Document:

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                                                                   Exhibit 10.07

                           STOCK RESTRICTION AGREEMENT

         This Agreement is made this 10th day of October, 1997, between
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"), and
Peter Piscia (the "Employee").

         In consideration of the mutual promises and covenants contained in this
Agreement and for other valuable consideration, receipt of which is hereby
acknowledged, the parties hereto agree as follows:

         1. PURCHASE OF SHARES. The Company shall issue and sell to the
Employee, and the Employee shall purchase from the Company, subject to the terms
and conditions set forth in this Agreement, 70,000 shares (the "Shares") of
common stock, $.001 par value, of the Company ("Common Stock"), at a purchase
price of $.01 per share. The aggregate purchase price for the Shares shall be
paid by the Employee by check payable to the order of the Company or such other
method as may be acceptable to the Company. Upon receipt of payment by the
Company for the Shares, the Company shall issue to the Employee one or more
certificates in the name of the Employee for that number of Shares purchased by
the Employee. The Employee agrees that the Shares shall be subject to the
Purchase Option set forth in Section 2 of this Agreement and the restrictions on
transfer set forth in Section 5 of this Agreement. The Shares are issued
pursuant to the terms of the 1997 Stock Incentive Plan of the Company and are
subject to the terms thereof.

         2. PURCHASE OPTION.

            (a) In the event that the Employee ceases to be employed by the
Company for any reason prior to August 31, 2002, the Company shall have the
right and option (the "Purchase Option") to purchase from the Employee, for the
sum of $0.01 per share (the "Option Price"), up to the total number of Shares
that have not vested according to the vesting schedule in Section 3 (the
"Vesting Schedule").

            (b) For purposes of this Agreement, employment with the Company
shall include employment with a parent or subsidiary of the Company.

         3. VESTING.

            (a) The Shares shall vest in the amount of 20% of the total number
of Shares on August 31, 1998 and on the last day of each full month thereafter
in the amount of 1.6667% of the total number of Shares.

            (b) In the event of as Acquisition (as defined below), then 50% of
the number of Shares which are not then vested shall become vested immediately
prior to the closing of the Acquisition.

            (c) For the purposes of this Agreement, "Acquisition" shall mean any
(i) merger or consolidation which results in the voting securities of the
Company outstanding

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immediately prior thereto representing immediately thereafter (either
by remaining outstanding or by being converted into voting securities of
the surviving or acquiring entity) less than a majority of the combined voting
power of the voting securities of the Company or such surviving or acquiring
entity outstanding immediately after such merger or consolidation, (ii) sale of
all or substantially all the assets of the Company or (iii) sale of shares of
capital stock of the Company, in a single transaction or series of related
transactions, representing at least 80% of the voting power of the voting
securities of the Company.

            (d) The Company may in its discretion accelerate the Vesting
Schedule at any time.

         4. EXERCISE OF PURCHASE OPTION AND CLOSING.

            (a) The Company may exercise the Purchase Option by sending to the
Employee (or his estate), within 60 days after the termination of the employment
of the Employee with the Company, a written notice of exercise of the Purchase
Option. Such notice shall specify the number of Shares to be purchased. If and
to the extent the Purchase Option is not so exercised by the giving of such a
notice within such 60-day period, the Purchase Option shall automatically expire
and terminate effective upon the expiration of such 60-day period.

            (b) Within 10 days after his receipt of the Company's notice of the
exercise of the Purchase Option pursuant to subsection (a) above, the Employee
(or his estate) shall (in accordance with the provisions of the joint Escrow
Instructions attached hereto) tender to the Company at its principal offices the
certificate or certificates representing the Shares which the Company has
elected to purchase, duly endorsed in blank by the Employee or with duly
endorsed stock powers attached thereto, all in form suitable for the transfer of
such Shares to the Company. Upon its receipt of such certificate or
certificates, the Company shall deliver or mail to the Employee a check in the
amount of the aggregate Option Price therefor.

            (c) After the time at which any Shares are required to be delivered
to the Company for transfer to the Company pursuant to subsection (b) above, the
Company shall not pay any dividend to the Employee on account of such Shares or
permit the Employee to exercise any of the privileges or rights of a stockholder
with respect to such Shares, but shall, in so far as permitted by law, treat the
Company as the owner of such Shares.

            (d) The Option Price may be payable, at the option of the Company,
in cancellation of all or a portion of any outstanding indebtedness of the
Employee to the Company or in cash (by check) or both.

            (e) The Company shall not purchase any fraction of a Share upon
exercise of the Purchase Option, and any fraction of a Share resulting from a
computation made pursuant to Section 4 of this Agreement shall be rounded to the
nearest whole Share (with any one-half Share being rounded upward).

         5. RESTRICTIONS ON TRANSFER.

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            (a) Except as otherwise provided in subsection (b) below, the
Employee shall not, during the term of the Purchase Option, sell, assign,
transfer, pledge, hypothecate or otherwise dispose of, by operation of law or
otherwise (collectively "transfer"), any of the Shares, or any interest therein,
unless and until such Shares are no longer subject to the Purchase Option.

            (b) Notwithstanding the foregoing, the Employee may transfer (i) any
or all of his Shares to his spouse or children or to a trust established for the
benefit of his spouse, children or himself or (ii) any or all of his Shares
under his will, PROVIDED that such Shares shall remain subject to this Agreement
(including without limitation the restrictions on transfer set forth in this
Section 5 and the Purchase Option) and such permitted transferee shall, as a
condition to such transfer, deliver to the Company a written instrument
confirming that such transferee shall be bound by all of the terms and
conditions of this Agreement.

         6. ESCROW. The Employee and the Company shall, upon the execution of
this Agreement, execute joint Escrow Instructions in the form appended hereto.
The joint Escrow Instructions shall be delivered to the Secretary of the
Company, as escrow agent thereunder. The Employee shall deliver to such escrow
agent the certificate(s) evidencing the Shares and a stock assignment duly
endorsed in blank. Such materials shall be held by such escrow agent pursuant to
the terms of such joint Escrow Instructions.

         7. EFFECT OF PROHIBITED TRANSFER. The Company shall not be required
(a) to transfer on its books any of the Shares which shall have been sold or
transferred in violation of any of the provisions set forth in this Agreement,
or (b) to treat as owner of such Shares or to pay dividends to any transferee to
whom any such Shares shall have been so sold or transferred.

         8. RESTRICTIVE LEGEND. All certificates representing the Shares
shall have affixed thereto the following legend, in addition to any other
legends that may be required under federal or state securities laws:

         "The shares of stock represented by this certificate are subject to
         restrictions on transfer and an option to purchase set forth in a
         certain Stock Restriction Agreement between the Corporation and the
         registered owner of these shares (or his predecessor in interest), and
         such Agreement is available for inspection without charge at the office
         of the Secretary of the Corporation."

         9. INVESTMENT REPRESENTATIONS. The Employee represents, warrants and
covenants as follows:

            (a) The Employee is purchasing the Shares for his own account for
investment only, and not with a view to, or for sale in connection with, any
distribution of the Shares in violation of the Securities Act of 1933 (the
"Securities Act"), or any rule or regulation under the Securities Act.

            (b) The Employee has had such opportunity as he has deemed adequate
to obtain from representatives of the Company such information as is necessary
to permit him to evaluate the merits and risks of his investment in the Company.

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            (c) The Employee has sufficient experience in business, financial
and investment matters to be able to evaluate the risks involved in the purchase
of the Shares and to make an informed investment decision with respect to such
purchase.

            (d) The Employee can afford a complete loss of the value of the
Shares and is
able to bear the economic risk of holding such Shares for an indefinite period.

            (e) The Employee understands that (i) the Shares have not been
registered under the Securities Act and are "restricted securities" within the
meaning of Rule 144 under the Securities Act, (ii) the Shares cannot be sold,
transferred or otherwise disposed of unless they are subsequently registered
under the Securities Act or an exemption from registration is then available;
(iii) in any event, the exemption from registration under Rule 144 will not be
available for at least one year and even then will not be available unless a
public market then exists for the Common Stock, adequate information concerning
the Company is then available to the public, and other terms and conditions of
Rule 144 are complied with; and (iv) there is now no registration statement on
file with the Securities and Exchange Commission with respect to any stock of
the Company and the Company has no obligation or current intention to register
the Shares under the Securities Act.

            (f) A legend substantially in the following form will be placed on
the certificate representing the Shares:

                  "The shares represented by this certificate have not been
                  registered under the Securities Act of 1933, as amended, and
                  may not be sold, transferred or otherwise disposed of in the
                  absence of an effective registration statement under such Act
                  or an opinion of counsel satisfactory to the corporation to
                  the effect that such registration is not required."

         10. ADJUSTMENTS FOR STOCK SPLITS, STOCK DIVIDENDS, ETC.

            (a) If from time to time during the term of the Purchase Option
there is any stock split-up, stock dividend, stock distribution or other
reclassification of the Common Stock of the Company, any and all new,
substituted or additional securities to which the Employee is entitled by reason
of his ownership of the Shares shall be immediately subject to the Purchase
Option, the restrictions on transfer and other provisions of this Agreement in
the same manner and to the same extent as the Shares, and the Option Price shall
be appropriately adjusted.

            (b) If the Shares are converted into or exchanged for, or
stockholders of the Company receive by reason of any distribution in total or
partial liquidation, securities of another corporation, or other property
(including cash), pursuant to an Acquisition, then the rights of the Company
under this Agreement shall inure to the benefit of the Company's successor and
this Agreement shall apply to the securities or other property received upon
such conversion, exchange or distribution in the same manner and to the same
extent as the Shares provided that (i) to account for the acceleration of
vesting under Section 3(b) above, on each vesting date subsequent to the
Acquisition, one-half of the amount of securities or other property that would
have otherwise vested in accordance with the original Vesting Schedule shall
become vested and

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(ii) the Vesting Schedule shall be subject to further acceleration following
the Acquisition pursuant to Section 3(d).

         11. WITHHOLDING TAXES. If the Employee elects, in accordance with
Section 83(b) of the Internal Revenue Code of 1986, as amended, to recognize
ordinary income in the year of acquisition of the Shares, the Company will
require at the time of such election an additional payment for withholding tax
purposes based on the difference, if any, between the purchase price for such
Shares and the fair market value of such Shares as of the day immediately
preceding the date of the purchase of such Shares by the Employee.

         12. MISCELLANEOUS.

            (a) SEVERABILITY. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement, and each other provision of this
Agreement shall be severable and enforceable to the extent permitted by law.

            (b) WAIVER. Any provision contained in this Agreement may be waived,
either generally or in any particular instance, by the Board of Directors of the
Company; provided that the Company may not waive, or otherwise limit or reduce
its rights under, the Purchase Option or accelerate the Vesting Schedule without
the consent of the holders of a majority of the then outstanding shares of
Series A Convertible Preferred Stock of the Company (if any).

            (c) BINDING EFFECT. This Agreement shall be binding upon and inure
to the benefit of the Company and the Employee and their respective heirs,
executors, administrators, legal representatives, successors and assigns,
subject to the restrictions on transfer set forth in Section 5 of this
Agreement.

            (d) NO RIGHTS TO EMPLOYMENT. Nothing contained in this Agreement
shall be construed as giving the Employee any right to be retained, in any
position, as an employee of the Company.

            (e) NOTICE. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid, to the Company or the Employee at their addresses set forth on the
signature page hereto. Notices provided in accordance with this Section 12 shall
be deemed delivered upon personal delivery, one business day after being sent
via a reputable nationwide overnight courier service, or two business days after
deposit in the mail.

            (f) PRONOUNS. Whenever the context may require, any pronouns used in
this Agreement shall include the corresponding masculine, feminine or neuter
forms, and the singular form of nouns and pronouns shall include the plural, and
vice versa.

            (g) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement between the parties, and supersedes all prior agreements and
understandings, relating to the subject matter of this Agreement.

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            (h) Amendment. This Agreement may be amended or modified only by a
written instrument executed by both the Company and the Employee.

            (i) Governing Law. This Agreement shall be construed, interpreted
and enforced in accordance with the laws of the State of Delaware.

         IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the day and year first above written.

         ArrowPoint Communications, Inc.

         By: /s/Chin-Cheng Wu
            ---------------------------------
            Chin-Cheng Wu
            President

         Address: 235 Littleton Road
                  Westford, MA 01886

         Peter Piscia

         /s/Peter Piscia
         -------------------------------------

         Address: 9 Liberty Road
                  Medway, MA 02053

                                       6<PAGE>   1

                                                                   Exhibit 10.14

                         ArrowPoint Communications, Inc.

                   SERIES B PREFERRED STOCK PURCHASE AGREEMENT

                                February 5, 1998

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                                TABLE OF CONTENTS

PAGE

Disclosure Schedule

Exhibit A                  Certificate of Amendment

Exhibit B                  Opinion of Hale and Dorr LLP

Exhibit C                  Investor Rights Agreement

Exhibit D                  Right of First Refusal and Co-Sale Agreement

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                   SERIES B PREFERRED STOCK PURCHASE AGREEMENT

This Agreement dated as of February 5, 1998 is entered into by and among
ArrowPoint Communications, Inc., a Delaware corporation (the "Company"),
Chin-Cheng Wu (the "Founder"), and the persons and entities listed on SCHEDULE I
attached hereto (individually, a "Purchaser" and, collectively, the
"Purchasers")

In consideration of the mutual promises and covenants contained in this
Agreement, the parties hereto agree as follows:

         1.       AUTHORIZATION AND SALE OF SHARES.

                  1.1     AUTHORIZATION. The Company has duly authorized the
sale and issuance, pursuant to the terms of this Agreement, of 2,213,828 shares
of its Series B Convertible Preferred Stock, $0.01 par value per share (the
"Series B Preferred Stock"), having the rights, restrictions, privileges and
preferences set forth in the Certificate of Amendment attached hereto as EXHIBIT
A (the "Certificate of Amendment"). The Company has adopted and filed the
Certificate of Amendment with the Secretary of State of the State of Delaware.

                  1.2     SALE OF SHARES. Subject to the terms and conditions of
this Agreement, at the Closing (as defined below) the Company will issue and
sell to each Purchaser, and each Purchaser will purchase, for a purchase price
of $4.63 per share, such number of shares of Series B Preferred Stock as is set
forth opposite such Purchaser's name on SCHEDULE I attached hereto. The shares
of Series B Preferred Stock being sold under this Agreement are referred to as
the "Shares."

                  1.3     USE OF PROCEEDS. The Company will use the proceeds
from the sale of the Shares for working capital purposes.

         2.       THE CLOSING. The closing ("Closing") of the sale and purchase
of the Shares under this Agreement shall take place at the offices of Hale and
Dorr LLP, 60 State Street, Boston, Massachusetts at 9:00 a.m. on the date of
this Agreement, or at such other time, date and place as are mutually agreeable
to the Company and the Purchasers. The date of the Closing is hereinafter
referred to as the "Closing Date." At the Closing:

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                  (a)     the Company shall deliver to the Purchasers a
certificate, as of the most recent practicable date, as to the corporate good
standing of the Company issued by the Secretary of State of the State of
Delaware;

                  (b)     the Company shall deliver to the Purchasers the
Certificate of Incorporation of the Company, as amended and in effect as of the
Closing Date (including the Certificate of Amendment), certified by the
Secretary of State of the State of Delaware;

                  (c)     the Company shall deliver to the Purchasers a
Certificate of the Secretary of the Company attesting as to (i) the By-laws of
the Company, and (ii) resolutions of the Board of Directors and stockholders of
the Company authorizing and approving all matters in connection with this
Agreement and the transactions contemplated hereby.

                  (d)     Hale and Dorr LLP, counsel for the Company, shall
deliver to the Purchasers an opinion, dated the Closing Date, in the form
attached hereto as EXHIBIT B;

                  (e)     the Company, the Founder and the Purchasers shall
execute and deliver the Investor Rights Agreement in the form attached hereto as
EXHIBIT C (the "Investor Agreement");

                  (f)     the Company, the Founding Stockholders (as defined
therein) and the Purchasers shall execute and deliver the Right of First Refusal
and Co-Sale Agreement in the form attached hereto as EXHIBIT D (the "Right of
First Refusal Agreement");

                  (g)     the Company shall deliver to each Purchaser a
certificate for the number of Shares being purchased by such Purchaser,
registered in the name of such Purchaser;

                  (h)     each Purchaser shall pay to the Company the purchase
price for the Shares being purchased by such Purchaser, by wire transfer or
certified check; and

                  (i)     the Company and the Purchasers shall execute and
deliver a Cross-Receipt.

         3.       REPRESENTATIONS OF THE COMPANY. Subject to and except as
disclosed by the Company in the Disclosure Schedule attached hereto (the
"Disclosure Schedule"), the Company hereby represents and warrants to the
Purchasers as follows:

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                  3.1     ORGANIZATION AND STANDING. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has full corporate power and authority to conduct
its business as presently conducted and as proposed to be conducted by it and to
enter into and perform this Agreement and to carry out the transactions
contemplated by this Agreement. The Company is duly qualified to do business as
a foreign corporation and is in good standing in the Commonwealth of
Massachusetts and in any other jurisdiction in which the failure to so qualify
would have a material adverse effect on the operations or financial condition of
the Company. The Company has furnished to special counsel to the Purchasers true
and complete copies of its Certificate of Incorporation and By-laws, each as
amended to date and presently in effect.

                  3.2      CAPITALIZATION. The authorized capital stock of the
Company (immediately prior to the Closing) consists of (a) 20,000,000 shares of
common stock, $0.001 par value per share (the "Common Stock"), of which
3,128,850 shares are issued and outstanding, 1,371,150 shares have been reserved
for issuance pursuant to the Company's 1997 Stock Incentive Plan, 5,750,000
shares have been reserved for issuance upon the conversion of the outstanding
shares of Series A Convertible Preferred Stock ("Series A Preferred Stock") and
2,213,828 shares have been reserved for issuance upon conversion of the Shares,
and (b) 10,000,000 shares of preferred stock, $0.01 par value per share, of
which (i) 5,750,000 shares have been designated as Series A Preferred Stock, all
of which are issued and outstanding, and (ii) 2,213,828 shares have been
designated as Series B Preferred Stock, none of which are issued or outstanding.
At the Closing, the Common Stock, the Series A Preferred Stock and the Series B
Preferred Stock will have the voting powers, designations, preferences, rights
and qualifications, and limitations or restrictions set forth in the Certificate
of Incorporation, as amended by the Certificate of Amendment. All of the issued
and outstanding shares of Common Stock and Series A Preferred Stock have been
duly authorized and validly issued and are fully paid and nonassessable. Except
as contemplated by this Agreement or set forth in the Disclosure Schedule, (i)
no subscription, warrant, option, convertible security or other right
(contingent or otherwise) to purchase or acquire any shares of capital stock of
the Company is authorized or outstanding, (ii) the Company has no obligation
(contingent or otherwise) to issue any subscription, warrant, option,
convertible security or other such right or to issue or distribute to holders of
any shares of its capital stock any evidences of indebtedness or assets of the
Company, and (iii) the Company has no obligation (contingent or otherwise) to
purchase, redeem or otherwise acquire any shares of its capital stock or any
interest therein or to pay any dividend or make any other distribution in
respect thereof. All of the issued and outstanding shares of capital stock of
the Company have been offered, issued and sold by the Company in compliance with
applicable Federal and state securities laws.

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                  3.3     SUBSIDIARIES, ETC. The Company has no subsidiaries and
does not own or control, directly or indirectly, any shares of capital stock of
any other corporation or any interest in any partnership, joint venture or other
non-corporate business enterprise.

                  3.4     STOCKHOLDER LIST AND AGREEMENTS. Section 3.4 of the
Disclosure Schedule sets forth a true and complete list of the stockholders of
the Company, showing the number of shares and class or series of capital stock
or other securities of the Company held by each stockholder immediately prior to
the execution of this Agreement and the consideration paid to the Company
therefor. Except as listed in Section 3.4 of the Disclosure Schedule or as
contemplated by this Agreement, there are no agreements, written or oral,
between the Company and any holder of its capital stock, or, to the best of the
Company's knowledge, among any holders of its capital stock, relating to the
future acquisition (including without limitation rights of first refusal or
pre-emptive rights), disposition, registration under the Securities Act of 1933,
as amended (the "Securities Act"), or voting of the capital stock of the
Company.

                  3.5     ISSUANCE OF SHARES. The issuance, sale and delivery of
the Shares in accordance with this Agreement, and the issuance and delivery of
the shares of Common Stock issuable upon conversion of the Shares, have been
duly authorized by all necessary corporate action on the part of the Company,
and all such shares have been duly reserved for issuance. The Shares when so
issued, sold and delivered against payment therefor in accordance with the
provisions of this Agreement, and the shares of Common Stock issuable upon
conversion of the Shares, when issued upon such conversion, will be duly and
validly issued, fully paid and non-assessable.

                  3.6     AUTHORITY FOR AGREEMENT. The execution, delivery and
performance by the Company of this Agreement and all other agreements required
to be executed by the Company at the Closing pursuant to Section 2 (the
"Ancillary Agreements"), and the consummation by the Company of the transactions
contemplated hereby and thereby, have been duly authorized by all necessary
corporate action. This Agreement and the Ancillary Agreements have been duly
executed and delivered by the Company and constitute valid and binding
obligations of the Company enforceable in accordance with their respective
terms. The execution of and performance of the transactions contemplated by this
Agreement and the Ancillary Agreements and compliance with their provisions by
the Company will not violate any provision of law and will not conflict with or
result in any breach of any of the terms, conditions or provisions of, or
constitute a default under, or require a consent or waiver under, its
Certificate of Incorporation or By-laws (each as amended to date) or any
indenture, lease, agreement or other instrument to which the Company is a party
or by which it or any of its properties is bound, or any decree, judgment,
order, statute, rule or regulation applicable to the Company.

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                  3.7     GOVERNMENTAL CONSENTS. No consent, approval, order or
authorization of, or registration, qualification, designation, declaration or
filing with, any governmental authority is required on the part of the Company
in connection with the execution and delivery of this Agreement, the offer,
issuance, sale and delivery of the Shares, or the other transactions to be
consummated at the Closing, as contemplated by this Agreement, except such
filings as shall have been made prior to and shall be effective on and as of the
Closing. Based on the representations made by the Purchasers in Section 5 of
this Agreement, the offer and sale of the Shares to the Purchasers will be
exempt from the registration requirements of applicable Federal and state
securities laws.

                  3.8     LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder, which questions the validity of this Agreement or the right of the
Company or the Founder to enter into it, or which might result, either
individually or in the aggregate, in any material adverse change in the
business, prospects, assets or condition, financial or otherwise, of the
Company, nor is there any litigation pending, or, to the best of the Company's
knowledge, any basis therefor or threat thereof, against the Company or the
Founder by reason of the past employment relationships of the Founder, the
proposed activities of the Company, or negotiations by the Company and/or the
Founder with possible investors in the Company.

                  3.9     FINANCIAL STATEMENTS. The Company has furnished to
each of the Purchasers a complete and correct copy of the unaudited balance
sheet (the "Balance Sheet") of the Company as at December 31, 1997 (the "Balance
Sheet Date") and the related unaudited statement of operations and cash flow for
the year then ended (collectively, the "Financial Statements"). The Financial
Statements are complete and correct in all material respects, are in accordance
with the books and records of the Company and present fairly the financial
condition and results of operations of the Company, as at the dates and for the
periods indicated, and have been prepared in accordance with generally accepted
accounting principles consistently applied, except that the Financial Statements
have been prepared for the internal use of management and may not be in
accordance with generally accepted accounting principles because of the absence
of footnotes normally contained therein and are subject to normal year-end audit
adjustments which in the aggregate will not be material.

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                  3.10     ABSENCE OF LIABILITIES. Except as set forth in
Section 3.10 of the Disclosure Schedule, the Company did not have, at the
Balance Sheet Date, any liabilities of any type which in the aggregate exceeded
$10,000, whether absolute or contingent, which were not fully reflected on the
Balance Sheet, and, since the Balance Sheet Date, the Company has not incurred
or otherwise become subject to any such liabilities or obligations except in the
ordinary course of business.

                  3.11     TAXES. The amount shown on the Balance Sheet as
provision for taxes is sufficient in all material respects for payment of all
accrued and unpaid Federal, state, county, local and foreign taxes for the
period then ended and all prior periods. The Company has filed or has obtained
presently effective extensions with respect to all Federal, state, county, local
and foreign tax returns which are required to be filed by it, such returns are
true and correct in all material respects and all taxes shown thereon to be due
have been timely paid with exceptions not material to the Company. Neither the
Company nor any of its stockholders has ever filed (a) an election pursuant to
Section 1362 of the Internal Revenue Code of 1986, as amended (the "Code"), that
the Company be taxed as an S Corporation, or (b) consent pursuant to Section
341(f) of the Code relating to collapsible corporations.

                  3.12     PROPERTY AND ASSETS. The Company has good title to
all of its material properties and assets, including all properties and assets
reflected in the Balance Sheet, except those disposed of since the date thereof
in the ordinary course of business, and none of such properties or assets is
subject to any mortgage, pledge, lien, security interest, lease, charge or
encumbrance other than those the material terms of which are described in
Section 3.12 of the Disclosure Schedule.

                  3.13     INTELLECTUAL PROPERTY.

                           (a)      To the best of the Company's knowledge, no
third party has claimed or has reason to claim that any person employed by or
affiliated with the Company, in connection with his or her employment by or
affiliation with the Company, (i) has violated or is violating any of the terms
or conditions of his employment, non-competition or non-disclosure agreement
with such third party, (ii) has disclosed or is disclosing or has utilized or is
utilizing any trade secret or proprietary information or documentation of such
third party or (iii) has interfered or is interfering in the employment
relationship between such third party and any of its present or former
employees. No third party has requested information from the Company which
suggests that such a claim might be contemplated. To the best of the Company's
knowledge, no person employed by or affiliated with the Company has employed or
proposes to

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employ any trade secret or any information or documentation proprietary to any
former employer, and to the best of the Company's knowledge, no person employed
by or affiliated with the Company has violated any confidential relationship
which such person may have had with any third party, in connection with the
development, manufacture or sale or any product or proposed product or the
development or sale of any service or proposed service of the Company, and the
Company has no reason to believe there will be any such employment or violation.
To the best of the Company's knowledge, none of the execution or delivery of
this Agreement, or the carrying on of business of the Company as officers,
employees or agents by any officer, director or key employee of the Company, or
the conduct or proposed conduct of the business of the Company, will conflict
with or result in a breach of the terms, conditions or provisions of or
constitute a default under any contract, covenant or instrument under which any
such person is obligated.

                           (b)      Set forth in Section 3.13 of the Disclosure
Schedule is a list of all domestic and foreign patents, patent rights, patent
applications, trademarks, trademark applications, service marks, service mark
applications, trade names and copyrights, and all applications for such which
are in the process of being prepared, owned by or registered in the name of the
Company, or of which the Company is a licensor or licensee or in which the
Company has any right, and in each case a brief description of the nature of
such right. The Company owns or possesses adequate licenses or other rights to
use all patents, patent applications, trademarks, trademark applications,
service marks, service mark applications, trade names, copyrights, manufacturing
processes, formulae, trade secrets, customer lists and know-how (collectively,
"Intellectual Property") necessary for the conduct of its business as conducted
and as proposed to be conducted, and no claim is pending or, to the best of the
Company's knowledge, threatened to the effect that the operations of the Company
infringe upon or conflict with the asserted rights of any other person under any
Intellectual Property, and, to the best of the Company's knowledge, there is no
basis for any such claim (whether or not pending or threatened). No claim is
pending or threatened to the effect that any such Intellectual Property owned or
licensed by the Company, or which the Company otherwise has the right to use, is
invalid or unenforceable by the Company, and, to the best of the Company's
knowledge, there is no basis for any such claim (whether or not pending or
threatened). To the best of the Company's knowledge, all technical information
developed by and belonging to the Company which has not been patented has been
kept confidential. The Company has not granted or assigned to any other person
or entity any right to manufacture, have manufactured, assemble or sell the
products or proposed products or to provide the services or proposed services of
the Company.

                                      -11-
<PAGE>   10

                  3.14     MATERIAL CONTRACTS AND OBLIGATIONS. Except as
contemplated by this Agreement or as listed in the Disclosure Schedule, the
Company is not a party to any material agreement or commitment of any nature,
including without limitation (a) any agreement which requires future
expenditures by the Company in excess of $100,000, (b) any employment or
consulting agreement, employee benefit, bonus, pension, profit-sharing, stock
option, stock purchase or similar plan or arrangement, or distributor or sales
representative agreement, (c) any agreement with any stockholder, officer or
director of the Company, or any "affiliate" or "associate" of such persons (as
such terms are defined in the rules and regulations promulgated under the
Securities Act), including without limitation any agreement or other arrangement
providing for the furnishing of services by, rental of real or personal property
from, or otherwise requiring payments to, any such person or entity or (d) any
agreement relating to the intellectual property rights of the Company.

                  3.15     COMPLIANCE. The Company has, in all material
respects, complied with all laws, regulations and orders applicable to its
present and proposed business and has all material permits and licenses
required thereby. There is no term or provision of any mortgage, indenture,
contract, agreement or instrument to which the Company is a party or by which
it is bound, or, to the best of the Company's knowledge, of any provision of
any state or Federal judgment, decree, order, statute, rule or regulation
applicable to or binding upon the Company, which materially adversely affects
or, so far as the Company may now foresee, in the future is reasonably likely
to materially adversely affect, the business, prospects, assets or condition,
financial or otherwise, of the Company. To the best of the Company's knowledge,
neither the Founder nor any other employee of the Company is in violation of
any term of any contract or covenant (either with the Company or with another
entity) relating to employment, patents, proprietary information disclosure,
non-competition or non-solicitation.

                  3.16     EMPLOYEES AND FOUNDER.

                           (a)      The Founder and the other holders of Common
Stock have executed and delivered to the Company a Stock Restriction Agreement,
copies of which have been made available to the Purchasers, and all of such
agreements are in full force and effect.

                           (b)      Each employee of the Company (including the
Founder) who is at or above the director level or who holds at least 100,000
shares of Common Stock (or options exercisable therefor) (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) has executed and
delivered to the Company a Noncompetition and Confidentiality Agreement covering
a period of one year following the termination of such employee's

                                      -12-
<PAGE>   11

employment with the Company, copies of which have been made available to the
Purchasers. Each employee of the Company not covered by the foregoing sentence
has executed and delivered to the Company a Confidentiality Agreement, copies of
which have been made available to the Purchasers. All of such agreements are in
full force and effect.

                           (c)      None of the employees of the Company is
represented by any labor union, and there is no labor strike or other labor
trouble pending with respect to the Company (including, without limitation, any
organizational drive) or, to the best of the Company's knowledge, threatened.

                  3.17     ERISA. Except as described in the Disclosure
Schedule, the Company does not have or otherwise contribute to or participate in
any employee benefit plan subject to the Employee Retirement Income Security Act
of 1974.

                  3.18     BOOKS AND RECORDS. The minute books of the Company
contain complete and accurate records of all meetings and other corporate
actions of its stockholders and its Board of Directors and committees thereof.
The stock ledger of the Company is complete and reflects all issuances,
transfers, repurchases and cancellations of shares of capital stock of the
Company.

                  3.19     BOARD OF DIRECTORS.  The Board of Directors is
comprised of four members, and consists of Chin-Cheng Wu, Edward T. Anderson,
Paul J. Ferri and Bruce I. Sachs.

                  3.20     U.S. REAL PROPERTY HOLDING CORPORATION. The Company
is not now and has never been a "United States Real Property Holding
Corporation" as defined in Section 897(c)(2) of the Code and Section 1.897-2(b)
of the Regulations promulgated by the Internal Revenue Service.

                  3.21     DISCLOSURES. Neither this Agreement nor any Schedule
or Exhibit hereto, nor any certificate or instrument furnished to the Purchasers
at the Closing or as required by the terms of this Agreement, when read
together, contains or will contain any untrue statement of a material fact or
omits or will omit to state a material fact necessary in order to make the
statements contained herein or therein, in light of the circumstances under
which they were made, not misleading.

         4.       REPRESENTATIONS OF FOUNDER. The Founder represents and
warrants to the Purchasers as follows:

                                      -13-
<PAGE>   12

                  4.1     CONFLICTING AGREEMENTS. The Founder is not, as a
result of the nature of the business conducted or proposed to be conducted by
the Company, in violation of (i) any fiduciary or confidential relationship,
(ii) any term of any contract or covenant (either with the Company or with
another entity) relating to employment, patents, proprietary information
disclosure, non-competition or non-solicitation, or (iii) any other contract or
agreement, or any judgment, decree or order of any court or administrative
agency relating to or affecting the right of the Founder to be employed by the
Company.

                  4.2     LITIGATION. There is no action, suit or proceeding, or
governmental inquiry or investigation, pending or, to the knowledge of the
Founder, threatened against the Founder.

                  4.3     STOCKHOLDER AGREEMENTS. Except as contemplated by or
disclosed in this Agreement, the Founder is not a party to any agreements,
written or oral, relating to the acquisition, disposition, registration under
the Securities Act, or voting of the capital stock of the Company.

                  4.4     DISCLOSURE. To the knowledge of the Founder, neither
this Agreement nor any Schedule or Exhibit hereto, nor any certificate or
instrument furnished to the Purchasers at the Closing or as required by the
terms of this Agreement, when read together, contains or will contain any untrue
statement of a material fact or omits or will omit to state a material fact
necessary in order to make the statements contained herein or therein, in light
of the circumstances under which they were made, not misleading.

         5.       REPRESENTATIONS OF THE PURCHASERS. Each Purchaser represents
and warrants to the Company as follows:

                  5.1     INVESTMENT. Such Purchaser is acquiring the Shares,
and the shares of Common Stock into which the Shares may be converted, for its
or his own account for investment and not with a view to, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling the same; and such Purchaser has no present or
contemplated agreement, undertaking, arrangement, obligation, indebtedness or
commitment providing for the disposition thereof. Such Purchaser acknowledges
that the Shares are restricted securities as defined under the Securities Act
and shall bear the legends set forth in Section 7.3 hereof.

                  5.2     AUTHORITY. Such Purchaser has full power and authority
to enter into and to perform this Agreement in accordance with its terms. Such
Purchaser represents that it has

                                      -14-
<PAGE>   13

not been organized, reorganized or recapitalized specifically for the purpose of
investing in the Company. This Agreement and the Ancillary Agreement to be
executed by such Purchaser have been duly executed and delivered by such
Purchaser and constitute valid and binding obligations of such Purchaser
enforceable in accordance with their respective terms. The execution of and
performance of the transactions contemplated by this Agreement and the Ancillary
Agreements to be executed by such Purchaser and compliance with their provisions
by such Purchaser will not violate any provision of law and will not conflict
with or result in any breach of any of the terms, conditions or provisions of,
or constitute a default under, or require a consent or waiver under, its
organizational documents (each as amended to date) or any indenture, lease,
agreement or other instrument to which the Purchaser is a party or by which it
or any of its properties is bound, or any decree, judgment, order, statute, rule
or regulation applicable to such Purchaser.

                  5.3     EXPERIENCE. Such Purchaser has carefully reviewed the
representations concerning the Company contained in this Agreement and has made
detailed inquiry concerning the Company, its business and its personnel; the
officers of the Company have made available to such Purchaser any and all
written information which it has requested and have answered to such Purchaser's
satisfaction all inquiries made by such Purchaser; and such Purchaser has
sufficient knowledge and experience in investing in companies similar to the
Company so as to be able to evaluate the risks and merits of its investment in
the Company and is able financially to bear the risks thereof, including a
complete loss of its investment. Such Purchaser understands that an investment
in the Company involves a high degree of risk in view of the fact that the
Company is a start-up enterprise with no operating history, and there may never
be an established market for the Company's capital stock.

                  5.4     STATUS. Such Purchaser is an "accredited Investor" as
that term is defined in Rule 501 of Regulation D promulgated under the
Securities Act.

         6.       COVENANTS OF THE COMPANY.

                  6.1     INSPECTION. The Company shall permit each Purchaser,
or any authorized representative thereof, to visit and inspect the properties of
the Company, including its corporate and financial records, and to discuss its
business and finances with officers of the Company, during normal business hours
following reasonable notice and as often as may be reasonably requested, without
interruption of the business of the Company and subject to the confidentiality
obligations of Section 8.2 hereof.

                                      -15-
<PAGE>   14
                  6.2     FINANCIAL STATEMENTS AND OTHER INFORMATION.

                           (a)      So long as a Purchaser (or any of its
affiliates) holds shares of Series A Preferred Stock or Series B Preferred
Stock, the Company shall deliver to such Purchaser:

                                    (i)     within 120 days after the end of
each fiscal year of the Company, an audited balance sheet of the Company as at
the end of such year, and audited statements of income and of cash flows of the
Company for such year, certified by certified public accountants of established
national reputation selected by the Company, and prepared in accordance with
generally accepted accounting principles; and

                                    (ii) within 45 days after the end of each
fiscal quarter of the Company, an unaudited balance sheet of the Company as at
the end of such quarter, and unaudited statements of income and of cash flows of
the Company for such fiscal quarter and for the current fiscal year to the end
of such fiscal quarter.

                           (b)      So long as a Purchaser (or any of its
affiliates) holds at least 300,000 shares of Series A Preferred Stock or 100,000
shares of Series B Preferred Stock (as adjusted for stock splits, stock
dividends, recapitalizations and similar events), the Company shall deliver to
such Purchaser:

                                    (i)     as soon as available, but in any
event within 30 days after commencement of each new fiscal year, a budget,
consisting of a business plan and projected financial statements for such fiscal
year; and

                                    (ii) with reasonable promptness, such other
notices, information and data with respect to the Company as the Company
delivers to the holders of its Common Stock, and such other information and data
as such Purchaser may from time to time reasonably request.

                           (c)      The foregoing financial statements shall be
prepared on a consolidated basis if the Company then has any subsidiaries. The
financial statements delivered pursuant to clause (ii) of paragraph (a) and
clause (i) of paragraph (b) shall be accompanied by a certificate of the chief
financial officer of the Company stating that such statements have been prepared
in accordance with generally accepted accounting principles consistently applied
(except as noted) and fairly present the financial condition and results of
operations of the Company at the date thereof and for the periods covered
thereby.

                                      -16-
<PAGE>   15

                  6.3      MATERIAL CHANGES AND LITIGATION. The Company shall
promptly notify the Purchasers of any material adverse change in the business,
prospects, assets or condition, financial or otherwise, of the Company and of
any litigation or governmental proceeding or investigation brought or, to the
best of the Company's knowledge, threatened against the Company, or against the
Founder or an officer, director, key employee or principal stockholder of the
Company materially adversely affecting or which, if adversely determined, would
materially adversely affect its business, prospects, assets or condition,
financial or otherwise.

                  6.4      INSURANCE.

                           (a) The Company shall maintain, for a period of five
years from April 17, 1997, term life insurance upon the life of the Founder, in
the amount of $1,000,000, with the proceeds payable to the Company.

                           (b) The Company shall maintain in effect policies of
workers' compensation insurance and of insurance with respect to its properties
and business of the kinds and in the amounts not less than is customarily
obtained by corporations engaged in the same or similar business and similarly
situated, including, without limitation, insurance against loss, damage, fire,
theft, public liability and other risks.

                  6.5      EMPLOYEE AGREEMENTS. The Company shall require all
employees hereafter employed or engaged by the Company who are at or above the
director level or who holds at least 100,000 shares of Common Stock (or options
exercisable therefor) (as adjusted for stock splits, stock dividends,
recapitalizations and similar events) to enter into a Noncompetition and
Confidentiality Agreement covering a period of one year following the
termination of such employee's employment with the Company, in the form approved
by the Board of Directors. The Company shall require all employees not covered
by the foregoing sentence to enter into a Confidentiality Agreement in the form
approved by the Board of Directors.

                  6.6      RELATED PARTY TRANSACTIONS. The Company shall not
enter into any agreement with any stockholder, officer or director of the
Company, or any "affiliate" or "associate" of such persons (as such terms are
defined in the rules and regulations promulgated under the Securities Act),
including without limitation any agreement or other arrangement providing for
the furnishing of services by, rental of real or personal property from, or
otherwise requiring payments to, any such person or entity, without the consent
of at least a majority of the members of the Company's Board of Directors having
no interest in such agreement or arrangement.

                                      -17-
<PAGE>   16

                  6.7      DIRECTORS. The Company shall promptly reimburse in
full each director of the Company who is not an employee of the Company and who
was elected as a director solely by the holders of the Series A Preferred Stock
for all of his reasonable out-of-pocket expenses incurred in attending each
meeting of the Board of Directors of the Company or any committee thereof.

                  6.8      OPTION SHARES AND RESTRICTED STOCK. The Company has
reserved an aggregate of 1,371,150 shares of Common Stock for future issuance to
employees and consultants of the Company pursuant to the 1997 Stock Incentive
Plan of the Company. Unless otherwise agreed by the Board of Directors, all
options or restricted stock awards granted under such Plan shall vest at the
rate of 20% on the first anniversary of grant and 1.667% per month thereafter
over the subsequent four years so long as the optionee or stockholder continues
to be an employee or consultant of the Company, subject to acceleration of 50%
of the unvested portion of such options in the event of an Acquisition Event (as
defined in the standard form of agreements for use under such Plan).

                  6.9      RESERVATION OF COMMON STOCK. The Company shall
reserve and maintain a sufficient number of shares of Common Stock for issuance
upon conversion of all of the outstanding shares of Series A Preferred Stock and
all of the outstanding Shares.

                  6.10     TERMINATION OF COVENANTS. The covenants of the
Company contained in Sections 6.1 through 6.9 shall terminate, and be of no
further force or effect, upon the effective date of a registration statement
filed by the Company under the Securities Act covering the Company's first
offering of Common Stock, resulting in net proceeds to the Company of at least
$10,000,000, and at a price per share of at least $14.00 (as adjusted for stock
splits, stock dividends, recapitalizations and similar events) or at such time
as the Purchasers (together with any affiliated entities to whom Shares have
been transferred) own less than an aggregate of 1,953,457 shares of Series A
Preferred Stock or Series B Preferred Stock combined (as adjusted for stock
splits, stock dividends, recapitalizations and similar events).

                  6.11     TERMINATION OF PRIOR COVENANTS.

                           (a)      The Series A Preferred Stock Purchase
Agreement among the Company, the Founder (as defined therein) and certain of the
Purchasers dated April 17, 1997 (the "Series A Agreement") is hereby amended by
deleting Section 6 thereof in its entirety.

                                      -18-
<PAGE>   17

                           (b)      Each of Yeh-Tsong Wen, James A. Dolce, Jr.,
Rubin Gruber, Harry Daniel Lowe and Bruce I. Sachs, who are parties to the
Series A Agreement, shall be deemed a Purchaser for purposes of Sections 6, 8.1,
8.2 and 8.8 of this Agreement and shall have all rights and obligations of a
Purchaser under such Sections.

                  6.12     QUALIFIED SMALL BUSINESS STOCK. The Company shall
submit to its stockholders (including the Purchasers) and to the Internal
Revenue Service any reports that may be required under Section 1202(d)(1)(C) of
the Code and the Regulations promulgated thereunder. In addition, within ten
days after a Purchaser's written request therefor, the Company shall deliver to
such Purchaser a written statement indicating whether such Purchaser's interest
in the Company constitutes "qualified small business stock" as defined in
Section 1202(c) of the Code.

         7.       TRANSFER OF SHARES.

                  7.1      RESTRICTED SHARES. "Restricted Shares" means (i) the
Shares, (ii) the shares of Common Stock issued or issuable upon conversion of
the Shares, (iii) any shares of capital stock of the Company acquired by a
Purchaser pursuant to the Investor Agreement or the Right of First Refusal
Agreement, and (iv) any other shares of capital stock of the Company issued in
respect of such shares (as a result of stock splits, stock dividends,
reclassifications, recapitalizations, or similar events); PROVIDED, HOWEVER,
that shares of Common Stock which are Restricted Shares shall cease to be
Restricted Shares (i) upon any sale pursuant to a registration statement under
the Securities Act, Section 4(1) of the Securities Act or Rule 144 under the
Securities Act, or (ii) at such time as they become eligible for sale under Rule
144(k) under the Securities Act.

                  7.2      REQUIREMENTS FOR TRANSFER.

                           (a)      Restricted Shares shall not be sold or
transferred unless (1) either (i) they first shall have been registered under
the Securities Act, or (ii) the Company first shall have been furnished with an
opinion of legal counsel, reasonably satisfactory to the Company, to the effect
that such sale or transfer is exempt from the registration requirements of the
Securities Act and (2) such actions are in compliance with applicable state
securities laws.

                           (b)      Notwithstanding the foregoing, no
registration or opinion of counsel shall be required for (i) a transfer by a
Purchaser which is a partnership to a partner of such partnership or a retired
partner of such partnership who retires after the date hereof, or to

                                      -19-
<PAGE>   18

the estate of any such partner or retired partner, if the transferee agrees in
writing to be subject to the terms of this Section 7 to the same extent as if he
were an original Purchaser hereunder, or (ii) a transfer made in accordance with
Rule 144 under the Securities Act.

                  7.3      LEGEND. Each certificate representing Restricted
Shares shall bear a legend substantially in the following form:

         "The shares represented by this certificate have not been registered
         under the Securities Act of 1933, as amended, and may not be offered,
         sold or otherwise transferred, pledged or hypothecated unless and until
         such shares are registered under such Act or an opinion of counsel
         satisfactory to the Company is obtained to the effect that such
         registration is not required."

The foregoing legend shall be removed from the certificates representing any
Restricted Shares, at the request of the holder thereof, at such time as they
become eligible for resale pursuant to Rule 144(k) under the Securities Act.

                  7.4      RULE 144A INFORMATION. The Company shall, at all
times during which it is neither subject to the reporting requirements of
Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, upon the written request of a Purchaser, provide in writing to
such Purchaser, and to any prospective transferee of any Restricted Shares of
such Purchaser, the information concerning the Company described in Rule
144A(d)(4) under the Securities Act ("Rule 144A Information"). The Company also
shall, upon the written request of a Purchaser, cooperate with and assist such
Purchaser or any member of the National Association of Securities Dealers, Inc.
PORTAL system in applying to designate and thereafter maintain the eligibility
of the Restricted Shares for trading through PORTAL. The Company's obligations
under this Section 7.4 shall at all times be contingent upon receipt from the
prospective transferee of Restricted Shares of a written agreement to take all
reasonable precautions to safeguard the Rule 144A Information from disclosure to
anyone other than persons who will assist such transferee in evaluating the
purchase of any Restricted Shares and to use such Rule 144A Information only for
such evaluation purposes.

           8.     MISCELLANEOUS.

                  8.1      SUCCESSORS AND ASSIGNS. This Agreement, and the
rights and obligations of a Purchaser hereunder, may be assigned by such
Purchaser to any person or entity to which at

                                      -20-
<PAGE>   19

least 100,000 Shares (or 100% of the Shares originally purchased hereunder by
such Purchaser, if less than 100,000 Shares) or (with respect to the assignment
of rights under Section 6 hereof) 300,000 shares of Series A Preferred Stock (or
100% of the shares of Series A Preferred Stock originally purchased under the
Series A Agreement by such Purchaser, if less than 300,000 Shares), in each case
as adjusted for stock splits, stock dividends, recapitalizations and similar
events, are transferred by such Purchaser, and such transferee shall be deemed a
"Purchaser" for purposes of this Agreement; provided that the transferee
provides written notice of such assignment to the Company and agrees to be bound
by the terms and conditions set forth herein.

                  8.2      CONFIDENTIALITY. The Purchasers agree that they will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information which they may obtain from the Company pursuant to
financial statements, reports and other materials submitted by the Company to
the Purchasers pursuant to this Agreement, or pursuant to visitation or
inspection rights granted hereunder, unless such information is known, or until
such information becomes known, to the public; PROVIDED, HOWEVER, that a
Purchaser may disclose such information (i) to its attorneys, accountants,
consultants, and other professionals to the extent necessary to obtain their
services in connection with its investment in the Company, (ii) to any
prospective purchaser of any Shares from such Purchaser as long as such
prospective purchaser agrees in writing to be bound by the provisions of this
Section, or (iii) to any affiliate of such Purchaser or to a partner,
shareholder or subsidiary of such Purchaser; subject to the agreement of such
party to keep such information confidential as set forth herein.

                  8.3      SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
agreements, representations and warranties contained herein shall survive the
execution and delivery of this Agreement and the closing of the transactions
contemplated hereby.

                  8.4      EXPENSES. The Company shall pay, at the Closing, the
reasonable costs and expenses of Testa, Hurwitz & Thibeault, LLP, counsel to the
Purchasers, in connection with the preparation of this Agreement and the other
agreements and documents contemplated hereby and the closing of the transactions
contemplated hereby, up to a maximum amount of $10,000.

                  8.5      NOTICES. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be delivered
by hand, sent via a reputable nationwide overnight courier service or mailed by
first class certified or registered mail, return receipt requested, postage
prepaid:

                                      -21-
<PAGE>   20

If to the Company, at ArrowPoint Communications, Inc., 235 Littleton Road,
Westford, MA 01886, Attn: President, or at such other address or addresses as
may have been furnished in writing by the Company to the Purchasers, with a copy
to Hale and Dorr LLP, Boston, MA 02109, Attn: Patrick J. Rondeau, Esq.;

If to a Purchaser, at its address as set forth on SCHEDULE I attached hereto, or
at such other address or addresses as may have been furnished to the Company in
writing by such Purchaser.

If to the Founder, at 3 Coburn Road, Hopkinton, MA 01748, or at such other
address or addresses as may have been furnished in writing by the Founder to the
Company and the Purchasers.

Notices provided in accordance with this Section 8.5 shall be deemed delivered
upon personal delivery, one business day after being sent via a reputable
nationwide overnight courier service, or two business days after deposit in the
mail.

                  8.6      BROKERS. The Company, the Founder and the Purchasers
each (i) represents and warrants to the other parties hereto that he, she or it
has retained no finder or broker in connection with the transactions
contemplated by this Agreement, and (ii) will indemnify and save the other
parties harmless from and against any and all claims, liabilities or obligations
with respect to brokerage or finders' fees or commissions in connection with the
transactions contemplated by this Agreement asserted by any person on the basis
of any agreement, statement or representation alleged to have been made by such
indemnifying party.

                  8.7      ENTIRE AGREEMENT. This Agreement and the Ancillary
Agreements embody the entire agreement and understanding between the parties
hereto with respect to the subject matter hereof and supersedes all prior
agreements and understandings relating to such subject matter.

                  8.8      AMENDMENTS AND WAIVERS. Except as otherwise expressly
set forth in this Agreement, any term of this Agreement may be amended and the
observance of any term of this Agreement may be waived (either generally or in a
particular instance and either retroactively or prospectively), with the written
consent of the Company and the holders of at least 66 2/3% of the shares of
Common Stock issued or issuable upon conversion of the Shares; provided that an
amendment or waiver with respect to Section 6 hereof shall instead require the
written consent of the holders of at least 66 2/3% of the shares of Common Stock
issued or issuable upon conversion of the Shares and the shares of Series A
Preferred Stock, taken together. Any

                                      -22-
<PAGE>   21

amendment or waiver effected in accordance with this Section 8.8 shall be
binding upon each holder of any Shares or shares of Series A Preferred Stock
(including shares of Common Stock into which such Shares or shares of Series A
Preferred Stock have been converted), each future holder of all such securities
and the Company. No waivers of or exceptions to any term, condition or provision
of this Agreement, in any one or more instances, shall be deemed to be, or
construed as, a further or continuing waiver of any such term, condition or
provision. No amendment shall increase any obligation of the Founder hereunder
without the express written consent of the Founder. No waivers of or exceptions
to any term, condition or provision of this Agreement, in any one or more
instances, shall be deemed to be, or construed as, a further or continuing
waiver of any such term, condition or provision.

                  8.9      COUNTERPARTS. This Agreement may be executed in one
or more counterparts, each of which shall be deemed to be an original, but all
of which shall be one and the same document.

                  8.10     SECTION HEADINGS. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit, or
restrict the contractual obligations of the parties.

                  8.11     SEVERABILITY. The invalidity or unenforceability of
any provision of this Agreement shall not affect the validity or enforceability
of any other provision of this Agreement.

                  8.12     GOVERNING LAW.  This Agreement shall be governed by
and construed in accordance with the laws of the State of Delaware.

                                      -23-
<PAGE>   22

                      [Preferred Stock Purchase Agreement}

         Executed as of the date first written above.

         ARROWPOINT COMMUNICATIONS, INC.

         By:
                  -------------------------------
                  Chin-Cheng Wu
                  President

         PURCHASERS:

         Accel V L.P.
         By:      Accel V Associates L.L.C.
                  its General Partner

                  By:
                     ----------------------------
                           Managing Member

         Accel Internet/Strategic Technology
         Fund L.P.

         By:      Accel Internet/Strategic
                  Technology Fund Associates L.L.C.
                  its General Partner

                  By:
                     ----------------------------
                           Managing Member

         Accel Keiretsu V L.P.

         By:      Accel Keiretsu V Associates L.L.C.
                  its General Partner
                  By:
                     ----------------------------
                           Managing Member

                                      -24-
<PAGE>   23
         Accel Investors `97 L.P.

         By:
            ----------------------------
                  General Partner
         Ellmore C. Patterson Partners

         By:
            ----------------------------
                  General Partner

         North Bridge Venture Partners II, L.P.

         By:      North Bridge Venture Management II, L.P.,
                  its General Partner

                  By:
                           ------------------------
                           Edward T. Anderson
                           General Partner

         Matrix Partners IV, L.P.

         By:      Matrix IV Management Co., L.P.,
                  its General Partner

                  By:
                           ------------------------
                           Paul J. Ferri
                           General Partner

         Matrix IV Entrepreneurs Fund, L.P.

         By:      Matrix IV Management Co., L.P.,
                  its General Partner

                  By:
                           ------------------------
                           Paul J. Ferri
                           General Partner

         ------------------------------------
         Chin-Cheng Wu

                                      -25-
<PAGE>   24

         ------------------------------------
         John Prendergast

         --------------------------------------
         Brian Walck

         --------------------------------------
         Cynthia Deysher

         --------------------------------------
         Cynthia Deysher, as Custodian for Laura
         Deysher under the Massachusetts
         Uniform Transfers to Minors Act

         --------------------------------------
         Cynthia Deysher, as Custodian for Jacqueline
         Deysher under the Massachusetts
         Uniform Transfers to Minors Act

         --------------------------------------
         Gary Bowen

         --------------------------------------
         Stephen Van Beaver

         Solely as to Sections 6, 8.1, 8.2 and 8.8

         -------------------------------------
         Yeh-Tsong Wen

         -------------------------------------
         Bruce I. Sachs

                                      -26-
<PAGE>   25

         -------------------------------------
         James A. Dolce, Jr.

         -------------------------------------
         Rubin Gruber

         -------------------------------------
         Harry Daniel Lowe

         FOUNDER:

         --------------------------------------
         Chin-Cheng Wu

                                      -27-
<PAGE>   26

                                   SCHEDULE I
                                   ----------

Name and Address                         No. of Shares of            Aggregate
of Purchaser                           Series B Preferred       Purchase Price
----------------                       ------------------       --------------
Accel V L.P.                                      847,733         $3,925,003.79
One Palmer Square
Princeton, NJ  08542
Attn:  G. Carter Sednaoui
Accel Internet/Strategic Technology               112,311            519,999.93
Fund L.P.
One Palmer Square
Princeton, NJ  08542
Attn:  G. Carter Sednaoui
Accel Keiretsu V L.P.                              44,276            204,997.88
One Palmer Square
Princeton, NJ  08542
Attn:  G. Carter Sednaoui
Accel Investors `97 L.P.                           51,836            240,000.68
One Palmer Square
Princeton, NJ  08542
Attn:  G. Carter Sednaoui
Ellmore C. Patterson Partners                      23,758            109,999.54
One Palmer Square
Princeton, NJ  08542
Attn:  G. Carter Sednaoui
North Bridge Venture                              453,564          2,100,001.32
Partners II, L.P.
404 Wyman Street
Waltham, MA  02154
Matrix Partners IV, L.P.                          595,033          2,755,002.79
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA  02154

                                      -28-
<PAGE>   27

Matrix IV Entrepreneurs Fund, L.P.                 31,317            144,997.71
Bay Colony Corporate Center
1000 Winter Street, Suite 4500
Waltham, MA  02154
Chin-Cheng Wu                                      10,800             50,004.00
3 Coburn Road
Hopkinton, MA  01748
John Prendergast                                   10,800             50,004.00
4 Deer Hill Farm
Essex, MA  01929
Brian Walck                                        10,800             50,004.00
1 Magnolia Road
Windham, NH  03087
Cynthia Deysher                                     2,800             12,964.00
28 Guzzle Brook Drive
Sudbury, MA  01776
Cynthia Deysher as Custodian                        4,000             18,520.00
 for Lauren Deysher under the
Massachusetts Uniform Transfer
 to Minors Act
28 Guzzle Brook Drive
Sudbury, MA  01776
Cynthia Deysher as Custodian                        4,000             18,520.00
 for Jacqueline Deysher under the
Massachusetts Uniform Transfer
 to Minors Act
28 Guzzle Brook Drive
Sudbury, MA  01776
Gary Bowen                                          5,400             25,002.00
90 Marlboro Street #7
Boston, MA  02116
Stephen Van Beaver                                  5,400             25,002.00
6 Laurel Road
N. Reading, MA  01864

                                                2,213,828        $10,250,023.64

                                      -29-

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