b)      Surrender of Stock..................................   9

         (c)      Promissory Note.....................................  10

                                      -ii-
<PAGE>

                                                                        Page
                                                                        ----

         (d)      Other Forms of Payment..............................  10

SECTION 8.        TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK.  10

         (a)      Time, Amount and Form of Awards.....................  10

         (b)      Restricted Stock Agreement..........................  10

         (c)      Payment for Restricted Stock........................  10

         (d)      Vesting Conditions..................................  10

         (e)      Assignment or Transfer of Restricted Stock..........  10

         (f)      Trusts..............................................  10

         (g)      Voting and Dividend Rights..........................  11

SECTION 9.        PROTECTION AGAINST DILUTION.........................  11

         (a)      Adjustments.........................................  11

         (b)      Participant Rights..................................  11

SECTION 10.       EFFECT OF A CHANGE IN CONTROL.......................  11

         (a)      Merger or Reorganization............................  11

         (b)      Acceleration........................................  12

SECTION 11.       LIMITATIONS ON RIGHTS...............................  12

         (a)      Retention Rights....................................  12

         (b)      Stockholders' Rights................................  12

         (c)      Regulatory Requirements.............................  12

SECTION 12.       WITHHOLDING TAXES...................................  12

         (a)      General.............................................  12

         (b)      Share Withholding...................................  12

SECTION 13.       DURATION AND AMENDMENTS.............................  13

         (a)      Term of the Plan....................................  13

         (b)      Right to Amend or Terminate the Plan................  13

SECTION 14.       EXECUTION...........................................  13

                                     -iii-
<PAGE>

                          SUNRISE TELECOM INCORPORATED

                                2000 STOCK PLAN

                        EFFECTIVE AS OF [EFFECTIVE DATE]

SECTION 1.  INTRODUCTION.

     The Company's Board of Directors adopted the Sunrise Telecom Incorporated
     2000 Stock Plan on April 5, 2000 and the Company's stockholders approved
     the Plan on April 5, 2000.  The Plan is effective on [EFFECTIVE DATE], the
     date of the Company's initial public offering.

     The purpose of the Plan is to promote the long-term success of the Company
     and the creation of shareholder value by offering Key Employees an
     opportunity to acquire a proprietary interest in the success of the
     Company, or to increase such interest, and to encourage such selected
     persons to continue to provide services to the Company and to attract new
     individuals with outstanding qualifications.

     The Plan seeks to achieve this purpose by providing for Options (which may
     constitute Incentive Stock Options or Nonstatutory Stock Options) and
     Awards of Restricted Stock.

     The Plan shall be governed by, and construed in accordance with, the laws
     of the State of Delaware (except its choice-of-law provisions).
     Capitalized terms shall have the meaning provided in Section 2 unless
     otherwise provided in this Plan or Stock Option Agreement or Restricted
     Stock Agreement.

SECTION 2.  DEFINITIONS.

(a)  "Affiliate" means any entity other than a Subsidiary, if the Company and/or
     one or more Subsidiaries own not less than 50% of such entity.  For
     purposes of determining an individual's "Service," this definition shall
     include any entity other than a Subsidiary, if the Company, a Parent and/or
     one or more Subsidiaries own not less than 50% of such entity.

(b)  "Award" means any award of an Option or Restricted Stock under the Plan.

(c)  "Board" means the Board of Directors of the Company, as constituted from
     time to time.

(d)  "Change In Control" except as may otherwise be provided in the Stock Option
     Agreement or Restricted Stock Agreement, means the occurrence of any of the
     following:

        (i)  The consummation of a merger or consolidation of the Company with
     or into another entity or any other corporate reorganization, if more than
<PAGE>

      [50%] of the combined voting power of the continuing or surviving entity's
      securities outstanding immediately after such merger, consolidation or
      other reorganization is owned by persons who were not stockholders of the
      Company immediately prior to such merger, consolidation or other
      reorganization;

        (ii)  The sale, transfer or other disposition of all or substantially
      all of the Company's assets;

        (iii) A change in the composition of the Board, as a result of which
      fewer that one-half of the incumbent directors are directors who either
      (i) had been directors of the Company on the date 24 months prior to the
      date of the event that may constitute a Change in Control (the "original
      directors") or (ii) were elected, or nominated for election, to the Board
      with the affirmative votes of at least a majority of the aggregate of the
      original directors who were still in office at the time of the election or
      nomination and the directors whose election or nomination was previously
      so approved; or

        (iv)  Any transaction as a result of which any person is the "beneficial
      owner" (as defined in Rule 13d-3 under the Exchange Act), directly or
      indirectly, of securities of the Company representing at least 20% of the
      total voting power represented by the Company's then outstanding voting
      securities. For purposes of this Paragraph (iv), the term "person" shall
      have the same meaning as when used in sections 13(d) and 14(d) of the
      Exchange Act but shall exclude:

                    (A) A trustee or other fiduciary holding securities under an
               employee benefit plan of the Company or a subsidiary of the
               Company; and

                    (B) A corporation owned directly or indirectly by the
               stockholders of the Company in substantially the same proportions
               as their ownership of the common stock of the Company.

          A transaction shall not constitute a Change in Control if its sole
     purpose is to change the state of the Company's incorporation or to create
     a holding company that will be owned in substantially the same proportions
     by the persons who held the Company's securities immediately before such
     transactions.

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

(f)  "Committee" means a committee consisting of one or more members of the
     Board that is appointed by the Board (as described in Section 3) to
     administer the Plan.

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

(h)  "Company" means Sunrise Telecom Incorporated, a Delaware corporation.

                                       2
<PAGE>

(i)  "Consultant" means an individual who performs bona fide services to the
     Company, a Parent, a Subsidiary or an Affiliate other than as an Employee
     or Director or Non-Employee Director.

(j)  "Director" means a member of the Board who is also an Employee.

(k)  "Disability" means that the Key Employee is unable to engage in any
     substantial gainful activity by reason of any medically determinable
     physical or mental impairment which can be expected to result in death or
     which has lasted or can be expected to last for a continuous period of not
     less than 12 months.

(l)  "Employee" means any individual who is a common-law employee of the
     Company, a Parent, a Subsidiary or an Affiliate.

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

(n)  "Exercise Price" means the amount for which a Share may be purchased upon
     exercise of such Option, as specified in the applicable Stock Option
     Agreement.

(o)  "Fair Market Value" means the market price of Shares, determined by the
     Committee as follows:

     (i)   If the Shares were traded over-the-counter on the date in question
but were not classified as a national market issue, then the Fair Market Value
shall be equal to the mean between the last reported representative bid and
asked prices quoted by the NASDAQ system for such date;

     (ii)  If the Shares were traded over-the-counter on the date in question
and were classified as a national market issue, then the Fair Market Value shall
be equal to the last-transaction price quoted by the NASDAQ system for such
date;

     (iii) If the Shares were traded on a stock exchange on the date in
question, then the Fair Market Value shall be equal to the closing price
reported by the applicable composite transactions report for such date; and

     (iv)  If none of the foregoing provisions is applicable, then the Fair
Market Value shall be determined by the Committee in good faith on such basis as
it deems appropriate.

Whenever possible, the determination of Fair Market Value by the Committee shall
be based on the prices reported in the Wall Street Journal. Such determination
                                       -------------------
shall be conclusive and binding on all persons.

(p)  "Grant" means any grant of an Option under the Plan.

(q)  "Incentive Stock Option" or "ISO" means an incentive stock option described
     in Code section 422(b).

                                       3
<PAGE>

(r)  "Key Employee" means an Employee, Director, Non-Employee Director or
     Consultant who has been selected by the Committee to receive an Award under
     the Plan.

(s)  "Non-Employee Director" means a member of the Board who is not an Employee.

(t)  "Nonstatutory Stock Option" or "NSO" means a stock option that is not an
     ISO.

(u)  "Option" means an ISO or NSO granted under the Plan entitling the Optionee
     to purchase Shares.

(v)  "Optionee" means an individual, estate or other entity that holds an
     Option.

(w)  "Parent" means any corporation (other than the Company) in an unbroken
     chain of corporations ending with the Company, if each of the corporations
     other than the Company owns stock possessing fifty percent (50%) or more of
     the total combined voting power of all classes of stock in one of the other
     corporations in such chain.  A corporation that attains the status of a
     Parent on a date after the adoption of the Plan shall be considered a
     Parent commencing as of such date.

(x)  "Participant" means an individual or estate or other entity that holds an
     Award.

(y)  "Plan" means this Sunrise Telecom Incorporated 2000 Stock Plan as it may be
     amended from time to time.

(z)  "Restricted Stock" means a Share awarded under the Plan.

(aa) "Restricted Stock Agreement" means the agreement described in Section 8
     evidencing each Award of Restricted Stock.

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

(cc) "Service" means service as an Employee, Director, Non-Employee Director or
     Consultant.

(dd) "Share" means one share of Common Stock.

(ee) "Stock Option Agreement" means the agreement described in Section 6
     evidencing each Grant of an Option.

(ff) "Subsidiary" means any corporation (other than the Company) in an unbroken
     chain of corporations beginning with the Company, if each of the
     corporations other than the last corporation in the unbroken chain owns
     stock possessing fifty percent (50%) or more of the total combined voting
     power of all classes of stock in one of the other corporations in such
     chain.  A corporation that attains the status of a Subsidiary on a date
     after the adoption of the Plan shall be considered a Subsidiary commencing
     as of such date.

                                       4
<PAGE>

(gg) "10-Percent Shareholder" means an individual who owns more than ten percent
     (10%) of the total combined voting power of all classes of outstanding
     stock of the Company, its Parent or any of its subsidiaries.  In
     determining stock ownership, the attribution rules of section 424(d) of the
     Code shall be applied.

SECTION 3.  ADMINISTRATION.

(a)  Committee Composition.  A Committee appointed by the Board shall administer
     the Plan.  The Board shall designate one of the members of the Committee as
     chairperson.  If no Committee has been approved, the entire Board shall
     constitute the Committee.  Members of the Committee shall serve for such
     period of time as the Board may determine and shall be subject to removal
     by the Board at any time.  The Board may also at any time terminate the
     functions of the Committee and reassume all powers and authority previously
     delegated to the Committee.

     With respect to officers or directors subject to Section 16 of the Exchange
     Act, the Committee shall consist of those individuals who shall satisfy the
     requirements of Rule 16b-3 (or its successor) under the Exchange Act with
     respect to Awards granted to persons who are officers or directors of the
     Company under Section 16 of the Exchange Act.

     The Board may also appoint one or more separate committees of the Board,
     each composed of one or more directors of the Company who need not qualify
     under Rule 16b-3, who may administer the Plan with respect to Key Employees
     who are not considered officers or directors of the Company under Section
     16 of the Exchange Act, may grant Awards under the Plan to such Key
     Employees and may determine all terms of such Awards.

     Notwithstanding the foregoing, the Board shall constitute the Committee and
     shall administer the Plan with respect to Options granted to Non-Employee
     Directors under Section 4(c).

(b)  Authority of the Committee.  Subject to the provisions of the Plan, the
     Committee shall have full authority and discretion to take any actions it
     deems necessary or advisable for the administration of the Plan.  Such
     actions shall include:

        (i)   selecting Key Employees who are to receive Awards under the Plan;
        (ii)  determining the type, number, vesting requirements and other
              features and conditions of such Awards;
        (iii) interpreting the Plan; and
        (iv)  making all other decisions relating to the operation of the Plan.

     The Committee may adopt such rules or guidelines, as it deems appropriate
     to implement the Plan.  The Committee's determinations under the Plan shall
     be final and binding on all persons.

                                       5
<PAGE>

(c)  Indemnification.  Each member of the Committee, or of the Board, shall be
     indemnified and held harmless by the Company against and from (i) any loss,
     cost, liability, or expense that may be imposed upon or reasonably incurred
     by him or her in connection with or resulting from any claim, action, suit,
     or proceeding to which he or she may be a party or in which he or she may
     be involved by reason of any action taken or failure to act under the Plan
     or any Stock Option Agreement or any Restricted Stock Agreement, and (ii)
     from any and all amounts paid by him or her in settlement thereof, with the
     Company's approval, or paid by him or her in satisfaction of any judgment
     in any such claim, action, suit, or proceeding against him or her, provided
     he or she shall give the Company an opportunity, at its own expense, to
     handle and defend the same before he or she undertakes to handle and defend
     it on his or her own behalf.  The foregoing right of indemnification shall
     not be exclusive of any other rights of indemnification to which such
     persons may be entitled under the Company's Certificate of Incorporation or
     Bylaws, by contract, as a matter of law, or otherwise, or under any power
     that the Company may have to indemnify them or hold them harmless.

(d)  Financial Reports.  To the extent required by applicable law, the Company
     shall furnish to Participants the Company's summary financial information
     including a balance sheet regarding the Company's financial condition and
     results of operations, unless such Participants have duties with the
     Company that assure them access to equivalent information.  Such financial
     statements need not be audited.

SECTION 4.  ELIGIBILITY.

(a)  General Rules.  Only Employees, Directors, Non-Employee Directors and
     Consultants shall be eligible for designation as Key Employees by the
     Committee.

(b)  Incentive Stock Options.  Only Key Employees who are common-law employees
     of the Company, a Parent or a Subsidiary shall be eligible for the grant of
     ISOs.  In addition, a Key Employee who is a 10-Percent Shareholder shall
     not be eligible for the grant of an ISO unless the requirements set forth
     in section 422(c)(5) of the Code are satisfied.

(c)  Non-Employee Directors.  Non-Employee Directors shall also be eligible to
     receive Options as described in this Section 4(c) from and after the date
     the Board has determined to implement this provision.

        (i)  Each eligible Non-Employee Director shall automatically be granted
     an NSO to purchase Shares with a Fair Market Value of $25,000 as of the
     date of grant of such NSO as of the later of (i) the effective date of this
     Plan, or (ii) his or her initial appointment as a Non-Employee Director. In
     addition, upon the conclusion of each regular annual meeting of the
     Company's stockholders following the effective date of this Plan, each
     eligible Non-Employee Director who will continue serving as a member of the
     Board thereafter shall automatically receive an NSO to purchase Shares with
     a Fair Market Value of $25,000 as of the date of grant of such NSO.

                                       6
<PAGE>

        (ii)  All NSOs granted to a Non-Employee Director under this Section
      4(c) shall vest and become 100% exercisable upon the one (1) year
      anniversary of the date the Option is granted to the Non-Employee
      Director, provided the Non-Employee Director is a member of the Board on
      such date. Notwithstanding the foregoing, all NSOs granted to a Non-
      Employee Director under this Section 4(c) shall become fully vested and
      exercisable upon the Non-Employee Director's death or Disability while the
      Non-Employee Director is a member of the Board.

        (iii) The Exercise Price under all NSOs granted to a Non-Employee
      Director under this Section 4(c) shall be equal to one hundred percent
      (100%) of the Fair Market Value of a Common Share on the date of grant,
      payable in one of the forms described in Section 7.

        (iv)  All NSOs granted to a Non-Employee Director under this Section
      4(c) shall terminate on the earlier of:

              (1)  The 10th anniversary of the date of grant;

              (2)  The date ninety (90) days after the termination of such Non-
     Employee Director's service for any reason, other than the Non-Employee
     Director's death or Disability while a member of the Board; or

              (3)  The date one (1) year after the Non-Employee Director's death
     or Disability while a member of the Board.

SECTION 5.  SHARES SUBJECT TO PLAN.

(a)  Basic Limitation.  The stock issuable under the Plan shall be authorized
     but unissued Shares or treasury Shares.  The aggregate number of Shares
     reserved for Awards under the Plan shall be 3,750,000, plus such number of
     Shares as were available for issuance under the Company's 1993 Stock Plan
     as of the effective date of this Plan.  The foregoing limit is subject to
     adjustment pursuant to Section 9.

(b)  Annual Addition.  Beginning with the first fiscal year of the Company
     beginning after the effective date of this Plan, on the first day of each
     fiscal year, Shares shall be added to the Plan equal to the least of (i)
     2.5% (two and one-half percent) of the outstanding Shares as of the last
     day of the prior fiscal year, (ii) 1,300,000 Shares, subject to the
     adjustment pursuant to Section 9, or (iii) such lesser amount as the Board
     may determine.

(c)  Additional Shares.  If Awards are forfeited or terminate for any other
     reason before being exercised, then the Shares underlying such Awards shall
     again become available for Awards under the Plan.

(d)  Dividend Equivalents.  Any dividend equivalents distributed under the Plan
     shall not be applied against the number of Shares available for Awards.

                                       7
<PAGE>

(e)  Limits on Options.  No Key Employee shall receive Options to purchase
     Shares during any fiscal year covering in excess of 600,000 Shares;
     provided, however, a newly hired Key Employee may receive Options to
     purchase up to 900,000 Shares during the fiscal year of his or her date of
     hire.

(f)  Limits on Restricted Stock.  No Key Employee shall receive Award(s) of
     Restricted Stock during any fiscal year covering in excess of 75,000
     Shares.

SECTION 6.  TERMS AND CONDITIONS OF OPTIONS.

(a)  Stock Option Agreement.  Each Grant under the Plan shall be evidenced by a
     Stock Option Agreement between the Optionee and the Company.  Such Option
     shall be subject to all applicable terms and conditions of the Plan and may
     be subject to any other terms and conditions that are not inconsistent with
     the Plan and that the Committee deems appropriate for inclusion in a Stock
     Option Agreement.  The provisions of the various Stock Option Agreements
     entered into under the Plan need not be identical.  A Stock Option
     Agreement may provide that new Options will be granted automatically to the
     Optionee when he or she exercises the prior Options.  The Stock Option
     Agreement shall also specify whether the Option is an ISO or an NSO.

(b)  Number of Shares.  Each Stock Option Agreement shall specify the number of
     Shares that are subject to the Option and shall provide for the adjustment
     of such number in accordance with Section 9.

(c)  Exercise Price.  An Option's Exercise Price shall be established by the
     Committee and set forth in a Stock Option Agreement.  To the extent
     required by applicable law the Exercise Price of an ISO shall not be less
     than 100% of the Fair Market Value (110% for 10-Percent Shareholders) of a
     Share on the date of Grant.  In the case of an NSO, a Stock Option
     Agreement may specify an Exercise Price that varies in accordance with a
     predetermined formula while the NSO is outstanding.

(d)  Exercisability and Term.  Each Stock Option Agreement shall specify the
     date when all or any installment of the Option is to become exercisable.
     The Stock Option Agreement shall also specify the term of the Option;
     provided that the term of an ISO shall in no event exceed ten (10) years
     from the date of Grant.  An ISO that is granted to a 10-Percent Shareholder
     shall have a maximum term of five (5) years.  No Option can be exercised
     after the expiration date provided in the applicable Stock Option
     Agreement.  A Stock Option Agreement may provide for accelerated
     exercisability in the event of the Optionee's death, disability or
     retirement or other events and may provide for expiration prior to the end
     of its term in the event of the termination of the Optionee's service.  A
     Stock Option Agreement may permit an Optionee to exercise an Option before
     it is vested, subject to the Company's right of repurchase over any Shares
     acquired under the unvested portion of the Option (an "early exercise"),
     which right of repurchase shall lapse at the same rate the Option would
     have vested had there been no early exercise.  In no event shall the
     Company be required to issue fractional Shares upon the exercise of an
     Option.

                                       8
<PAGE>

(e)  Modifications or Assumption of Options.  Within the limitations of the
     Plan, the Committee may modify, extend or assume outstanding options or may
     accept the cancellation of outstanding options (whether granted by the
     Company or by another issuer) in return for the grant of new Options for
     the same or a different number of Shares and at the same or a different
     Exercise Price.  The foregoing notwithstanding, no modification of an
     Option shall, without the consent of the Optionee, alter or impair his or
     her rights or obligations under such Option.

(f)  Transferability of Options.  Except as otherwise provided in the applicable
     Stock Option Agreement and then only to the extent permitted by applicable
     law, no Option shall be transferable by the Optionee other than by will or
     by the laws of descent and distribution.  Except as otherwise provided in
     the applicable Stock Option Agreement, an Option may be exercised during
     the lifetime of the Optionee only or by the guardian or legal
     representative of the Optionee.  No Option or interest therein may be
     assigned, pledged or hypothecated by the Optionee during his lifetime,
     whether by operation of law or otherwise, or be made subject to execution,
     attachment or similar process.

(g)  No Rights as Stockholder.  An Optionee, or a transferee of an Optionee,
     shall have no rights as a stockholder with respect to any Common Stock
     covered by an Option until such person becomes entitled to receive such
     Common Stock by filing a notice of exercise and paying the Exercise Price
     pursuant to the terms of such Option.

(h)  Restrictions on Transfer.  Any Shares issued upon exercise of an Option
     shall be subject to such rights of repurchase, rights of first refusal and
     other transfer restrictions as the Committee may determine.  Such
     restrictions shall apply in addition to any restrictions that may apply to
     holders of Shares generally and shall also comply to the extent necessary
     with applicable law.

SECTION 7.  PAYMENT FOR OPTION SHARES.

(a)  General Rule.  The entire Exercise Price of Shares issued upon exercise of
     Options shall be payable in cash at the time when such Shares are
     purchased, except as follows:

        (i)  In the case of an ISO granted under the Plan, payment shall be made
     only pursuant to the express provisions of the applicable Stock Option
     Agreement. The Stock Option Agreement may specify that payment may be made
     in any form(s) described in this Section 7.

        (ii) In the case of an NSO granted under the Plan, the Committee may in
     its discretion, at any time accept payment in any form(s) described in this
     Section 7.

(b)  Surrender of Stock.  To the extent that this Section 7(b) is applicable,
     payment for all or any part of the Exercise Price may be made with Shares
     which have already been owned by the Optionee for such duration as shall be
     specified by the Committee.  Such Shares shall be valued at their Fair
     Market Value on the date when the new Shares are purchased under the Plan.

                                       9
<PAGE>

(c)  Promissory Note.  To the extent that this Section 7(c) is applicable,
     payment for all or any part of the Exercise Price may be made with a full-
     recourse promissory note.

(d)  Other Forms of Payment.  To the extent that this Section 7(d) is
     applicable, payment may be made in any other form that is consistent with
     applicable laws, regulations and rules.

SECTION 8.  TERMS AND CONDITIONS FOR AWARDS OF RESTRICTED STOCK.

(a)  Time, Amount and Form of Awards.  Awards under the Plan may be granted in
     the form of Restricted Stock.

(b)  Restricted Stock Agreement.  Each Award of Restricted Stock under the Plan
     shall be evidenced by a Restricted Stock Agreement between the Participant
     and the Company.  Such Award shall be subject to all applicable terms and
     conditions of the Plan and may be subject to any other terms and conditions
     that are not inconsistent with the Plan and that the Committee deems
     appropriate for inclusion in a Restricted Stock Agreement.  The provisions
     of the various Restricted Stock Agreements entered into under the Plan need
     not be identical.

(c)  Payment for Restricted Stock.  Restricted Stock may be issued with or
     without cash consideration under the Plan.

(d)  Vesting Conditions.  Each Award of Restricted Stock shall become vested, in
     full or in installments, upon satisfaction of the conditions specified in
     the Restricted Stock Agreement.  A Restricted Stock Agreement may provide
     for accelerated vesting in the event of the Participant's death, Disability
     or retirement or other events.

(e)  Assignment or Transfer of Restricted Stock.  Except as provided in Section
     12, or in a Restricted Stock Agreement, or as required by applicable law, a
     Restricted Stock granted under the Plan shall not be anticipated, assigned,
     attached, garnished, optioned, transferred or made subject to any
     creditor's process, whether voluntarily, involuntarily or by operation of
     law.  Any act in violation of this Section 8(e) shall be void.  However,
     this Section 8(e) shall not preclude a Participant from designating a
     beneficiary who will receive any outstanding Restricted Stock in the event
     of the Participant's death, nor shall it preclude a transfer of Restricted
     Stock by will or by the laws of descent and distribution.

(f)  Trusts.  Neither this Section 8 nor any other provision of the Plan shall
     preclude a Participant from transferring or assigning Restricted Stock to
     (a) the trustee of a trust that is revocable by such Participant alone,
     both at the time of the transfer or assignment and at all times thereafter
     prior to such Participant's death, or (b) the trustee of any other trust to
     the extent approved in advance by the Committee in writing.  A transfer or
     assignment of Restricted Stock from such trustee to any person other than
     such Participant shall be permitted only to the extent approved in advance
     by the Committee in writing, and Restricted Stock held by such trustee
     shall be subject to all of the conditions and

                                       10
<PAGE>

     restrictions set forth in the Plan and in the applicable Restricted Stock
     Agreement, as if such trustee were a party to such Agreement.

(g)  Voting and Dividend Rights.  The holders of Restricted Stock awarded under
     the Plan shall have the same voting, dividend and other rights as the
     Company's other stockholders.  A Restricted Stock Agreement, however, may
     require that the holders of Restricted Stock invest any cash dividends
     received in additional Restricted Stock.  Such additional Restricted Stock
     shall be subject to the same conditions and restrictions as the Award with
     respect to which the dividends were paid.  Such additional Restricted Stock
     shall not reduce the number of Shares available under Section 5.

SECTION 9.  PROTECTION AGAINST DILUTION.

(a)  Adjustments.  In the event of a subdivision of the outstanding Shares, a
     declaration of a dividend payable in Shares, a declaration of a dividend
     payable in a form other than Shares in an amount that has a material effect
     on the price of Shares, a combination or consolidation of the outstanding
     Shares (by reclassification or otherwise) into a lesser number of Shares, a
     recapitalization, a spin-off or a similar occurrence, the Committee shall
     make such adjustments as it, in its sole discretion, deems appropriate in
     one or more of:

        (i)   the number of Shares available for future Awards under Section 5;

        (ii)  the number of Shares that may be awarded per person under Section
              5;

        (iii) the number of Shares covered by each outstanding Award; or

        (iv)  the Exercise Price under each outstanding Option.

(b)  Participant Rights.  Except as provided in this Section 9, a Participant
     shall have no rights by reason of any issue by the Company of stock of any
     class or securities convertible into stock of any class, any subdivision or
     consolidation of shares of stock of any class, the payment of any stock
     dividend or any other increase or decrease in the number of shares of stock
     of any class.

SECTION 10.  EFFECT OF A CHANGE IN CONTROL.

(a)  Merger or Reorganization.  In the event that the Company is a party to a
     merger or other reorganization, outstanding Awards shall be subject to the
     agreement of merger or reorganization.  Such agreement may provide, without
     limitation, for the assumption of outstanding Awards by the surviving
     corporation or its parent, for their continuation by the Company (if the
     Company is a surviving corporation), for accelerated vesting or for their
     cancellation with or without consideration, in all cases without the
     consent of the Participant.

                                       11
<PAGE>

(b)  Acceleration.  The Committee may determine, at the time of granting an
     Award or thereafter, that such Award shall become fully vested as to all
     Shares subject to such Award in the event that a Change in Control occurs
     with respect to the Company.

SECTION 11.  LIMITATIONS ON RIGHTS.

(a)  Retention Rights.  Neither the Plan nor any Award granted under the Plan
     shall be deemed to give any individual a right to remain an employee,
     consultant or director of the Company, a Parent, a Subsidiary or an
     Affiliate.  The Company and its Parents and Subsidiaries and Affiliates
     reserve the right to terminate the Service of any person at any time, and
     for any reason, subject to applicable laws, the Company's Certificate of
     Incorporation and Bylaws and a written employment agreement (if any).

(b)  Stockholders' Rights.  A Participant shall have no dividend rights, voting
     rights or other rights as a stockholder with respect to any Shares covered
     by his or her Award prior to the issuance of a stock certificate for such
     Shares.  No adjustment shall be made for cash dividends or other rights for
     which the record date is prior to the date when such certificate is issued,
     except as expressly provided in Section 9.

(c)  Regulatory Requirements.  Any other provision of the Plan notwithstanding,
     the obligation of the Company to issue Shares under the Plan shall be
     subject to all applicable laws, rules and regulations and such approval by
     any regulatory body as may be required.  The Company reserves the right to
     restrict, in whole or in part, the delivery of Shares pursuant to any Award
     prior to the satisfaction of all legal requirements relating to the
     issuance of such Shares, to their registration, qualification or listing or
     to an exemption from registration, qualification or listing.

SECTION 12.  WITHHOLDING TAXES.

(a)  General.  A Participant shall make arrangements satisfactory to the Company
     for the satisfaction of any withholding tax obligations that arise in
     connection with his or her Award.  The Company shall not be required to
     issue any Shares or make any cash payment under the Plan until such
     obligations are satisfied.

(b)  Share Withholding.  If a public market for the Company's Shares exists, the
     Committee may permit a Participant to satisfy all or part of his or her
     withholding or income tax obligations by having the Company withhold all or
     a portion of any Shares that otherwise would be issued to him or her or by
     surrendering all or a portion of any Shares that he or she previously
     acquired.  Such Shares shall be valued at their Fair Market Value on the
     date when taxes otherwise would be withheld in cash.  Any payment of taxes
     by assigning Shares to the Company may be subject to restrictions,
     including, but not limited to, any restrictions required by rules of the
     Securities and Exchange Commission.

                                       12
<PAGE>

SECTION 13.  DURATION AND AMENDMENTS.

(a)  Term of the Plan.  The Plan, as set forth herein, shall become effective on
     the date of its adoption by the Board, subject to the approval of the
     Company's stockholders.  No Options shall be exercisable until such
     stockholder approval is obtained.  In the event that the stockholders fail
     to approve the Plan within twelve (12) months after its adoption by the
     Board, any Awards made shall be null and void and no additional Awards
     shall be made.  To the extent required by applicable law, the Plan shall
     terminate on the date that is ten (10) years after its adoption by the
     Board and may be terminated on any earlier date pursuant to Section 13(b).

(b)  Right to Amend or Terminate the Plan.  The Board may amend or terminate the
     Plan at any time and for any reason.  The termination of the Plan, or any
     amendment thereof, shall not affect any Award previously granted under the
     Plan.  No Awards shall be granted under the Plan after the Plan's
     termination.  An amendment of the Plan shall be subject to the approval of
     the Company's stockholders only to the extent required by applicable laws,
     regulations or rules.

SECTION 14.  EXECUTION.

     To record the adoption of the Plan by the Board, the Company has caused its
     duly authorized officer to execute this Plan on behalf of the Company.

                              SUNRISE TELECOM INCORPORATED

                              By
                                 --------------------------------------

                              Title
                                   ------------------------------------

                                       13

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