Document:

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                                                                    EXHIBIT 10.6

                     TELEMUNDO COMMUNICATIONS GROUP, INC.

                 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT

                           DATED AS OF MAY 31, 2001
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                 AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT

     This AMENDED AND RESTATED STOCKHOLDERS' AGREEMENT (this "Agreement") is
made as of May 31, 2001 ("Effective Date") by and among Telemundo Communications
Group, Inc., a Delaware corporation (the "Company"), Station Partners, LLC, a
Delaware limited liability company ("Station Partners"), Sony Pictures
Entertainment Inc., a Delaware corporation ("SPE"), Liberty Media Corporation, a
Delaware corporation ("Liberty"), Council Tree Hispanic Broadcasters II, L.L.C.,
a Delaware limited liability company ("Council Tree"), BCF Media, LLC, a
Delaware limited liability company ("BCF"), Bastion Capital Fund, L.P., a
Delaware limited partnership ("Bastion"), TLMD LLC, a Delaware limited liability
company ("TLMD"), Villanueva Investments, Inc. ("VII"), The Bron 2000 Trust (the
"Bron Trust"), and Bron-Villanueva Capital, LLC, a Delaware limited liability
company ("BV Capital") (Station Partners, SPE, Liberty and BV Capital are
hereinafter sometimes referred to as the "Common Stockholders") (together, the
Company, Council Tree, BCF, Bastion, TLMD, VII, Bron Trust and the Common
Stockholders are the "Parties"), with reference to the following facts:

     A.   Bastion, BCF, BV Capital, Council Tree, Council Tree Communications,
LLC, Council Tree Communications V, LLC, Liberty, SPE and the Company entered
into a Contribution Agreement, dated as of August 22, 2000, as amended December
15, 2000 (the "Contribution Agreement"). On December 15, 2000, all of the
Parties to this Agreement (except TLMD, VII and Bron Trust) entered into a
Stockholders' Agreement (the "Original Agreement") in connection with the
consummation of the transactions contemplated by the Contribution Agreement.

     B.   Concurrently herewith, certain of the Stockholders made capital
contributions to the Company in exchange for the issuance by the Company of
shares of Preferred Stock (as defined below).

     C.   SPE owns, in the aggregate, 235,779 shares of the Class A common
stock, par value $0.01 per share, of the Company (the "Class A Common Stock")
and 37,773 shares of the Series A Convertible Preferred Stock, par value $0.01
per share, of the Company (the "Series A Preferred Stock").

     D.   Liberty owns, in the aggregate, 587,568 shares of the Class A Common
Stock and 37,773 shares of the Series A Preferred Stock.

     E.   Station Partners owns, in the aggregate, 444,861 shares of the Class B
common stock, par value $0.01 per share, of the Company (the "Class B Common
Stock" and together with the Class A Common Stock, collectively referred to as
the "Holder's Common Stock") and 19,164 shares of the Series B Convertible
Preferred Stock, par value $0.01 per share, of the Company (the "Series B
Preferred Stock").

     F.   BV Capital owns, in the aggregate, 83,581 shares of the Class A Common
Stock.

     G.   TLMD owns, in the aggregate, 14,809 shares of the Series A Preferred
Stock.

     H.   Concurrently with the transactions contemplated by the Contribution
Agreement, on December 15, 2000, SPE Mundo Investment Inc., a California
corporation and an indirect wholly
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owned subsidiary of SPE ("SPE Mundo"), contributed to the Company membership
interests of Network Group (as defined below) representing an aggregate of 17%
of the outstanding membership of Network Group in exchange for 119,608 shares of
Class A Common Stock which it now owns.

     I.   SPE Mundo owns Class B Membership Interests of Network Group
exchangeable into 232,181 shares of Class A Common Stock, subject to adjustment.

     J.   The Stockholders desire to maximize the long-term strategic values of
their respective companies, and have determined that it is in their respective
best interests to achieve this objective by entering into this Agreement for the
purpose of setting forth certain of the terms which shall govern their
relationship.

     K.   The Parties desire to amend and restate the Original Agreement in
order to reflect the consequences of the issuance of Preferred Stock, among
other related changes.

     NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, and intending to be legally bound
hereby, the Parties hereto agree as follows:

                                   ARTICLE 1

                                  DEFINITIONS

     When used in this Agreement, the following terms shall have the meanings
set forth below (all terms used in this Agreement that are not defined in this
Article 1 shall have the meanings set forth elsewhere in this Agreement):

     "Affiliate" means with respect to any Person, any other Person that,
      ---------
directly or indirectly, through one or more intermediaries, Controls, is
Controlled by or is under common Control with, such specified Person.

     "Aggregate Maximum Contribution Amount" shall have the meaning given in
      -------------------------------------
Section 4.2.

     "Agreement" shall mean this Amended and Restated Stockholders' Agreement,
      ---------
as originally executed and as amended from time to time.

     "AT&T Broadband" means AT&T Broadband, LLC, a Delaware limited liability
      --------------
company.

     "AT&T" means AT&T Corp.
      ----

     "Bastion" shall have the meaning given in the preamble to this Agreement.
      -------

     "Bastion Controlled Affiliate" shall mean Bastion Partners, L.P., BCF,
      ----------------------------
TLMD, VII, Bron Trust and Bastion Capital Corp. and/or any other Person with
respect to which the investment decisions as to the exercise of voting or
consensual rights and other material decisions are ultimately controlled by
substantially the same individual or individuals at the time controlling such
decisions as to any of such entities (including, without limitation, such
individual or individuals themselves).

                                       2
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     "BCF" shall have the meaning given in the preamble to this Agreement.
      ---

     "Beneficially Owned" shall have the meaning given such term in Rule 13d-3
      ------------------
under the Exchange Act.

     "Board" means the Board of Directors of the Company.
      -----

     "Bron Trust" shall have the meaning given in the preamble to this
      ----------
Agreement.

     "Budget" shall have the meaning given in Section 2.7.3.
      ------

     "Business Day" means any day that is not a Saturday, a Sunday or any day on
      ------------
which banks are required or authorized by law to be closed in the City of New
York.

     "Business Plan" shall have the meaning given in Section 2.7.2.
      -------------

     "BV Capital" shall have the meaning given in the preamble to this
      ----------
Agreement.

     "BV Capital Controlled Affiliate" shall mean BV Capital and/or any other
      -------------------------------
Person with respect to which the investment decisions as to the exercise of
voting or consensual rights and other material decisions are ultimately
controlled by substantially the same individual or individuals at the time
controlling such decisions as to any of such entities (including, without
limitation, such individual or individuals themselves).

     "BV Capital Put/Call Agreement" means the Amended and Restated BV Capital
      -----------------------------
Put/Call Agreement, dated as of the date hereof, by and among BV Capital, SPE
and Liberty, as it may be amended from time to time.

     "Bylaws" means the Bylaws of the Company in existence at the date hereof or
      ------
amended from time to time hereafter, with the approval of the Board and the
unanimous approval of the Stockholders.

     "Capital Call Default Amount" shall have the meaning given in Section 4.5.
      ---------------------------

     "Capital Call Defaults" shall have the meaning given in Section 4.5.
      ---------------------

     "Certificate of Designation" means the Certificate of Designation of the
      --------------------------
Company filed on May 31, 2001, authorizing the creation and issuance of up to
90,355 shares of Series A Preferred Stock and the Certificate of Designation of
the Company filed on May 31, 2001, authorizing the creation and issuance of up
to 19,164 shares of Series B Preferred Stock.

     "Certificate of Incorporation" means the Restated Certificate of
      ----------------------------
Incorporation of the Company in existence at the date hereof or as amended from
time to time hereafter, with the approval of the Board and the unanimous
approval of the Primary Stockholders as set forth in Section 2.6.

     "Change in Control" with respect to Liberty or SPE shall be deemed to occur
      -----------------
if the shares of Company Stock held by such Stockholder are not Beneficially
Owned at least 50% by the Ultimate Parent Entity of such Stockholder.

                                       3
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     "Class A Common Stock" shall have the meaning given in Recital C to this
      --------------------
Agreement.

     "Class B Common Stock" shall have the meaning given in Recital E to this
      --------------------
Agreement.

     "Closing" shall mean, December 15, 2000, the date that the consummation of
      -------
the transactions contemplated by the Contribution Agreement occurred.

     "Common Stock" shall mean the common stock, par value $0.01 per share, of
      ------------
the Company.

     "Common Stockholders" shall have the meaning given in the preamble to this
      -------------------
Agreement.

     "Communications Act" means the Communications Act of 1934, as amended, and
      ------------------
the FCC rules and regulations promulgated thereunder.

     "Company" shall have the meaning given in the preamble to this Agreement.
      -------

     "Company Common Stock" shall collectively mean the Common Stock and the
      --------------------
Holder's Common Stock.

     "Company Stock" shall collectively mean the Company Common Stock and the
      -------------
Preferred Stock.

     "Contribution Agreement" shall have the meaning given in Recital A to this
      ----------------------
Agreement.

     "Control" (and the related terms "Controlling" and "Controlled") means the
      -------                          -----------       ----------
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of a Person, whether through the
ownership of voting securities, by contract or otherwise.

     "Controlled Affiliate" shall mean (i) with respect to SPE, any Ultimate
      --------------------
Parent Entity of SPE and any Person which is Controlled, directly or indirectly,
by SPE or any Ultimate Parent Entity of SPE, including but not limited to SPE
Mundo, and (ii) with respect to Liberty any Ultimate Parent Entity of Liberty
and any Person which is Controlled, directly or indirectly, by Liberty or any
Ultimate Parent Entity of Liberty, including but not limited to Liberty
TelemundoNet.

     "Council Tree" shall have the meaning given in the preamble to this
      ------------
Agreement.

     "Council Tree Entity" means any person or entity a majority of the
      -------------------
ownership interests of which are owned by Affiliates of Madison Dearborn
Partners, Inc. and of which Steve Hillard is President or Chief Executive
Officer.

     "DGCL" means the General Corporation Law of the State of Delaware, as in
      ----
effect from time to time.

     "Dilution Amount" shall have the meaning given in Section 4.5.
      ---------------

     "Discretionary Capital Call" shall have the meaning given in Section 4.3.
      --------------------------

     "Discretionary Capital Contribution" shall have the meaning given in
      ----------------------------------
Section 4.3.

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     "Drag Along Notice" shall have the meaning given in Section 3.3.7(a).
      -----------------

     "Exchange Act" means the Securities Exchange Act of 1934, as amended.
      ------------

     "Exchange Agreement" shall mean that certain Exchange Agreement dated as of
      ------------------
December 15, 2000, among SPE, SPE Mundo and the Company, as it may be amended
from time to time.

     "Effective Date" shall have the meaning given in the preamble to this
      --------------
Agreement.

     "FCC" means the Federal Communications Commission.
      ---

     "First Offer Election Notice" shall have the meaning given in Section
      ---------------------------
3.3.6.

     "First Offer Notice" shall have the meaning given in Section 3.3.6.
      ------------------

     "First Offer Partial Election Notice" shall have the meaning given in
      -----------------------------------
Section 3.3.9.

     "First Offer Partial Notice" shall have the meaning given in Section 3.3.9.
      --------------------------

     "First Offer Period" shall have the meaning given in Section 3.3.6.
      ------------------

     "Fully Diluted" shall mean that all outstanding options, warrants, rights
      -------------
or other convertible securities of the Company, including the Preferred Stock,
have been converted into Company Common Stock, and including that the Class B
Membership Interests of Network Group have been exchanged for Class A Common
Stock in accordance with the terms of the Exchange Agreement, and assuming the
payment of any option, exercise or conversion price payable with respect
thereto.

     "Governmental Entity" shall mean any federal, state or local government or
      -------------------
regulatory agency, authority, commission or instrumentality.

     "Holder's Common Stock" shall have the meaning given in Recital E to this
      ---------------------
Agreement.

     "Holder's Company Stock" shall mean the Holder's Common Stock and the
      ----------------------
Holder's Preferred Stock.

     "Holder's Preferred Stock" shall mean the Preferred Stock held by each
      ------------------------
Stockholder.

     "Indenture" means that certain Indenture dated as of August 12, 1998,
      ---------
between Telemundo Holdings, Inc. and Bank of Montreal Trust Company, as Trustee,
as it may be amended from time to time.

     "Independent Director" means a director of the Company designated as an
      --------------------
independent director pursuant to the provisions of Section 2.1 hereof.

     "Initial Proposed Price" shall have the meaning given in Section 3.3.9.
      ----------------------

     "Insolvency Event" means the taking of any of the following actions by the
      ----------------
Company or any of its Subsidiaries:  (a) the Company or any of its Subsidiaries
institutes proceedings to be

                                       5
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adjudicated voluntarily bankrupt; (b) the Company or any of its Subsidiaries
consents to the filing of a bankruptcy proceeding against the Company or such
Subsidiary; (c) the Company or any of its Subsidiaries files a petition or
answer or consent seeking reorganization under any bankruptcy or similar law or
statute; (d) the Company or any of its Subsidiaries consents to the filing of
any petition, or to the appointment of a custodian, receiver, liquidator,
trustee or assignee in bankruptcy or insolvency of the Company or such
Subsidiary or any substantial part of its assets or property; or (e) the Company
or any of its Subsidiaries makes a general assignment for the benefit of
creditors, or takes any corporate action in furtherance of any of the foregoing.

     "Intercompany Loans" shall mean loans between the Company and Network
      ------------------
Group.

     "IPO" means an initial public offering of Company Common Stock.
      ---

     "Liberty" shall have the meaning given in the preamble to this Agreement.
      -------

     "Liberty Directors" shall have the meaning given in Section 2.1.1(b).
      -----------------

     "Liberty Nominated Director" shall have the meaning given in Section
      --------------------------
2.1.1(a).

     "Liberty Proxy" means the proxy granted on May 31, 2001 by Liberty and
      -------------
Liberty TelemundoNet to Station Partners to vote all of the shares of the
Holder's Company Stock held by Liberty and Liberty TelemundoNet, as it may be
amended from time to time.

     "Liberty TelemundoNet" means Liberty TelemundoNet, Inc., a Delaware
      --------------------
corporation.

     "Major Decision" means any of the following actions or transactions or the
      --------------
entering into of any contract or agreement to do any of the following actions or
transactions described in clauses (a) - (j) below, or any modification,
amendment, enforcement, waiver, extension, or renewal thereof (except as limited
by the terms of said clauses (a) - (j)):

     (a)  Any substantial change in the nature or scope of the Company's
broadcast business, which is that of owning and operating broadcast stations in
the United States and its territories that provide predominantly Spanish-
language or Hispanic-themed programming, or the acquisition of an additional
broadcast station or other substantial business;

     (b)  Issuing or redeeming any equity or debt securities (other than shares
of Company Common Stock issuable in a Qualifying IPO, shares of Class A Common
Stock issuable in exchange for the Class B Membership Interests in Network
Group, shares of Class A Common Stock or Class B Common Stock issuable pursuant
to the conversion rights described in the Certificate of Incorporation, debt
securities issued to Network Group or shares of Company Stock issuable pursuant
to the conversion rights described in the Certificate of Designation), or any
options, warrants or other securities that are convertible thereto (other than
as granted and issued under the Management Equity Program);

     (c)  Entering into any agreement with respect to or consummating any
merger, consolidation or reorganization of the Company or any of its
Subsidiaries;

     (d)  Sale or other transfer by the Company or any of its Subsidiaries in a
single transaction or series of related transactions, of all or substantially
all of the assets of the Company,

                                       6
<PAGE>

of any broadcast station or of any other assets in a single transaction or
series of related transactions with a purchase price in excess of $15 million;

     (e)  Taking any action relating to the termination, liquidation,
dissolution or winding up of the Company;

     (f)  Approval by any Subsidiary or Affiliate of the Company that owns a
membership interest in Network Group in connection with any action by Network
Group requiring unanimous approval of its members;

     (g)  Taking any action by the Company or any of its Subsidiaries that would
constitute an Insolvency Event for the Company or any of its Subsidiaries;

     (h)  Any related party transaction (including any execution of a material
amendment to an existing agreement) between any station, the Company, Network
Group or any of their direct or indirect Subsidiaries, on the one hand, and any
of the Stockholders or their Affiliates, on the other hand, except for (i)
agreements and transactions entered into prior to the date of the Original
Agreement, (ii) transactions between the Company or any of its Subsidiaries and
Network Group, (iii) ordinary course transactions on terms at least as favorable
to the station, the Company or its Subsidiary as could be obtained in an arm's
length transaction with an unrelated party and (iv) Intercompany Loans;

     (i)  Any amendments to this Agreement or the Company's charter documents;
and

     (j)  Any other decision or action which could reasonably be expected to
require any Stockholder to dispose of or otherwise restrict its management or
control over all or any portion of its Holder's Company Stock under the rules
and regulations of the FCC.

     "Management" shall have the meaning given in Section 2.5.
      ----------

     "Management Equity Program" means that program instituted by the Company to
      -------------------------
provide management with Common Stock that will not exceed an aggregate of 7% of
the aggregate outstanding Company Common Stock (measured on a Fully Diluted
basis).

     "Mandatory Capital Call" shall have the meaning given in Section 4.1(a).
      ----------------------

     "Network Group" means Telemundo Network Group LLC, a Delaware limited
      -------------
liability company.

     "Network Group Operating Agreement" means the Second Amended and Restated
      ---------------------------------
Operating Agreement for the Network Group dated as of December 15, 2000, as it
may be amended from time to time.

     "Offeree Stockholder" shall have the meaning given in Section 3.3.6.
      -------------------

     "Offering Stockholder" shall have the meaning given in Section 3.3.6.
      --------------------

     "Partial First Offer Period" shall have the meaning given in Section 3.3.9.
      --------------------------

                                       7
<PAGE>

     "Partial Offeree Stockholder" shall have the meaning given in Section
      ---------------------------
3.3.9.

     "Participating Stockholder" shall have the meaning given in Section
      -------------------------
3.3.8(c).

     "Parties" shall have the meaning given in the preamble to this Agreement.
      -------

     "Payment Amount" shall have the meaning given in Section 4.5.
      --------------

     "Permitted Transferee" means the assignee of Company Stock who acquires
      --------------------
such Company Stock in a Permitted Transfer.

     "Permitted Transfers" shall have the meaning given in Section 3.3.
      -------------------

     "Person" means any individual, limited or general partnership, limited
      ------
liability company, limited liability partnership, corporation, joint venture,
business trust, joint stock company, trust, estate, unincorporated association,
Governmental Entity or other entity of whatsoever nature.

     "Preferred Stock" shall mean the shares of Series A Preferred Stock and
      ---------------
Series B Preferred Stock.

     "Preferred Call" shall have the meaning given in Section 4.2.

     "Primary Stockholders" shall mean Station Partners, Liberty and SPE.
      --------------------

     "Prime Rate" means a rate per annum equal to the commercial lending rate
      ----------
announced from time to time by Chase Manhattan Bank (New York, New York) or its
successor, as its prime rate for ninety day unsecured loans

     "Proposed Price" shall have the meaning given in Section 3.3.6.
      --------------

     "Proportionate Share" shall mean the fraction whose numerator is the number
      -------------------
of shares of Holder's Common Stock owned by a Common Stockholder and whose
denominator is the total number of shares of Holder's Common Stock (excluding,
in each case, any shares of Company Common Stock issued or issuable upon
conversion of the Preferred Stock).

     "Qualifying IPO" means an IPO by the Company offering no less than 10% nor
      --------------
more than 15% of the shares of Company Common Stock outstanding on a Fully
Diluted basis (as measured immediately after the IPO) for a price per share
reflecting an overall Company pre-IPO valuation not less than (i) 33 1/3% above
$1.089 billion for the first 12 months following the date hereof and (ii) 50%
above $1.089 billion thereafter.  Any Company Common Stock issued in a
Qualifying IPO will be shares of Common Stock, will be offered only to U.S.
citizens and will include a right to repurchase any shares transferred to a non-
U.S. citizen.

     "Registration Rights Agreement" means the Amended and Restated Registration
      -----------------------------
Rights Agreement by and among Station Partners, Liberty, SPE, BV Capital, TLMD
and the Company dated as of the date hereof, as it may be amended from time to
time.

     "Roll-Over Budget" shall have the meaning given in Section 2.7.3.
      ----------------

                                       8
<PAGE>

     "Sale Notice" shall have the meaning given in Section 3.3.8(a).
      -------------

     "Securities Act" means the Securities Act of 1933, as amended.
      --------------

     "Selling Partial Stockholder" shall have the meaning given in Section
      ---------------------------
3.3.9.

     "Selling Primary Stockholders" shall have the meaning given in Section
      ----------------------------
3.3.7(a).

     "Selling Stockholders" shall have the meaning given in Section 3.3.8(a).
      --------------------

     "Senior Credit Facility" means that certain Credit Agreement dated as of
      ----------------------
August 4, 1998, among TLMD Acquisition Co., a Delaware corporation (now known as
Telemundo Group, Inc.), as Borrower, Telemundo Holdings, Inc., a Delaware
corporation, as Parent Guarantor, Credit Suisse First Boston, as Administrative
Agent, as Collateral Agent and as Issuing Bank and Canadian Imperial Bank of
Commerce, as Documentation Agent, and the lenders party thereto, together with
the related documents thereto (including, without limitation, any guarantees,
agreements and security documents), in each case, as such agreements, in whole
or in part, may be amended, increased (but only so long as such increase is
permitted under the terms of the Indenture) or refinanced in whole or in part by
one or more separate agreements.

     "Series A Preferred Stock" shall have the meaning given in Recital C to
      ------------------------
this Agreement.

     "Series B Preferred Stock" shall have the meaning given in Recital E to
      ------------------------
this Agreement.

     "Sony Corporation" means Sony Corporation, a corporation organized under
      ----------------
the laws of Japan.

     "Sony Corporation of America" means Sony Corporation of America, a New York
      ---------------------------
corporation.

     "SPE" shall have the meaning given in the preamble to this Agreement.
      ---

     "SPE Directors" shall have the meaning given in Section 2.1.1.
      -------------

     "SPE Mundo" shall have the meaning given in Recital H to this Agreement.
      ---------

     "Special Mandatory Capital Call" shall have the meaning given in Section
      ------------------------------
4.1(b).

     "Station Opportunities" shall have the meaning given in Article 5.
      ---------------------

     "Station Partners" shall have the meaning given in the preamble to this
      ----------------
Agreement.

     "Station Partners Directors" shall have the meaning given in Section 2.1.1.
      --------------------------

     "Station Partners LLC Agreement" means that certain Second Amended and
      ------------------------------
Restated Limited Liability Company Agreement dated as of the date hereof, among
BCF, Council Tree, VII and the Bron Trust, as it may be amended from time to
time.

                                       9
<PAGE>

     "Station Partners Preferred Put/Call Agreement" means the Station Partners
      ---------------------------------------------
Preferred Put/Call Agreement, dated as of the date hereof, by and among Station
Partners, SPE and Liberty, as it may be amended from time to time.

     "Station Partners Put/Call Agreement" means the Amended and Restated
      -----------------------------------
Station Partners Put/Call Agreement, dated as of the date hereof, by and among
Station Partners, SPE and Liberty, as it may be amended from time to time.

     "Stockholder" shall mean the Common Stockholders and TLMD.
      -----------

     "Stockholder Controlled Affiliate" means with respect to SPE or Liberty, a
      --------------------------------
Controlled Affiliate, with respect to Station Partners, a Council Tree Entity or
a Bastion Controlled Affiliate, with respect to BV Capital, a BV Capital
Controlled Affiliate, and with respect to TLMD, a Bastion Controlled Affiliate.

     "Subsidiary" means, in respect of any Person, any corporation, association,
      ----------
limited liability company, limited or general partnership or other business
entity of which more than 50% of the total voting power of shares of capital
stock or other interests (including partnership interests) entitled (without
regard to the occurrence of any contingency) to vote in the election of
directors, managers or trustees thereof is at the time owned or controlled,
directly or indirectly, by (i) such Person, (ii) such Person and one or more
Subsidiaries of such Person, or (iii) one or more Subsidiaries of such Person;
provided that Network Group shall be deemed to be a Subsidiary of the Company
for all purposes under this Agreement.

     "Substitute Capital Call" shall have the meaning given in Section 4.4.
      -----------------------

     "Telemundo Sub" means Telemundo Network Interest, Inc., a Delaware
      -------------
corporation.

     "TLMD" shall have the meaning given in the preamble to this Agreement.
      ----

     "TLMD LLC Agreement" means that certain Limited Liability Company Agreement
      ------------------
of TLMD dated as of the date hereof.

     "TLMD Put/Call Agreement" means the TLMD Preferred Put/Call Agreement,
      -----------------------
dated as of the date hereof, by and among TLMD, SPE and Liberty, as it may be
amended from time to time.

     "Total Maximum Contribution Amount" shall have the meaning given in Section
      ---------------------------------
4.2.

     "Transfer" means, directly or indirectly (including, without limitation, by
      --------
way of any Transfer of an interest in Station Partners), to sell, assign,
convey, transfer, pledge, subject to lien, or otherwise dispose or encumber, or
to enter into any contract, option or other arrangement or understanding with
respect to any assignment, conveyance, transfer, pledge, encumbrance or other
disposition.  The terms "Transferor," "Transferee" and similar variations shall
have commensurate meaning.

     "Transfer of Control Application" shall have the meaning given in Section
      -------------------------------
7.1.6.

     "Transferred Assets" shall have the meaning given in Section 3.3.2(d).
      ------------------

                                      10
<PAGE>

     "Transferring Stockholder" shall have the meaning given in Section 3.3.6.
      ------------------------

     "Ultimate Parent Entity" means, with respect to SPE, SPE, Sony Corporation
      ----------------------
of America or Sony Corporation and, with respect to Liberty, Liberty, AT&T
Broadband or AT&T, and with respect to either of them, any Transferee permitted
pursuant to the provisions of Section 3.3.2(d) hereof.

     "VII" shall have the meaning given in the preamble to this Agreement.
      ---

                                   ARTICLE 2

                             CORPORATE GOVERNANCE

     2.1  Board of Directors
          ------------------

          2.1.1     Composition of Board

                    (a)  Prior to any termination of the Liberty Proxy, the
Board shall be comprised of nine directors, consisting of (i) six designated
directors and (ii) three other nominated directors subject to the approval of
the holders of a majority of the voting power of the outstanding shares of
Holder's Company Stock. Of the six designated directors, (x) four directors
shall be designees of Station Partners (including any adjustment pursuant to
subsection (b) below, the "Station Partners Directors") and (y) two directors
shall be designees of SPE (the "SPE Directors"). Of the three nominated
directors subject to the approval of the holders of a majority of the voting
power of the outstanding shares of Holder's Company Stock, (A) one director
shall be nominated by Liberty (the "Liberty Nominated Director") and (B) the two
independent directors (including any adjustment pursuant to subsection (b)
below, the "Independent Directors") shall be nominated in accordance with the
provisions of the immediately succeeding sentence. Of the two Independent
Directors, one director shall be nominated by Station Partners, subject to the
written approval of Liberty and SPE, which approval shall not be unreasonably
withheld, and one director shall be nominated by Liberty and SPE, acting
jointly, subject to the written approval of Station Partners, which approval
shall not be unreasonably withheld. The Parties agree that it shall not be
unreasonable to withhold approval of the election of an independent director who
is also an officer or employee of the Company.

                    (b)  From and after any termination of the Liberty Proxy,
the Board shall be comprised of nine directors, consisting of (i) six designated
directors and (ii) three other nominated directors subject to the approval of
the holders of a majority of the voting power of the outstanding shares of
Holder's Company Stock. Of the six designated directors, (x) two directors shall
be designees of Station Partners, (y) two directors shall be designees of SPE
and (z) two directors shall be designees of Liberty (the "Liberty Directors").
The three nominated directors subject to the approval of the holders of a
majority of the voting power of the outstanding shares of Holder's Company Stock
shall be considered "Independent Directors" and shall be nominated in accordance
with the provisions of the immediately succeeding sentence. Of these three
Independent Directors, one director shall be nominated by Station Partners,
subject to the written approval of Liberty and SPE, which approval shall not be
unreasonably withheld, one director shall be nominated by Liberty, subject to
the written approval of Station Partners and SPE, which approval shall not be
unreasonably withheld, and one director shall be nominated by SPE, subject to

                                      11
<PAGE>

the written approval of Station Partners and Liberty, which approval shall not
be unreasonably withheld. The Parties agree that it shall not be unreasonable to
withhold approval of the election of an Independent Director who is also an
officer or employee of the Company.

                    (c)  The Liberty Nominated Director shall not be a past or
present officer, director or employee of Liberty or its Affiliates (including,
but not limited to, its parent company), nor will the Liberty Nominated Director
have any familial relationship with Liberty or its Affiliates. The Liberty
Nominated Director shall be elected by approval of the holders, other than
Liberty, of a majority of the voting power of the outstanding shares of Holder's
Company Stock. In the event that the Stockholders do not elect the specific
nominee to the Board proposed by Liberty, Liberty shall be entitled to submit
alternative nominee(s) until such time as the nominee submitted is elected to
the Board by the Stockholders, and the Stockholders shall promptly act to
approve or disapprove any such nominee upon submission by Liberty.

                    (d)  With respect to the Independent Directors, in the event
that the Independent Director nominated by a party or parties is not approved
pursuant to subsections (a) or (b) above, then the party or parties whose
Independent Director is not approved shall be entitled to submit alternative
nominee(s) until such time as the nominee submitted is elected to the Board by
the Stockholders, and the Stockholders shall promptly act to approve or
disapprove any such nominee upon his submission.

                    (e)  Each director designated or nominated by the
Stockholders as provided in this Section 2.1.1 must be a citizen of the United
States.

                    (f)  The directors shall be elected in accordance with this
Section 2.1 at each annual meeting of the Stockholders and shall hold office
until the next annual meeting of Stockholders. Each director, including a
director elected to fill a vacancy in accordance with Section 2.1.4, shall hold
office until the expiration of the term for which elected and until a successor
has been elected and qualified.

                    (g)  Subject to the last sentence of Section 3.1 hereof, if
any of SPE or Liberty Transfers any of its Holder's Company Stock to a Permitted
Transferee pursuant to Section 3.3 herein, then designations and nominations of
directors, voting on Major Decisions as set forth in Section 2.6 and the
approval or consent to any of the matters referred to in Sections 2.5, 2.7.2,
2.7.3, 9.1 or 9.16, shall be made, at the option of such Stockholder and subject
to applicable regulatory requirements, by either the Stockholder party to this
Agreement as of the date hereof or, as between such Stockholder and its
Permitted Transferees, the party owning the largest number of shares of the
Holder's Company Stock initially held by such Stockholder. Subject to the last
sentence of Section 3.1 hereof, if Station Partners Transfers its Holder's
Company Stock to a Permitted Transferee pursuant to Section 3.3 herein, then
designations and nominations of directors, voting on Major Decisions as set
forth in Section 2.6 and the approval or consent to any of the matters referred
to in Sections 2.5, 2.7.2, 2.7.3, 9.1 or 9.16, shall be made, at the option of
Station Partners and subject to applicable regulatory requirements, by either
Station Partners or its Permitted Transferees.

          2.1.2     Agreement to Vote.  Each Stockholder agrees to vote, or act
                    -----------------
by written consent (and to cause each of its Affiliates to vote, or act by
written consent, if applicable) with respect to, any shares of Holder's Company
Stock beneficially owned by it to cause the SPE

                                      12
<PAGE>

Directors, the Liberty Nominated Director (if applicable), the Station Partners
Directors, each of the Independent Directors and the Liberty Directors (if
applicable) designated as provided in Section 2.1.1 above to be elected to the
Board, and the Company agrees to use its best efforts to cause the election of
each such designee to the Board, including nominating such individuals to be
elected as members of the Board as provided herein. Notwithstanding any other
provision in this Agreement to the contrary, no Stockholder shall be required to
elect any particular nominee for the Liberty Nominated Director position or any
of the Independent Director positions.

          2.1.3     Removal.  A director may be removed only by the party or
                    -------
parties that originally designated or nominated the director, or in the case of
any Independent Director, by agreement of Station Partners, SPE and Liberty.
Upon the written request of SPE, Liberty or Station Partners, each Stockholder
shall vote or act by written consent (and cause each of its Affiliates to vote
or act by written consent, if applicable), with respect to, all shares of
Holder's Company Stock beneficially owned by it and otherwise take or cause to
be taken all actions necessary to remove any director designated or nominated by
such requesting party.

          2.1.4     Filling Vacancies.  In the event that a vacancy is created
                    -----------------
at any time by the death, disability, retirement, resignation or removal (with
or without cause) of any SPE Director, Liberty Nominated Director (if
applicable), Station Partners Director, Independent Director or Liberty Director
(if applicable), the party or parties originally designating or designating for
nomination such director (as the case may be) shall have the right to designate
or designate for nomination a replacement director to fill such vacancy in
accordance with the procedures set forth in Sections 2.1.1 and 2.1.2.

          2.1.5     Additional Agreements.  Each Stockholder agrees not to, and
                    ---------------------
to cause each of its Affiliates not to, directly or indirectly, alone or in
concert with others (without the consent of each other Stockholder):

                    (a)  Seek election to, seek to place a representative on, or
seek the removal of any member of, the Board, except pursuant to Sections 2.1.1,
2.1.3 and 2.1.4; or

                    (b)  Deposit any shares of Holder's Company Stock in a
voting trust or subject any shares of Holder's Company Stock to any arrangement
or agreement with respect to the voting of such shares (other than pursuant to
the Liberty Proxy, the Station Partners LLC Agreement, the TLMD LLC Agreement
and this Agreement (including, but not limited to, pledges pursuant to Sections
3.3.1(b), 3.3.2(f) and 3.3.5(c) hereof) or as may otherwise be required by the
FCC).

          2.1.6     Termination of Rights and Obligations. (a)  The right of
                    -------------------------------------
each Primary Stockholder to nominate or designate a member or members of the
Board or committees of the Board pursuant to this Article 2, and all related
obligations of the Company and each other Stockholder with respect thereto
contained in this Article 2, the right of a Primary Stockholder to cause the
Company to consummate a Qualifying IPO in accordance with Article 6 and all of
each Primary Stockholder's rights to consent to Major Decisions pursuant to
Section 2.6 shall terminate as follows:

                         (i)  with respect to one of such Primary Stockholder's
Board member designations, when such Primary Stockholder ceases to beneficially
own at least 75% of the

                                      13
<PAGE>

Company Stock beneficially owned by such Primary Stockholder at the date of this
Agreement (appropriately adjusted for stock splits, dividends or combinations of
shares of Company Stock); and

                         (ii) with respect to all other Primary Stockholder
Board member designations or nominations, a Primary Stockholder's right to
consent to the establishment of a Board committee, a Primary Stockholder's right
to cause the Company to consummate a Qualifying IPO in accordance with Article 6
or a Primary Stockholder's right to consent to a Major Decision, when such
Primary Stockholder ceases to beneficially own at least 50% of the Company Stock
beneficially owned by such Primary Stockholder at the date of this Agreement
(appropriately adjusted for stock splits, dividends or combinations of shares of
Company Stock).

                    (b)  Upon the termination of any Primary Stockholder's right
to designate a member of the Board or Liberty's right to nominate the Liberty
Director, the size of the Board will be reduced accordingly. Upon the
termination of any Primary Stockholder's right to nominate an Independent
Director, the remaining Primary Stockholders shall jointly nominate such
director.

     2.2  Cooperation. Each Stockholder shall vote (or act or not act by written
          -----------
consent with respect to) all of its shares of Holder's Company Stock and shall
take all other necessary or desirable actions within its control (including
causing its respective designees or nominees to the Board to take all actions or
not take such actions required of the Stockholders pursuant to this Agreement,
attending all meetings in person or by proxy for purposes of obtaining a quorum,
executing all written consents in lieu of meetings and voting to remove members
of the Board, as applicable), and the Company shall take all necessary and
desirable actions within its control (including calling special Board and
Stockholder meetings, as applicable) to effectuate the provisions of this
Article 2.

     2.3  Size of Board of Directors.  Subject to reduction as set forth in
          --------------------------
Section 2.1.6(b), the Company agrees not to take any action that would cause the
number of directors constituting the entire Board to be other than nine and each
Stockholder agrees to use its best efforts to cause the number of directors
constituting the entire Board to remain nine.

     2.4  Board Procedures. The Company and the Stockholders shall each cause
          ----------------
the following procedures to be followed by the Board:

          2.4.1     Meetings. The Board shall hold at least four (4) regularly
                    --------
scheduled meetings per year at such times as may from time to time be fixed by
resolution of the Board and no notice (other than the resolution) need be given
as to a regularly scheduled meeting. Special meetings of the Board may be held
at any time upon 48 hours notice by any director. So long as Liberty owns at
least 15% of the outstanding shares of Holder's Company Stock, Liberty shall
have the right to receive notice of meetings of the Board. Written notice of the
time and place of special meetings shall be delivered personally to each
director by reliable overnight courier or communicated to each director by
facsimile or other form of recorded communication, charges prepaid, addressed to
each director at that director's address as it is shown on the records of the
Company or, if it is not so shown on such records or is not readily
ascertainable, at that director's residence or usual place of business. In case
such notice is delivered by reliable overnight courier, it shall be deemed
received within two Business Days following such delivery to the overnight
courier. In case such notice is delivered personally or by other form of written
communication, it shall be delivered at least 48 hours before the time of the
holding of the meeting. Reasonable efforts shall be made to insure

                                      14
<PAGE>

that each director actually receives timely notice of any such special meeting.
A notice must specify the purpose of any special meeting. Notice of a meeting
need not be given to any director who signs a waiver of notice or a consent to
holding the meeting (which waiver or consent need not specify the purpose of the
meeting) or an approval of the minutes thereof, whether before or after the
meeting, or who attends the meeting without protesting, prior to its
commencement, the lack of notice to such director. All such waivers, consents
and approvals shall be filed with the Company's records or made a part of the
minutes of the meeting. A majority of the directors present may adjourn any
meeting to another time and place. If the meeting is adjourned for more than
twenty-four (24) hours, notice of any adjournment shall be given prior to the
time of the adjourned meeting to the directors who are not present at the time
of the adjournment. Meetings of the Board may be held at any place that has been
designated in the notice of the meeting or at such place as may be approved by
the Board. Directors may participate in a meeting through use of conference
telephone or similar communications equipment, so long as all directors
participating in such meeting can hear one another. Participation in a meeting
in such manner constitutes presence in person at such meeting.

          2.4.2     Agenda.  A reasonably detailed agenda shall be supplied to
                    ------
each director reasonably in advance of each meeting of the Board, together with
other appropriate documentation with respect to agenda items calling for Board
action, to inform adequately the directors regarding matters to come before the
Board.  Any director wishing to place a matter on the agenda for any meeting of
the Board may do so by communicating with the chief executive officer of the
Company sufficiently in advance of the meeting of the Board so as to permit
timely dissemination to all directors of information with respect to the agenda
items.

          2.4.3     Powers of the Board.  Subject to the limitations included in
                    -------------------
this Agreement and the Bylaws of the Company, the Board shall have the power to
approve transactions and to act in a manner as is customary for Delaware
corporations. In no event shall the Board establish an executive committee, or
any other committee of the Board, without the prior written consent of each of
the Primary Stockholders.

          2.4.4     Voting.  Subject to the provisions of Section 2.1.3, 2.4.5,
                    ------
2.7.2 and 2.7.3 hereof, all actions of the Board shall require a majority of the
votes entitled to be cast as if all directors were present.

          2.4.5     Subsidiaries.  The Board shall also be the board of
                    ------------
directors of each Subsidiary of the Company; provided, however, that the Board
                                             --------  -------
may, by majority vote including at least one SPE Director, one Liberty Director
and three Station Partners Directors, decide to change the composition of the
board of directors of any Subsidiary.  The procedures set forth in this Section
2.4 shall govern the operations of the boards of directors of each Subsidiary of
the Company.

     2.5  Officers. Subject to the limitations included in this Agreement, the
          --------
Bylaws and the Certificate of Incorporation, day-to-day management of the
operations of the Company shall be delegated to the officers of the Company who
will (except as otherwise specified herein) exercise such powers and perform
such duties as shall be determined from time to time by the Board, and who will
act in good faith to operate the Company's business in accordance with the
Budget and in a manner reasonably designed to achieve the goals of the Business
Plan. The Board shall not delegate to any officers of the Company the authority
to conduct business in any manner other than as set

                                      15
<PAGE>

forth in the first sentence of this Section 2.5. The officers of the Company
shall consist of a chief executive officer, a chief financial officer, and such
other officers as the Board determines from time to time to be appropriate
("Management"). The chief executive officer shall report to the Board and all
other officers shall report to the chief executive officer or another officer
designated by him or her. Each Stockholder agrees that the appointment and
remuneration or dismissal of the chief executive officer and chief financial
officer shall be made only on the recommendation of Station Partners and the
unanimous written approval of both Station Partners and SPE.

     2.6  Major Decisions.  Except as set forth in the last sentence of this
          ---------------
Section 2.6, the Company shall not, and shall cause its Subsidiaries not to,
directly or indirectly, take any action constituting a Major Decision without
the unanimous written approval of the Primary Stockholders.  In addition, each
Stockholder agrees that it will not approve any Merger Event (as defined in the
Certificate of Incorporation) where the Company would not have sufficient funds
to redeem shares of Preferred Stock in accordance with the Certificate of
Designation.  Any determination not specifically included in the definition of
"Major Decision" or otherwise specifically identified in this Agreement as
requiring approval of more than a majority of the Board or a majority of the
votes entitled to be a cast at a meeting of the Stockholders shall, except to
the extent required by the DGCL, be made by the Board acting by majority vote of
the authorized number of directors.

     2.7  Conduct of Business; Approval of Business Plan and Budget.
          ---------------------------------------------------------

          2.7.1     Conduct of Business. The Stockholders each agree and shall
                    -------------------
cause the Board and Management to act in good faith to operate the Company and
its Subsidiaries in accordance with the Budget and in a manner reasonably
designed to achieve the goals of the Business Plan.

          2.7.2     Approval of Business Plan.  The Stockholders have agreed on
                    -------------------------
the initial business plan (the "Business Plan") of the Company and its
Subsidiaries, covering the period from December 15, 2000 until December 31,
2001.  The Stockholders agree that the Business Plan shall not be amended or
modified except with 2/3 approval of the members of the Board.

          2.7.3     Approval of the Budget.  The Stockholders have agreed that
                    ----------------------
the budget of the Company and its Subsidiaries, covering the period from
December 15, 2000 until December 31, 2001, will be based on the business plans
currently in place for Telemundo Holdings, Inc. and Network Group and their
Subsidiaries.  On or prior to the date which is thirty (30) days before the end
of each calendar year, commencing with the calendar year ending December 31,
2001, the chief executive officer of the Company shall present to the Board and
Stockholders a budget for the following calendar year.  The budget as presented
by the chief executive officer of the Company shall become the budget (the
"Budget") for such calendar year only when approved by 2/3 of the members of the
Board and, if required by the provisions of this Section 2.7.3, approved by the
Stockholders and shall not be effective or be implemented until such approval is
obtained.  If, prior to the consummation of an IPO, the Board and, if
applicable, the Stockholders, do not approve the Budget for any calendar year
prior to March 1 of such year, then the Budget for that calendar year shall be
the Budget from the prior calendar year (excluding the prior year's
extraordinary and nonrecurring items, but including any contractually obligated
or legally required commitments or expenditures for the prior year in the
Business Plan), adjusted by a five percent (5%) increase in all fixed expenses
together with an adjustment of all variable expenses, such as utilities and
insurance, in accordance with the projected variances in their bases and
contractual commitments in

                                      16
<PAGE>

accordance with their terms and excluding any extraordinary expenses with
respect to station acquisitions (a "Rollover Budget"). Each Budget shall be
approved by 2/3 of the members of the Board and shall not require the approval
of the Stockholders except if, during the 12 month period immediately preceding
the date of submission of such Budget for approval, Telemundo Group, Inc. has
been in non-compliance (without giving effect to any waivers or modifications
within such 12 month period) under one or more of the material financial
covenants contained in the Senior Credit Facility (unless Telemundo Group, Inc.
shall have been in compliance with such covenants (without giving effect to any
waivers or modifications to such covenants within such 12 month period) for the
two fiscal quarters immediately preceding the submission of such Budget for
approval).

     2.8  Shares Held by Stockholder Controlled Affiliates. Each of the
          ------------------------------------------------
Stockholders agrees that in the event any shares of Company Stock are held by
any of its Stockholder Controlled Affiliates that are the Permitted Transferees
of such Stockholder's Company Stock (whether as of the date of this Agreement or
at some other date as a result of a Transfer in accordance with Section 3.3),
the Stockholder and such Stockholder Controlled Affiliates that hold such shares
shall be treated as one Stockholder for the purposes of all provisions of this
Agreement. The Stockholders acknowledge and agree that (i) with respect to
Liberty, Liberty TelemundoNet is a Permitted Transferee, and a Stockholder
Controlled Affiliate, of Liberty, and (ii) with respect to SPE, SPE Mundo is a
Permitted Transferee, and a Stockholder Controlled Affiliate, of SPE. Each
Stockholder agrees that it will cause its applicable Stockholder Controlled
Affiliates that are Permitted Transferees of such Stockholder's Company Stock to
agree to be bound by the terms and conditions of this Agreement and that to the
extent the Stockholder is entitled to make decisions pursuant to this Agreement,
such decisions shall be made by the Stockholder or one of its designated
Stockholder Controlled Affiliates on behalf of both the Stockholder and its
Stockholder Controlled Affiliates if such Stockholder Controlled Affiliates are
the Permitted Transferees of such Stockholder's Company Stock. In addition, to
the extent that any determination to be made under this Agreement is based on
the number of shares held, then all of the shares of Company Stock held by any
Stockholder Controlled Affiliate that is a Permitted Transferee of all or a
portion of such Stockholder's Company Stock shall be treated, for all purposes,
as if held by the Stockholder party to this Agreement. All Company Stock that is
subject to a conditional or collateral transfer in connection with a bona fide
pledge, forward sale or similar bona fide financing transaction shall be treated
as beneficially held by the Stockholder, until such time, if ever, that such
Company Stock has been foreclosed upon or such forward sale or similar financing
transaction has been consummated and in connection therewith the Company Stock
has been sold, assigned, conveyed, transferred or otherwise disposed of to the
financing source or its assignee such that the financing source or its assignee
has become the record holder of such Company Stock.

                                   ARTICLE 3

                           RESTRICTIONS ON TRANSFER

     3.1  General Prohibition on Transfer of Company Stock. Except for Permitted
          ------------------------------------------------
Transfers, no Stockholder nor any of its Permitted Transferees shall be entitled
to Transfer (including, in the case of Council Tree, Bastion, BCF, VII and Bron
Trust, by way of any Transfer of an interest in Station Partners) any of the
shares of Company Stock or any interest therein held directly or indirectly by
it. Any attempted Transfer of shares of Company Stock other than a Permitted
Transfer shall be void ab initio and the Company shall not register any such
purported Transfer on its share register and such a purported Transfer
(including, in the case of Council Tree,

                                      17
<PAGE>

Bastion, BCF, VII and Bron Trust, by way of any Transfer of an interest in
Station Partners) shall constitute a breach of this Agreement. After the
consummation of any Permitted Transfer of any shares of Company Stock, the
shares of Company Stock so Transferred shall continue to be subject to the terms
and provisions of this Agreement (other than shares of Company Stock Transferred
pursuant to Sections 3.3.1(c), 3.3.2(b), or 3.3.5(d)) and any further Transfers
shall be required to comply with all the terms and provisions of this Agreement.
Notwithstanding any other provision of this Agreement to the contrary, any
Permitted Transferee, other than a Stockholder who acquires such Stockholder's
shares of Company Stock pursuant to the provisions of Section 3.3.2(a), shall
not be entitled to consent (nor shall its consent be required) to any Major
Decision as set forth in Section 2.6 or any of the matters referred to in
Sections 2.5, 2.7.2, 2.7.3, 9.1 and 9.16.

      3.2 Permitted Transferees.  Subject to the terms of this Agreement, any
          ---------------------
Permitted Transferee of a Stockholder (including, in the case of Council Tree,
Bastion, BCF, VII and Bron Trust, by way of any Transfer of an interest in
Station Partners) shall be subject to the terms and conditions of this Agreement
as if such Permitted Transferee were SPE (in the case where SPE or a Permitted
Transferee of SPE is the Transferor), Liberty (in the case where Liberty or a
Permitted Transferee of Liberty is the Transferor), Station Partners (in the
case where Station Partners or a Permitted Transferee of Station Partners is the
Transferor), Council Tree (in the case where Council Tree or a Permitted
           -
Transferee of Council Tree is the Transferor), BV Capital (in the case where BV
Capital or a Permitted Transferee of BV Capital is the Transferor), TLMD or VII
or Bron Trust or Bastion or BCF (in the case where TLMD or VII or Bron Trust or
Bastion or BCF or a Permitted Transferee of TLMD or VII or Bron Trust or Bastion
or BCF is the Transferor).  Prior to the initial acquisition of beneficial
ownership of any Company Stock by any Permitted Transferee (including, without
limitation, by way of any Transfer of an interest in Station Partners) and as a
condition thereto, each Stockholder, Council Tree, Bastion, BCF, VII and Bron
Trust, as the case may be, agrees to cause its respective Permitted Transferees
to agree in writing with the other Parties hereto to be bound by the terms and
conditions of this Agreement to the extent described in the preceding sentence.
A Permitted Transfer shall not release any Stockholder, Council Tree, Bastion,
BCF, VII or Bron Trust from any liability that such Person may have to the other
Parties to this Agreement prior to the date of such Transfer, but shall release
the Transferor from all future obligations accruing under this Agreement after
the date of Transfer provided the Permitted Transferee assumed all such
obligations of the Transferor hereunder.

      3.3 Permitted Transfers.  The following Transfers of shares of Company
          -------------------
Stock shall be permitted ("Permitted Transfers"):

          3.3.1     Station Partners. In the case of Station Partners and its
                    ----------------
Permitted Transferees:

                    (a)  Put/Call Agreement. A Transfer of shares of Company
                         ------------------
Stock held by it effected pursuant to the express provisions of the Station
Partners Put/Call Agreement and the Station Partners Preferred Put/Call
Agreement.

                    (b)  Bona Fide Pledges. A pledge of shares of Company Stock
                         -----------------
by Station Partners (or a pledge of the membership interests of Station Partners
by the members thereof) to a financial institution and, in connection with a
pledge by Station Partners, an assignment or transfer of the associated put
rights to such financial institution, in a bona fide transaction, provided, that
(i) no such pledgee shall be permitted to foreclose on such pledge before
December 15, 2002, or to

                                      18
<PAGE>

exercise any voting rights with respect to the Company Stock or membership
interests, as the case may be, and (ii) any pledgee shall agree to provide ten
days prior written notice to each Stockholder and the Company of its intent to
foreclose on the Company Stock or membership interests, as the case may be, and
any such foreclosure shall be subject, as applicable, to the rights of Liberty
and SPE to give a call notice under the Station Partners Put/Call Agreement or
Station Partners Preferred Put/Call Agreement and purchase such stock pursuant
to the Station Partners Put/Call Agreement or Station Partners Preferred
Put/Call Agreement.

                    (c)  Partial Transfers.  A Transfer of any portion of
                         -----------------
Station Partners' Company Stock pursuant to the express provisions of the demand
and piggyback registration rights granted in the Registration Rights Agreement
or following an IPO pursuant to Rule 144 of the Securities Act, if Station
Partners has complied with the provisions of Section 3.3.9.

                    (d)  Transfers after Two Years.  A Transfer of all (but not
                         -------------------------
less than all) of Station Partners' Company Stock after December 15, 2002 if
Station Partners has complied with the provisions of Sections 3.3.6, 3.3.7 and
3.3.8.

           3.3.2    SPE or Liberty.  In the case of SPE or Liberty,
                    --------------
individually, or their Permitted Transferees:

                    (a)  Transfers to Controlled Affiliates.  Transfers of all
                         ----------------------------------
or any portion of the shares of Company Stock held by it, directly or indirectly
through a Transfer of equity ownership in such Stockholder, to a Controlled
Affiliate of such Stockholder, provided there is no Change in Control resulting
therefrom.

                    (b)  Partial Transfers.  A Transfer of any portion of such
                         -----------------
Stockholder's Company Stock pursuant to the express provisions of the demand and
piggyback registration rights granted in the Registration Rights Agreement or
following an IPO pursuant to Rule 144 of the Securities Act, if such Stockholder
has complied with the provisions of Section 3.3.9.

                    (c)  Transfers after Two Years.  A Transfer of all (but not
                         -------------------------
less than all) of such Stockholder's Company Stock after December 15, 2002, if
such Stockholder has complied with the provisions of Sections 3.3.6, 3.3.7 and
3.3.8; provided that if SPE transfers all or any portion of the shares of
Company Stock held by it, then SPE Mundo must comply with all of its obligations
under the Network Group Operating Agreement and concurrently Transfer the same
proportion of its membership interest in Network Group (or if SPE transfers all
of the shares of Company Stock held by it, then SPE Mundo shall concurrently
Transfer all of the shares of Class A Common Stock received upon exchange of
such membership interest in accordance with the Exchange Agreement).

                    (d)  Corporate Reorganizations, Sales of Assets, Spin-offs.
                         -----------------------------------------------------
Transfers of all but not less than all of the shares of Company Stock held by it
as part of a Transfer of a larger group of assets (the "Transferred Assets"),
which Transfer may be effected through a corporate reorganization, a sale of
assets, distribution of equity shares or otherwise, (1) if the Transferred
Assets constitute a business which is engaged principally in the media,
entertainment, cable or telecommunications business, and (2) the value of the
Transferred Assets (other than the shares of Company Stock Transferred by such
Stockholder) at the time of Transfer comprise at least 85% of the value of the
assets of the Stockholder (including the shares of Company Stock Transferred by
such Stockholder).

                                      19
<PAGE>

                    (e)  Compliance with Regulatory Restrictions. Transfers of
                         ---------------------------------------
all or any portion of the shares of Company Stock held by it if such Transfer is
necessary in order to comply with restrictions imposed upon the ownership by
such Stockholder (or any of its Affiliates) of the Company Stock by any federal
or state law, rule or regulation or any final judicial decree or order issued by
any federal or state court of competent jurisdiction if (i) such compliance
cannot be achieved by a restructuring of such Stockholder's interest in the
Company, and (ii) such Stockholder first complies with the provisions set forth
in 3.3.6 through 3.3.9 as applicable below; provided, however, that nothing
shall require such Stockholder to modify any internal relationship or
relationship with Affiliates, divest or limit its rights with respect to any
assets, agree to any restriction of its activities or modify any transaction
with other Affiliates in order to continue to hold and vote its interest in the
Company.

                    (f)  Bona Fide Pledges.  A pledge of shares of Company Stock
                         -----------------
by it to a financial institution and, in connection with a pledge of the shares
of Company Stock by SPE or Liberty, the assignment or transfer of the associated
call rights to such financial institution, in a bona fide transaction, provided,
that (i) no such pledgee shall be permitted to foreclose on such pledge before
December 15, 2002, or to exercise any voting rights with respect to the Company
Stock, and (ii) any pledgee shall agree to provide ten days prior written notice
to each Stockholder and the Company of its intent to foreclose on the Company
Stock.

          3.3.3     Council Tree.  In the case of Council Tree and its Permitted
                    ------------
Transferees, a Transfer (either directly or indirectly through a Transfer by a
Council Tree Entity of all or any portion of its membership interests in Station
Partners to another Council Tree Entity) of all but not less than all of the
shares of Company Stock held by it to a Council Tree Entity, provided (i) such
Transfer does not require any filing with the FCC of a long-form change of
control or license transfer application under the Communications Act, (ii) such
Transfer does not, directly or indirectly, result in any requirement that any
party be required to modify any internal relationship or relationship with any
of its Affiliates, divest or limit its rights with respect to any assets, agree
to any restriction of its activities or modify any transaction with other
Affiliates in order to continue to hold its interest in the Company and (iii)
such Transfer does not result, to Council Tree's knowledge, in any increase in
alien ownership of the Company Stock of the Company from the amount represented
in the Contribution Agreement.

           3.3.4    Bastion, BCF, VII and Bron Trust.
                    --------------------------------

                    (a)  In the case of Bastion, BCF, VII and Bron Trust and
their respective Permitted Transferees, a Transfer of all or any portion of the
membership interests of Station Partners held by Bastion, BCF or VII or Bron
Trust, as the case may be, to a Bastion Controlled Affiliate, provided (i) such
Transfer does not require any filing with the FCC of a long-form change of
control or license transfer application under the Communications Act, (ii) such
Transfer does not, directly or indirectly, result in any requirement that any
party be required to modify any internal relationship or relationship with any
of its Affiliates, divest or limit its rights with respect to any assets, agree
to any restriction of its activities or modify any transaction with other
Affiliates in order to continue to hold its interest in the Company and (iii)
such Transfer does not result, to Bastion's or BCF's or Bron Trust's or VII's
knowledge, as the case may be, in any increase in alien ownership of the Company
Stock of the Company from the amount represented in the Contribution Agreement.

                                      20
<PAGE>

                    (b)  Transfers after Four Years.  If the put or call under
                         --------------------------
the Station Partners Put/Call Agreement has not been exercised on or prior to
August 12, 2005, Bastion or BCF or VII or Bron Trust, as the case may be, may
sell its membership interest in Station Partners to a third party approved by
each of Liberty and SPE. Further, each of Council Tree, BV Capital, TLMD,
Liberty and SPE agree to use its commercially reasonable efforts to identify a
mutually acceptable purchaser of Bastion's or BCF's or VII's or Bron Trust's, as
the case may be, membership interests in Station Partners and to cooperate with
Bastion or BCF or VII or Bron Trust, as the case may be, in its attempts to
effect such Transfer (which covenant shall not obligate any of TLMD, Liberty,
SPE, Council Tree or BV Capital to incur any costs in furtherance hereof or
provide any consent or approval hereunder).

           3.3.5    BV Capital and TLMD.   In the case of BV Capital or TLMD and
                    -------------------
their respective Permitted Transferees:

                    (a)  Put/Call Agreement.  A Transfer of all but not less
                         ------------------
than all of the shares of Company Stock held by BV Capital or TLMD, as the case
may be, effected pursuant to the express provisions of the BV Capital Put/Call
Agreement or TLMD Put/Call Agreement, as the case may be.

                    (b)  Transfers to a BV Capital Controlled Affiliate or a
                         ---------------------------------------------------
Bastion Controlled Affiliate. A Transfer of all or any portion of the shares of
----------------------------
Company Stock held by BV Capital or TLMD, as the case may be, to, in the case of
BV Capital, a BV Capital Controlled Affiliate or in the case of TLMD, a Bastion
Controlled Affiliate, provided (i) such Transfer does not require any filing
with the FCC of a long-form change of control or license transfer application
under the Communications Act, (ii) such Transfer does not, directly or
indirectly, result in any requirement that any party be required to modify any
internal relationship or relationship with any of its Affiliates, divest or
limit its rights with respect to any assets, agree to any restriction of its
activities or modify any transaction with other Affiliates in order to continue
to hold its interest in the Company and (iii) such Transfer does not result, to
the knowledge of BV Capital or TLMD, as the case may be, in any increase in
alien ownership of the Company Stock of the Company from the amount represented
in the Contribution Agreement.

                    (c)  Bona Fide Pledges, Etc.  (1) In the case of BV Capital,
                         -----------------------
(i) a pledge or, subject to the approval of SPE and Liberty (which approval
shall not be withheld or delayed, other than for a reasonable belief, after
consultation with legal counsel, that the proposed financing transaction would
unduly delay or jeopardize consummation of any material pending transaction of
the Company after the date hereof or would result in a breach of Section 8.1
hereof), a substantially similar financing or other Encumbrance (as defined in
the Contribution Agreement) of BV Capital's or a BV Capital Controlled
Affiliate's (excluding in each case, Bastion or BCF or a Bastion Controlled
Affiliate with respect to Station Partners Company Stock) Company Stock (subject
to reasonable and customary terms to be negotiated in good faith with the source
of such financing including reasonable and customary restrictions against
transfers in connection with foreclosure, physical settlement of any prepaid
forward transaction, or any similar transaction needed to ensure compliance with
FCC regulations); and (ii) a pledge of BV Capital's or a BV Capital Controlled
Affiliate's interest in the BV Capital Put/Call Agreement or other transaction
pursuant to the first sentence of Section 6(d) of the BV Capital Put/Call
Agreement.

                                      21
<PAGE>

                         (2)  In the case of TLMD, a pledge of shares of Company
Stock by TLMD to a financial institution and, in connection with a pledge by
TLMD, an assignment or transfer of the associated put rights to such financial
institution, in a bona fide transaction, provided, that (i) no such pledgee
shall be permitted to foreclose on such pledge before December 15, 2002, or to
exercise any voting rights with respect to the Company Stock, and (ii) any
pledgee shall agree to provide ten days prior written notice to each Stockholder
and the Company of its intent to foreclose on the Company Stock, and any such
foreclosure shall be subject to the rights of Liberty and SPE to give a call
notice under the TLMD Put/Call Agreement and purchase such stock pursuant to the
TLMD Put/Call Agreement.

                    (d)  Transfers.  A Transfer of all or any portion of BV
                         ---------
Capital's Company Stock or TLMD's Company Stock effected after the earlier of an
IPO and December 15, 2002, if BV Capital or TLMD, as the case may be, has
complied with the provisions of Section 3.3.9. Notwithstanding the foregoing, to
the extent an Early Liberty Put (as defined in the BV Capital Put/Call
Agreement) has been consummated in accordance with the BV Capital Put/Call
Agreement, BV Capital shall not Transfer less than all of BV Capital's Company
Stock unless the BV Capital Put/Call Agreement has been terminated.

                    (e)

          3.3.6     Right of First Offer - Complete Transfers.  Prior to a
                    -----------------------------------------
Primary Stockholder effecting a Transfer pursuant to the provisions of Sections
3.3.1(d) or 3.3.2(c), the Primary Stockholder (each, an "Offering Stockholder")
intending to effect such Transfer must meet the following conditions:  (i) all
shares held by it are sold in the same transaction to a single purchaser, (ii)
such shares must be sold to a third party other than a Primary Stockholder
(subject to the rights of Stockholders under Section 3.3.8 below), (iii) such
shares must be sold in a bona fide transaction and (iv) the Offering Stockholder
must comply with the terms of Section 3.3.8.

                    The Offering Stockholder intending to effect such Transfer
(the "Transferring Stockholder") shall deliver written notice thereof (a "First
Offer Notice") to each other Primary Stockholder (each, an "Offeree
Stockholder") setting forth the number of shares of Company Stock to be sold and
the purchase price proposed by the Transferring Stockholder and any other terms
of the transaction (collectively, the "Proposed Price"). Upon receipt of the
First Offer Notice, the Offeree Stockholders shall have the right to purchase
(subject to necessary regulatory approvals) such Company Stock at the Proposed
Price. For a period of thirty (30) days following receipt by each Offeree
Stockholder of a First Offer Notice (the "First Offer Period"), each Offeree
Stockholder may elect, by the delivery of written notice of such election to the
Transferring Stockholder and to each other Offeree Stockholder (the "First Offer
Election Notice") within such First Offer Period, to purchase such shares of
Company Stock at a price equal to the Proposed Price. If any Offeree Stockholder
duly and timely delivers a First Offer Election Notice to the Transferring
Stockholder and each other Offeree Stockholder in respect of any shares of
Company Stock during the First Offer Period, then the Transferring Stockholder
shall be obligated to sell such shares to the Offeree Stockholder, and the
Offeree Stockholder shall be obligated to purchase such shares of Company Stock
from the Transferring Stockholder, free and clear of all liens (other than
obligations assumed pursuant to this Agreement). Each other Offeree Stockholder
shall have an additional five (5) days from receipt of the First Offer Election
Notice to also deliver a First Offer Election Notice to participate in such
purchase. If more than one Offeree Stockholder delivers a First Offer Election
Notice, each such Offeree Stockholder shall be entitled to purchase its pro rata

                                      22
<PAGE>

portion of the shares of Company Stock offered (based upon the number of shares
of Company Stock then held by the Offeree Stockholders electing to participate
in such sale). The purchase of any shares of Company Stock by any Offeree
Stockholder shall be consummated on or before the sixtieth (60th) day after the
First Offer Notice is delivered by the Transferring Stockholder or if regulatory
approvals are required, then the earlier of (i) 15 days after the receipt of
such regulatory approvals or the date after such party has abandoned good faith
attempts to obtain regulatory approvals and (ii) six months from such First
Offer Notice. If none of the Offeree Stockholders duly and timely delivers a
First Offer Election Notice, or if the Offeree Stockholders electing to purchase
fail to close such purchase as required, then the Transferring Stockholder shall
have the right to sell such shares of Company Stock to a third party on terms no
less favorable than those provided in the First Offer Notice within 30 days from
the date a First Offer Election Notice was due or from the expected date of the
closing, or if regulatory approvals are required, then the earlier of (i) 15
days after the receipt of such regulatory approvals or the date after such party
has abandoned good faith attempts to obtain regulatory approvals and (ii) six
months from the first date the Transferring Stockholder has the right to sell
such shares. The Offeree Stockholder's ownership of the Company Stock shall
comply with restrictions imposed upon ownership by such Stockholder (or any of
its Affiliates or Ultimate Parent Entity) of the Company Stock by any federal or
state law, rule or regulation or any final judicial decree or order issued by
any federal or state court of competent jurisdiction.

           3.3.7    Drag Along Rights.
                    -----------------

                    (a)  After December 15, 2002, if any two Primary
Stockholders desire to sell all of the Company Stock for a price per share
reflecting a valuation of the Company on a Fully Diluted basis of not less than
$2.178 billion (the "Selling Primary Stockholders"), such Selling Primary
Stockholders may deliver a written notice (the "Drag Along Notice") of the bona
fide transaction setting forth the price and any other terms of the transaction
to all other Stockholders. Upon receipt of the Drag Along Notice, the other
Stockholders, together with the Selling Primary Stockholders delivering such
Drag Along Notice, shall be obligated to sell their Company Stock at the price
and on the terms contained in such Drag Along Notice.

                    (b)  The Selling Primary Stockholders shall deliver the Drag
Along Notice to each other Stockholder at least 30 days prior to the scheduled
closing of such sale. The Drag Along Notice shall: (i) identify the "Buyer(s)";
(ii) state the purchase price to be paid; and (iii) summarize all material terms
and conditions of the offer and all other transactions and agreements directly
or indirectly conditioned upon or otherwise related to the sale of all of the
Company Stock thereunder. Each other Stockholder shall effect its sale of all of
its Company Stock by delivering to the Selling Primary Stockholders on or before
the date scheduled for such sale, a stock certificate or certificates, which
represent all of the Company Stock of such Stockholder, together with a limited
power-of-attorney authorizing the Selling Primary Stockholders to sell or
otherwise dispose of such shares pursuant to the terms of the Drag Along Notice.
Such certificate or certificates that each other Stockholder delivers to the
Selling Primary Stockholders shall be delivered to the Buyer(s) in consummation
of the sale of all of the Company Stock pursuant to the terms and conditions
specified in the Drag Along Notice, and the Selling Primary Stockholders shall,
or shall cause the Buyer(s) to, concurrently therewith remit to each other
Stockholder the purchase price to which each other Stockholder is entitled by
reason of its participation in such sale, based on the Company Stock delivered
to the Buyer(s). Each other Stockholder shall execute an agreement, in form and
substance acceptable to the Selling Primary Stockholders, to be bound by and
subject to the same

                                      23
<PAGE>

representations, warranties and covenants, terms and conditions in the same form
and substantially similar to that contained in any agreements executed by the
Selling Primary Stockholders in connection with the sale of all the Company
Stock to the Buyer(s) (other than such representations, warranties and
covenants, terms and conditions which are unique to each of the Selling Primary
Stockholders and other Stockholders); provided, however, no Stockholder will be
required to make any indemnity in an amount in excess of the net proceeds
received by such Stockholder for any Company Stock sold by such Stockholder
pursuant to this Section 3.3.7.

           3.3.8    Tag Along Rights.
                    ----------------

                    (a)  After December 15, 2002, if any two Primary
Stockholders desire to sell all of their Company Stock in the same transaction
(the "Selling Stockholders"), such Selling Stockholders must deliver a written
notice of the bona fide transaction (a "Sale Notice") setting forth the price
and any other terms of the transaction to all other Stockholders, accompanied by
a certificate of the Selling Stockholders certifying the accuracy of the
information in the Sale Notice.

                    (b)  Each Stockholder shall have the right to sell or
include in the sale, that percentage of the number of shares of Company Stock to
be sold to the third party equal to the ratio (expressed as a percentage) of (1)
the number of shares of Company Stock owned by the Stockholder (calculated on a
Fully Diluted basis), as compared with (2) the aggregate number of shares of
Company Stock outstanding (calculated on a Fully Diluted basis).

                    (c)  Each other Stockholder who elects to sell pursuant to
the terms of the Sale Notice (a "Participating Stockholder") shall effect its
participation in the sale by delivering to the Selling Stockholders (or such
other Person as may be designated by the Selling Stockholders) within sixty (60)
days of receipt of the Sale Notice, a stock certificate or certificates which
represent the Company Stock which such Participating Stockholder has determined
to sell in accordance with this Section 3.3.8, together with a limited power-of-
attorney authorizing the Selling Stockholders to sell or otherwise dispose of
such shares pursuant to the terms of the Sale Notice. Such certificate or
certificates that the Participating Stockholder delivers to the Selling
Stockholders shall be delivered to such buyer in consummation of the sale of the
Company Stock pursuant to the terms and conditions specified in the Sale Notice,
and the Selling Stockholder shall, or shall cause the buyer to, concurrently
therewith remit to such Participating Stockholder that purchase price to which
the Participating Stockholder is entitled by reason of its participation in such
sale, based on the Company Stock delivered to the buyer. The Participating
Stockholder shall execute an agreement, in form and substance acceptable to the
Selling Stockholders, to be bound by and subject to the same representations,
warranties and covenants, terms and conditions in the same form and
substantially similar to that contained in any agreements executed by the
Selling Stockholders in connection with the sale of the Selling Stockholders'
Company Stock to the buyer(s) (other than such representations, warranties and
covenants, terms and conditions which are unique to the Selling Stockholders);
provided, however, no Participating Stockholder will be required to make any
indemnity in an amount in excess of the net proceeds received by such
Participating Stockholder for any Company Stock sold by such Participating
Stockholder pursuant to this Section 3.3.8.

          3.3.9     Right of First Offer - Certain Other Transfers, Including
                    ---------------------------------------------------------
Partial Transfers.  Prior to effecting a Transfer pursuant to the provisions of
-----------------
Sections 3.3.1(c), 3.3.2(b), 3.3.4(b) or 3.3.5(d), the Stockholder intending to
effect such Transfer (the "Selling Partial Stockholder") must

                                      24
<PAGE>

meet the following conditions: (i) such shares must be sold in a bona fide
transaction and (ii) the Selling Partial Stockholder must comply with the terms
of this Section 3.3.9.

     The Selling Partial Stockholder shall deliver written notice thereof (a
"First Offer Partial Notice") to each of the other Stockholders (each, a
"Partial Offeree Stockholder") setting forth the number of shares of Company
Stock to be sold and the purchase price proposed by the Selling Partial
Stockholder and any other terms of the transaction (collectively, the "Initial
Proposed Price"). Upon receipt of the First Offer Partial Notice, the other
Stockholders shall have the right to purchase such Company Stock at the Initial
Proposed Price.  For a period of two business days following receipt by each
Partial Offeree Stockholder of a First Offer Partial Notice (the "Partial First
Offer Period"), each Partial Offeree Stockholder may elect, by the delivery of
written notice of such election to each other Stockholder (the "First Offer
Partial Election Notice") within such Partial First Offer Period, to purchase
such shares of Company Stock at a price equal to the Initial Proposed Price.  If
any Partial Offeree Stockholder duly and timely delivers a First Offer Partial
Election Notice to each other Stockholder in respect of any shares of Company
Stock during the Partial First Offer Period, then the Selling Partial
Stockholder shall be obligated to sell such shares to the Partial Offeree
Stockholder, and the Partial Offeree Stockholder shall be obligated to purchase
such shares of Company Stock from the Selling Partial Stockholder, free and
clear of all liens (other than obligations assumed pursuant to this Agreement).
If more than one Partial Offeree Stockholder delivers a First Offer Partial
Election Notice during the Partial First Offer Period, each such Partial Offeree
Stockholder shall be entitled to purchase its pro rata portion of the shares of
Company Stock offered (based upon the number of shares of Company Stock then
held by the Partial Offeree Stockholders electing to participate in such sale).
The purchase of any shares of Company Stock by any Partial Offeree Stockholder
shall be consummated on or before the fifth (5th) business day after the First
Offer Partial Notice is delivered by the Selling Partial Stockholder or if
regulatory approvals are required, then the earlier of (i) three (3) business
days after the receipt of such regulatory approvals or the date after such party
has abandoned good faith attempts to obtain regulatory approvals and (ii) six
(6) months from such notice; provided, however, that the Selling Partial
Stockholder shall not be obligated to sell the Company Stock to any Partial
Offeree Stockholder if the regulatory approvals for such sale are anticipated to
take longer than the regulatory approvals required for the sale to the Selling
Partial Stockholder's intended third party purchaser.  If none of the Partial
Offeree Stockholders duly and timely delivers a First Offer Partial Election
Notice, or if the Partial Offeree Stockholders electing to purchase fail to
close such purchase as required, or if the Selling Partial Stockholder is not
obligated to sell to a Partial Offeree Stockholder pursuant to the proviso in
the prior sentence, then the Selling Partial Stockholder shall have the right to
sell such shares of Company Stock to a third party on terms no less favorable
than those provided in the First Offer Partial Notice within 30 days from the
date a First Offer Partial Election Notice was due or from the expected date of
the closing, or if regulatory approvals are required, then the earlier of (i) 15
days after the receipt of such regulatory approvals or the date after such has
abandoned good faith attempts to obtain regulatory approvals and (ii) six
months from the first date the Selling Partial Stockholder has the right to sell
such shares.  Notwithstanding anything to the contrary contained in this Section
3.3.9, if the Selling Partial Stockholder intends, pursuant to the First Offer
Partial Notice, to sell the Company Stock in the public trading markets (after
the Company's IPO), and if none of the Partial Offeree Stockholders duly and
timely delivers a First Offer Partial Election Notice, or if the Partial Offeree
Stockholders electing to purchase fail to close such purchase as required, or if
the Selling Partial Stockholder is not obligated to sell to a Partial Offeree
Stockholder pursuant to the proviso in the sentence before the prior sentence,
the Selling Partial Stockholder may sell the Company Stock to a third party at a

                                      25
<PAGE>

price that is no less favorable than the then current closing sales price, even
if it is less favorable to the Selling Partial Stockholder than the price
provided in the First Offer Partial Notice. The Partial Offeree Stockholder's
ownership of the Company Stock shall comply with restrictions imposed upon
ownership by such Stockholder (or any of its Affiliates or Ultimate Parent
Entity) of the Company Stock by any federal or state law, rule or regulation or
any final judicial decree or order issued by any federal or state court of
competent jurisdiction.

                                   ARTICLE 4

                                 CAPITAL CALLS

     4.1  Mandatory Capital Calls. (a) Prior to the consummation of an IPO, the
          -----------------------
chief executive officer of the Company (or if none, the most senior operating
officer in place) or a majority of the Board shall have the right to call (each,
a "Mandatory Capital Call") the Common Stockholders to contribute and the Common
Stockholders shall be obligated to contribute to the capital of the Company for
the purpose of providing for the operating needs of the Company pursuant to the
approved Business Plan and Budget and for the purpose of acquiring stations;
provided, that (i) Mandatory Capital Calls shall be called from all Common
Stockholders simultaneously, (ii) each Common Stockholder shall contribute an
amount equal to 86.3711% of the Mandatory Capital Call multiplied by its
Proportionate Share, (iii) no Common Stockholder shall be required to contribute
pursuant to a Mandatory Capital Call in excess of the Aggregate Maximum
Contribution Amount (as defined below), (iv) notice of a Mandatory Capital Call
must be delivered to the Common Stockholders at least 60 days prior to the date
of contribution and (v) a Special Mandatory Capital Call (as defined below)
shall not be deemed to be a Mandatory Capital Call. To the extent Telemundo Sub
is required to make any Mandatory Capital Calls under the Network Group
Operating Agreement, the Company shall fund such Mandatory Capital Calls with
the first dollars received from any Common Stockholders pursuant to this Section
4.1(a) until such requirements are fulfilled.

     (b)  Prior to the consummation of an IPO and upon the unanimous approval of
the Common Stockholders, the chief executive officer of the Company (or if none,
the most senior operating officer in place) or a majority of the Board shall
call (each, a "Special Mandatory Capital Call") the Common Stockholders to
contribute and the Common Stockholders shall be obligated to contribute to the
capital of the Company the applicable amount so approved by the Common
Stockholders; provided, that (i) except as otherwise agreed by the Common
Stockholders, Special Mandatory Capital Calls shall be called from all Common
Stockholders simultaneously, (ii) each Common Stockholder shall contribute the
amount so approved with respect to such Common Stockholder, (iii) notice of a
Special Mandatory Capital Call must be delivered to the Common Stockholders at
least 60 days prior to the date of contribution, (iv) Special Mandatory Capital
Calls are not subject to the Total Maximum Contribution Amount (as defined
below) and (v) a Mandatory Capital Call shall not be deemed to be a Special
Mandatory Capital Call. To the extent Telemundo Sub is required to make any
Special Mandatory Capital Calls under the Network Group Operating Agreement, the
Company shall fund such Special Mandatory Capital Calls with the first dollars
received from any Common Stockholders pursuant to this Section 4.1(b) until such
requirements are fulfilled. Notwithstanding anything to the contrary herein, the
capital contributions made to the Company on or prior to the date hereof for the
purpose of purchasing the Preferred Stock shall be deemed for all purposes under
this Agreement to be Special Mandatory Capital Calls, except to the extent set
forth in Section 4.2 below.

                                      26
<PAGE>

     4.2  Aggregate Maximum Contribution Amount. As to each Common Stockholder,
          -------------------------------------
the "Aggregate Maximum Contribution Amount" shall mean each Common Stockholder's
Proportionate Share of an amount equal to the product of 86.3711% (the
"Contribution Percentage") and $65 million (the "Total Maximum Contribution
Amount"); provided, however, upon an exchange by SPE Mundo of all of its Network
          --------  -------
Group Class B Membership Interests under the Network Group Operating Agreement
into Class A Common Stock, the Aggregate Maximum Contribution Amount shall equal
each Common Stockholder's Proportionate Share of the Total Maximum Contribution
Amount.  Any partial exchange by SPE Mundo of a part of its Network Group Class
B Membership Interests shall require an appropriate adjustment to the
Contribution Percentage.

If any Common Stockholder fails to contribute its allocable portion of a
Mandatory Capital Call or the amount of its approved Special Mandatory Capital
Call or, after written notice and an opportunity to cure (which opportunity to
cure shall be set forth in such notice and shall provide a cure period of not
less than 30 days from the receipt of notice) then upon the Transfer of
substantially all of such Common Stockholder's Company Common Stock, either (i)
if such Transfer is pursuant to the applicable Put/Call Agreement, the Pay Out
Amount (as defined in the Station Partners Put/Call Agreement or the BV Capital
Put/Call Agreement, as applicable) payable upon exercise of the put or call
pursuant to the Station Partners Put/Call Agreement or the BV Capital Put/Call
Agreement, as applicable, shall be adjusted as provided in such agreement or
(ii) otherwise, such Common Stockholder shall concurrently with such Transfer
pay the Dilution Amount (as defined below) in accordance with Section 4.5.
Notwithstanding anything to the contrary contained herein, each of the Parties
acknowledges and agrees that neither BV Capital nor Station Partners (with
respect to amounts to be contributed to Station Partners by BCF Media in excess
of $613,000) was required to contribute its Proportionate Share of the Special
Mandatory Capital Call (as defined in the Original Agreement) (the "Preferred
Call") pursuant to the terms of the Equity Contribution Agreement, dated as of
February 9, 2001, by and among TCG, Council Tree, BCF, BV Capital, SPE, Liberty
and Station Partners, contributions pursuant to which have been made as of May
30, 2001 by Station Partners, TLMD, SPE and Liberty in exchange for the issuance
of shares of the Company Preferred Stock and in no event shall the failure of
either BV Capital or Station Partners (to the extent allocable to BCF Media in
excess of $613,000) to make its Proportionate Share of the Preferred Call be
considered a Capital Call Default (as defined in the Original Agreement) with
respect to BV Capital or Station Partners for purposes of this Agreement, the
Station Partners Put/Call Agreement or the BV Capital Put/Call Agreement.

     4.3  Discretionary Capital Call. If the chief executive officer of the
          ---------------------------
Company (or if none, the most senior operating officer in place) or a majority
of the Board determines that the Company is in need of funds in excess of the
Aggregate Maximum Contribution Amount and has not obtained the necessary
approval for a Special Mandatory Capital Call, then either the chief executive
officer or the Board may make a capital call (a "Discretionary Capital Call") on
not less than sixty (60) days written notice to each Common Stockholder. Each
Common Stockholder shall have the right to decline to meet such call. Whether or
not all Common Stockholders contribute their Pro Rata portion of the
Discretionary Capital Call or less than all Common Stockholders elect to make a
contribution (a "Discretionary Capital Contribution"), then the contributions
made shall be considered a loan to the Company, bearing interest at an annual
rate of 2.0 % over the Prime Rate.

                                      27
<PAGE>

     4.4  Substitute Contributor.  Bastion or BCF shall be entitled to designate
          ----------------------
BV Capital or another Bastion Controlled Affiliate to satisfy the obligations of
Station Partners required to be funded by Bastion's or BCF's obligations in
connection with Mandatory Capital Calls and Special Mandatory Capital Calls (a
"Substitute Capital Call") subject to the adjustment of the Pay Out Amount
pursuant to the Station Partners Put/Call Agreement or the BV Capital Put/Call
Agreement, as applicable, and the adjustment of the Payment Amount pursuant to
Section 4.5 below.

     4.5  Make-Well.  (a)  Notwithstanding anything to the contrary contained
          ---------
herein, in the event any party Transfers substantially all of its Company Common
Stock other than through the provisions of the Station Partners Put/Call
Agreement or the BV Capital Put/Call Agreement, and such party, including, in
the case of SPE, SPE Mundo, failed to make one or more Mandatory Capital Calls
or Special Mandatory Capital Calls pursuant to this Agreement, or, in the case
of SPE Mundo, the Network Group Operating Agreement (the "Capital Call
Defaults"), then such Common Stockholder shall be required to pay a portion of
the consideration (the "Payment Amount") to be received by such party in
connection with such Transfer in accordance with subsection (b) below
concurrently with the consummation of the Transfer.  The amount required to be
paid shall be an amount (the "Dilution Amount") equal to (x) the aggregate
amount of all Capital Call Defaults (the "Capital Call Default Amount"), plus
(y) an amount that would yield the Rate of Return (as defined in the applicable
Put/Call Agreement) represented by the Payment Amount on the applicable Capital
Call Default Amount from the date or dates of the Capital Call Default through
the date the Payment Amount is paid, plus (z) if the Capital Call Default arises
from a failure by Council Tree or its assigns to make a capital contribution to
Station Partners in order to fund a Mandatory Capital Call or a Special
Mandatory Capital Call, by Liberty or its assigns to fund a Mandatory Capital
Call or a Special Mandatory Capital Call or by SPE or SPE Mundo or its assigns
to fund a Mandatory Capital Call or a Special Mandatory Capital Call, then an
amount equal to 50% of the aggregate of the sums referred to in clauses (x) and
(y) above.

                    (b)  Any Dilution Amount shall be paid in cash to the other
Common Stockholders in accordance with their Proportionate Share (which for
purposes of this Section 4.5(b) only, means the fraction whose numerator is the
number of shares of Holder's Common Stock on a Fully Diluted basis owned by a
Common Stockholder and whose denominator is the total number of shares of
Holder's Common Stock on a Fully Diluted basis (provided, that, "Fully Diluted"
for these purposes shall have the meaning given in Article 1 excluding any
shares of Company Common Stock issued or issuable upon conversion of outstanding
options, warrants, rights or other convertible securities of the Company,
including Preferred Stock)); provided that any Dilution Amount resulting from
Bastion's or BCF's failure to make a Mandatory Capital Call or a Special
Mandatory Capital Call that was contributed as a Substitute Capital Call by BV
Capital or another Bastion Controlled Affiliate shall be paid solely to BV
Capital or such other Bastion Controlled Affiliate.

                                   ARTICLE 5

                            CORPORATE OPPORTUNITIES

     The Parties acknowledge and agree that the Company is the primary vehicle
for the pursuit of corporate opportunities relating to the ownership and
operation of television broadcast stations ("Station Opportunities").  As a
result, with respect to each Party, for so long as such Party is a

                                      28
<PAGE>

direct or indirect holder of Company Stock and with respect to Steve Hillard,
for so long as Steve Hillard is an Affiliate of Council Tree and Council Tree is
a direct or indirect holder of Company Stock, each Party and Steve Hillard,
Chief Executive Officer of Council Tree, shall be required to bring Station
Opportunities to the attention of the Company for its consideration, provided
that (i) to the extent the Company declines to take advantage of a Station
Opportunity, such Party is free to take advantage of such Station Opportunity in
a bona fide transaction on the same (or less favorable) price, terms and
conditions as originally presented to the Company, (ii) Station Opportunities
shall not be deemed to include opportunities to acquire television stations
serving Designated Market Areas ranking below 30 by number of Hispanic
Television Households (as ranked by Nielsen Media Research, Inc.) or the current
opportunity held by Council Tree (or a Council Tree Affiliate) with respect to
WPHA-TV, Atlantic City, Philadelphia, provided that opportunities to acquire
three (3) or more television broadcast stations (in one transaction or a series
of related transactions) shall be Station Opportunities regardless of ranking
and (iii) in no event shall this Article 5 be deemed to restrict the activities
of any of Council Tree's or Bastion's or BV Capital's investors or such
investors' Affiliates, provided that the pursuit of a Station Opportunity is not
being made by a Council Tree Entity or Bastion Controlled Affiliate or a BV
Capital Controlled Affiliate, as the case may be.

                                   ARTICLE 6

                                      IPO

     If the Company has not consummated an IPO, any two Primary Stockholders
shall have the right, by written notice to the Company, to cause the Company,
and the Company hereby agrees, to use its best efforts to consummate a
Qualifying IPO as soon as reasonably practicable after such notice.

                                   ARTICLE 7

                        REPRESENTATIONS AND WARRANTIES

     7.1  Mutual Representations and Warranties. As of the date hereof, each
          -------------------------------------
Party hereby represents and warrants to the other Parties as follows:

          7.1.1     The Party has been duly formed and is validly existing and
in good standing under the laws of the jurisdiction of its organization.

          7.1.2     The Party has the right, power, and legal capacity and
authority to enter into and perform its obligations under this Agreement.  The
Party's execution and delivery of this Agreement and the performance and
consummation of these transactions have been duly authorized by all necessary
corporate, partnership or limited liability company action, including any
necessary approval by its board of directors or other governing body, and no
other corporate, partnership or limited liability company proceedings is
necessary on the part of the Party for the execution and delivery of this
Agreement or for the performance of its obligations provided for herein.

          7.1.3     The Agreement has been duly executed and delivered by the
Party, and, assuming this Agreement

                                      29
<PAGE>

constitutes a valid and binding obligation of the Party enforceable against it
in accordance with its terms.

          7.1.4  The consummation of the transactions contemplated by this
Agreement will not violate, conflict with or result in a breach of the Party's
constitutive documents, or any instrument or agreement to which the Party is a
Party or by which the Party is bound, or any provision of laws and regulations
applicable to the Party.

          7.1.5  Each Stockholder owns the Holder's Company Stock held by it
free and clear of all liens, security interests, encumbrances, easements,
judgments or imperfections of title of any nature whatsoever. Except for this
Agreement, the Liberty Proxy and the Station Partners LLC Agreement, there are
no voting trusts, proxies, or any other agreements, restrictions or
understandings with respect to the voting of the capital stock of the Company
binding on such Stockholder.

          7.1.6  Council Tree represents and warrants that to its knowledge the
representations made by it to the FCC as part of the application for Consent to
Transfer Control filed with the FCC on August 8, 2000, in connection with the
transactions contemplated by the Contribution Agreement (the "Transfer of
Control Application") are true and correct in all material respects as of the
date hereof. Council Tree agrees that if, subsequent to the date hereof, Council
Tree becomes aware that the aggregate alien ownership of the Company
attributable to Council Tree is at any time greater than 1.5%, it will
restructure its investment in Station Partners or take any other action
necessary so that such excess alien ownership interest will not be attributable
to the Company consistent with the requirements of the Communications Act and
FCC Regulations, and Liberty, SPE, Bastion, BCF, TLMD, BV Capital, VII, and Bron
Trust agree to cooperate with all reasonable requests of Council Tree in
connection therewith.

          7.1.7  Each of BV Capital, BCF and Bastion represents and warrants
that to its knowledge the representations made by it to the FCC as part of the
Transfer of Control Application to the Company are true and correct in all
material respects as of the date hereof. Each of BV Capital, BCF, Bastion, TLMD,
VII, and Bron Trust agrees that if, subsequent to the date hereof, the aggregate
alien ownership of BV Capital, BCF, Bastion, TLMD, VII, and Bron Trust and
attributable to the Company is greater than 0.54%, each of BV Capital, BCF,
Bastion, TLMD, VII, and Bron Trust will restructure their investments in Station
Partners or the Company, as applicable, or take any other action necessary so
that such excess alien interest will not be attributable to the Company
consistent with the requirements of the Communications Act and FCC Regulations,
and Liberty, SPE and Council Tree agree to cooperate with all reasonable
requests of BV Capital, BCF, Bastion, TLMD, VII, and Bron Trust in connection
therewith.

          7.1.8  Each of Liberty and SPE represents and warrants that to its
knowledge the representations made by it to the FCC as part of the Transfer of
Control Application to the Company are true and correct in all material respects
as of the date hereof. Liberty and SPE agree that if, subsequent to the Closing
Date, they become aware that aliens own a greater percentage interest in the
Company than 25% solely as a result of their investment in the Company and
assuming that the representations and warranties of Council Tree, BV Capital,
BCF, Bastion, TLMD, VII, and Bron Trust in Sections 7.1.6 and 7.1.7 are true and
accurate, they will restructure their investment in the Company or take any
other action necessary so that such alien interest in excess of 25% will not be
attributable to the Company consistent with the requirements of the

                                      30
<PAGE>

Communications Act and FCC Regulations, and Council Tree, BV Capital, BCF,
Bastion, TLMD, VII, and Bron Trust will cooperate with all reasonable requests
of Liberty and SPE in connection therewith.

                                   ARTICLE 8

                                   COVENANTS

     8.1  Mutual Covenants.  Each Party hereby covenants to the other Parties as
          ----------------
follows:

          8.1.1  The Party agrees that it will not Transfer any of its shares of
Company Stock, and in the case of SPE Mundo, the Class B Membership Interests,
and, in the case of Council Tree, Bastion, BCF, VII and Bron Trust, any of its
membership interest in Station Partners, if such action would (A) cause the
Company to be in non-compliance with FCC Regulations or (B) result in a Change
in Control or Event of Default (each as defined in the Senior Credit Facility)
or a Change of Control or Event of Default (each as defined in the Indenture),
other than as consented to or waived by the lenders party to the Credit Facility
or the bondholders under the Indenture, respectively; provided, however, that no
such consents or waivers shall require the Company to make any payment to such
lenders or bondholders (unless the Company is reimbursed by the party requesting
such waiver or consent) or make any modifications to the Senior Credit Facility
or Indenture (other than changes to the definition of Change in Control or
Change of Control therein necessitated by the Transfer) which the Board
determines, in good faith, may be adverse to the Company. The Company agrees to
cooperate with any party requesting a consent or waiver under this Section 8.1.1
and provide reasonable assistance (at the expense of the requesting party) in
obtaining such consent or waiver.

          8.1.2  The Company shall not permit any Subsidiary of the Company to
issue any options, warrants or rights to purchase any of the securities of such
Subsidiary to any Person other than the Company or a wholly owned Subsidiary of
the Company.

     8.2  Station Partners Covenants.  Station Partners hereby covenants to the
          --------------------------
other Parties as follows:

          8.2.1  Station Partners has delivered to each of the other Parties
hereto a true and complete copy of the Station Partners LLC Agreement. Station
Partners, Council Tree, Bastion, BCF, VII, Bron Trust and their respective
Permitted Transferees shall not effect any amendment, modification or
termination of the Station Partners LLC Agreement in a manner that would result
in Council Tree not having the sole power (i) to direct the voting of all
Holder's Company Stock held by Station Partners and (ii) to direct Station
Partners' consent or the withholding of such consent with respect to any Major
Decision or any other action that requires the unanimous approval of the
Stockholders hereunder; provided, however, that to the extent that the Station
Partners LLC Agreement provides as of the date hereof for any limitations on the
powers of Council Tree set forth in clauses (i) and (ii), there shall be no
obligation on the part of Station Partners, Council Tree, Bastion, BCF, VII,
Bron Trust and their respective Permitted Transferees to amend the Station
Partners LLC Agreement to remove such limitations.

     8.3  Council Tree Covenants.  For so long as Council Tree is a direct or
          ----------------------
indirect stockholder of the Company, the Council Tree Affiliate will not sell
its interests and opportunities

                                      31
<PAGE>

with respect to WPHA-TV, Atlantic City, Philadelphia unless the Council Tree
Affiliate has complied with the following paragraph:

          8.3.1  If Council Tree or a Council Tree Entity resolves to sell the
interest and opportunities with respect to WPHA-TV, Atlantic City, Philadelphia,
Council Tree must deliver to the Company a written notice of such intent, and
shall set forth the material terms pursuant to which Council Tree or such
Council Tree Entity would be prepared to make such sale. The Company shall have
a period of 60 days after it has received such notice to accept the terms set
forth therein and to purchase such interests. If the Company does not accept the
terms within such period, or fails to purchase such interest after 60 days (or,
in the event regulatory approvals are necessary, the earlier of (a) 15 days
after receipt of such regulatory approvals or the date after which the Company
has abandoned good faith attempts to obtain such regulatory approvals and (b)
six months from such notice), then Council Tree or a Council Tree Entity shall
be entitled to enter into an agreement with a third party on terms that,
individually and collectively, are the same or more favorable to Council Tree or
a Council Tree Entity than those offered to the Company; provided, however,
that: (i) Council Tree or a Council Tree Entity must sign an agreement with such
third party on such terms within 180 days of the Company's failure to accept,
and the proposed purchase or acquisition must be closed on such terms within 180
days of such agreement (subject to extension for FCC approval delays only), or
such potential third party sale shall once again be subject to the provisions of
this Section 8.3.1; (ii) if Council Tree or a Council Tree Entity and the third
party change the proposed sale terms so that they are less favorable to Council
Tree or the Council Tree Entity than those offered to the Company, then Council
Tree must offer the Company the opportunity to match such terms pursuant to the
procedure set forth above; and (iii) if the proposed transaction with the third
party is not concluded, any other potential sales will be subject to the
provisions of this Section 8.3.1.

                                   ARTICLE 9

                                 MISCELLANEOUS

     9.1  Term.  The term of this Agreement shall be the maximum term permitted
          ----
under Delaware law (unless terminated earlier by the unanimous written consent
of the Stockholders).

     9.2  Remedies.  Each Party hereto acknowledges that money damages would not
          --------
be an adequate remedy in the event that any of the covenants or agreements in
this Agreement are not performed in accordance with its terms and that the non-
breaching party(ies) would suffer irreparable injury in such event, and it is
therefore agreed that, in addition to and without limiting any other remedy or
right it may have, the non-breaching party(ies) will have the right to an
injunction, temporary restraining order or other equitable relief in any court
of competent jurisdiction enjoining any such breach and enforcing specifically
the terms and provisions hereof.

               (a)  All rights, powers and remedies provided under this
Agreement or otherwise available in respect hereof at law or in equity shall be
cumulative and not alternative, and the exercise or beginning of the exercise of
any thereof by any party shall not preclude the simultaneous or later exercise
of any other such right, power or remedy by such party.

               (b)  Notwithstanding any other provision of this Agreement, no
party shall have the right to terminate this Agreement in the event of a breach
of another party.

                                      32
<PAGE>

     9.3  Legends.
          --------

               (a)  After the date hereof and upon original issuance thereof,
and until such time as the same is no longer required hereunder or under the
applicable requirements of the Securities Act or applicable state securities or
"blue sky" laws, any certificate issued representing any shares of Company Stock
held by a Stockholder or any Permitted Transferee (including all certificates
issued upon Transfer) shall bear the following legend:

          "THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
          TO VOTING AGREEMENTS AND RESTRICTIONS ON TRANSFER SET
          FORTH IN A CERTAIN AMENDED AND RESTATED STOCKHOLDERS'
          AGREEMENT DATED AS OF MAY 31, 2001 AMONG SONY PICTURES
          ENTERTAINMENT INC., LIBERTY MEDIA CORPORATION, BRON-
          VILLANUEVA CAPITAL, LLC, COUNCIL TREE HISPANIC
          BROADCASTERS II, L.L.C.,BASTION CAPITAL FUND, L.P., BCF
          MEDIA, LLC, TLMD LLC, VILLANUEVA INVESTMENTS, INC., THE
          BRON 2000 TRUST, STATION PARTNERS, LLC AND TELEMUNDO
          COMMUNICATIONS GROUP, INC., A COPY OF WHICH IS ON FILE
          AT THE PRINCIPAL OFFICE OF TELEMUNDO COMMUNICATIONS
          GROUP, INC."

               (b)  The certificates representing the shares of Company Stock
(including any certificate issued upon Transfer) shall also bear any legend
required under any applicable state securities or "blue sky" laws.

               (c)  The Company may make a notation on its records or give
instructions to any transfer agents or registrars for the Company Stock in order
to implement the restrictions on Transfer set forth in this Agreement.

               (d)  In connection with any Transfer of Company Stock, the
transferor shall provide the Company with such customary certificates, opinions
and other documents as the Company may reasonably request to assure that such
Transfer complies fully with applicable securities and other laws.

               (e)  The Company shall not incur any liability for any delay in
recognizing any Transfer of Company Stock if the Company in good faith
reasonably believes that such Transfer may have been or would be in violation in
any material respect of the provisions of the Securities Act, applicable state
securities or "blue sky" laws, or this Agreement.

     9.4  Reimbursement of Costs.  The Company will reimburse Station Partners
          ----------------------
for its ordinary course audit and related expenses in an annual amount not to
exceed $30,000.

     9.5  Notices.  Any notice to be given or to be served upon the Company or
          -------
any Party hereto in connection with this Agreement must be in writing (which may
include facsimile) and will be deemed to have been given (i) if personally
delivered, on the date received or refused, when delivered to the address
specified by the party to receive the notice, (ii) if sent by facsimile, once

                                      33
<PAGE>

such notice or other communication is transmitted to the facsimile number
specified below, and the appropriate written facsimile confirmation is received,
provided that such notice or other communication is promptly thereafter mailed
by United States mail, postage prepaid, or (iii) if sent by a prepaid overnight
delivery service under circumstances by which such service guarantees next
Business Day delivery, the date received or refused. Such notices will be given
to a party and to its respective counsel at the addresses specified below. Any
party may, at any time by giving five days' prior written notice to the other
Parties, designate any other address in substitution of the below-specified
address to which such notice will be given.

                         (a) If to Liberty, to:
                         ----------------------

                         Liberty Media Corporation
                         9197 South Peoria Street
                         Englewood, Colorado 80112
                         Facsimile No.: (720) 875-5448
                         Attention:  David Koff

                         with a copy (which shall not constitute notice) to:
                         Liberty Media Corporation
                         9197 South Peoria Street
                         Englewood, Colorado 80112
                         Attention: Charles Tanabe
                         Facsimile: (720) 875-5382

                         with a copy (which shall not constitute notice) to:

                         Skadden, Arps, Slate, Meagher & Flom LLP
                         300 South Grand Avenue
                         Suite 3400
                         Los Angeles, California 90071
                         Facsimile No.: (213) 687-7650
                         Attention: Rod Guerra

                         (b) If to SPE, to:
                         ------------------

                         Sony Pictures Entertainment Inc.
                         9336 West Washington Boulevard
                         Culver City, California 90232
                         Facsimile No.: (310) 202-3404
                         Attention: Len Grossi

                                      34
<PAGE>

                             with a copy (which shall not constitute notice) to:

                             Sony Pictures Entertainment Inc.
                             10202 West Washington Boulevard
                             Culver City, California 90232
                             Facsimile: (310) 244-0510
                             Attention: General Counsel

                             (c) If to Council Tree or Station Partners, to:
                             ----------------------------------------------

                             Council Tree Hispanic Broadcasters II, L.L.C.
                             2919 17th Avenue
                             Suite 211
                             Longmont, CO 80503
                             Facsimile No.: (303) 678-1859
                             Attention: Steve Hillard

                             with a copy (which shall not constitute notice) to:

                             Kirkland & Ellis
                             Citigroup Center
                             153 E. 53rd Street
                             New York, New York 10022
                             Facsimile No.: (212) 446-6460
                             Attention: Mike Brosse

                             (d) If to Bastion or BCF or Bron Trust or VII, to:
                             --------------------------------------------------

                             Bastion Capital Fund, L.P.
                             1901 Avenue of the Stars, Suite 400
                             Los Angeles, California 90067
                             Attention: Guillermo Bron
                             Facsimile: (310) 277-7582

                             with a copy (which shall not constitute notice) to:

                             Irell & Manella LLP
                             1800 Avenue of the Stars, Suite 900
                             Los Angeles, California 90067
                             Facsimile: (310) 203-7199
                             Attention: Eric A. Webber

                                      35
<PAGE>

                             (e) If to BV Capital, to:
                             -------------------------

                             Bron-Villanueva Capital, LLC
                             1901 Avenue of the Stars, Suite 400
                             Los Angeles, California 90067
                             Attention: Guillermo Bron
                             Facsimile: (310) 277-7582

                             with a copy (which shall not constitute notice) to:

                             Irell & Manella LLP
                             1800 Avenue of the Stars, Suite 900
                             Los Angeles, California 90067
                             Facsimile: (310) 203-7199
                             Attention: Eric A. Webber

                             (f) If to TLMD, to:
                             -------------------

                             TLMD LLC
                             1901 Avenue of the Stars, Suite 400
                             Los Angeles, California 90067
                             Attention: Guillermo Bron
                             Facsimile: (310) 277-7582

                             with a copy (which shall not constitute notice)
                             to each:

                             Irell & Manella LLP
                             1800 Avenue of the Stars, Suite 900
                             Los Angeles, California 90067
                             Facsimile: (310) 203-7199
                             Attention: Eric A. Webber

                             and
                             Office of General Counsel
                             Merrill Lynch
                             4 World Financial Center, 12/th/ Floor
                             New York, NY 10080
                             Facsimile: (212) 449-3207
                             Attention: Conrad P. Rubin

                             (g) If to the Company, to:
                             -------------------------

                             Telemundo Communications Group, Inc.
                             2290 West 8th Avenue
                             Hialeah, Florida 33010
                             Facsimile: (305) 889-7997
                             Attention: Chief Executive Officer

                                      36
<PAGE>

     9.6   Complete Agreement.  This Agreement constitutes the complete and
           ------------------
exclusive agreement among the Parties with respect to the subject matter herein
and replaces and supersedes all prior written and oral agreements or statements
by and among the Parties or any of them, including the Original Agreement. No
representation, statement, condition or warranty not contained in this Agreement
shall be binding on the Parties or have any force or effect whatsoever. To the
extent that any provision of the Certificate of Incorporation conflicts with any
provision of this Agreement, the Certificate of Incorporation shall control.

     9.7   Governing Law.  THE PROVISIONS OF THIS AGREEMENT SHALL BE GOVERNED BY
           -------------
AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE LAWS OF THE STATE OF
CALIFORNIA APPLICABLE TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, SAID
STATE, WITHOUT GIVING EFFECT TO CONFLICTS OF LAW PRINCIPLES THEREOF. THE
CORPORATE GOVERNANCE PROVISIONS OF THIS AGREEMENT RELATING TO THE COMPANY SHALL
BE GOVERNED BY AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH THE DELAWARE
GENERAL CORPORATION LAW.

     9.8   Binding Effect.  Subject to the provisions of this Agreement relating
           --------------
to transferability, this Agreement shall be binding upon and inure to the
benefit of the Parties, and their respective successors and assigns.

     9.9   Pronouns; Statutory References.  All pronouns and all variations
           ------------------------------
thereof shall be deemed to refer to the masculine, feminine, or neuter, singular
or plural, as the context in which they are used may require, unless otherwise
expressly provided herein.  Any reference to the Code, the Regulations, the Act
or other statutes or laws include all amendments, modifications, or replacements
of the specific sections and provisions concerned.

     9.10  Headings.  All headings herein are inserted only for convenience and
           --------
ease of reference and are not to be considered in the construction or
interpretation of any provision of this Agreement.

     9.11  Interpretation.  In the event any claim is made by any party relating
           --------------
to any conflict, omission or ambiguity in this Agreement, no presumption or
burden of proof or persuasion shall be implied by virtue of the fact that this
Agreement was prepared by or at the request of a particular party or its
counsel.

     9.12  References to this Agreement.  Numbered or lettered articles,
           ----------------------------
sections and subsections herein contained refer to articles, sections and
subsections of this Agreement unless otherwise expressly stated.

     9.13  Jurisdiction.  Each Party hereby consents exclusively to the
           ------------
jurisdiction of the state and federal courts sitting in Los Angeles County,
California in any action on a claim arising out of, under or in connection with
this Agreement or the transactions contemplated by this Agreement. Each Party
further agrees that personal jurisdiction over it may be effected by service of
process by registered or certified mail addressed as provided in this Agreement,
and that when so made shall be as if served upon it personally within the State
of California.

                                      37
<PAGE>

     9.14  Severability.  If any provision of this Agreement or the application
           ------------
of any such provision to any Person or circumstance shall be held invalid, the
remainder of this Agreement or the application of such provision to Persons or
circumstances other than those to which it is held invalid shall not be affected
thereby.

     9.15  Additional Documents and Acts.  Each Party agrees to execute and
           -----------------------------
deliver such additional documents and instruments and to perform such additional
acts as may be reasonably necessary or appropriate in accordance with the terms
of this Agreement to effectuate, carry out and perform all of the terms,
provisions, and conditions of this Agreement and the transactions contemplated
hereby.

     9.16  Amendments.  All amendments to this Agreement must be in writing and
           ----------
signed by all of the Parties.

     9.17  Reliance on Authority of Person Signing Agreement.  If a Party is not
           -------------------------------------------------
a natural Person, neither the Company nor any Party shall be required to
determine the authority of the individual signing this Agreement to make any
commitment or undertaking on behalf of such entity or to determine any fact or
circumstance bearing upon the existence of the authority of such individual.

     9.18  Multiple Counterparts.  This Agreement may be executed in two or more
           ---------------------
counterparts, each of which shall be deemed an original, with the same effect as
if the signatures thereto and hereto were upon the same instrument. This
Agreement shall become effective when each Party shall have received a
counterpart signed by each other Party hereto.

     9.19  No Third Party Beneficiary.  Subject to Section 9.20 below, this
           --------------------------
Agreement is not intended and shall not be construed to be for the benefit of
any creditors or other Persons (other than the Parties in their capacity as
such) to whom any debts, liabilities or obligations are owed by (or who
otherwise has any claim against) the Company or any of the Parties and no such
creditor or other Person shall obtain any right under any such provision, or
shall by reason of any such provision make any claim in respect of any debt,
liability or obligation, or otherwise, against the Company or the Parties.

     9.20  Merrill Lynch International.
           ----------------------------

           9.20.1  Upon consummation of the sale contemplated by the prepaid
forward transaction with Merrill Lynch International ("MLI"), through its agent
Merrill Lynch, Pierce, Fenner & Smith Incorporated ("MLPF&S"), with respect to
all of the Company Stock owned by BV Capital and subject to the BV Capital
Put/Call Agreement pursuant to Confirmations dated as of December 15, 2000, and
the related ISDA Master Agreement, Schedules and other related documents, if MLI
(or one of its Affiliates) takes physical settlement of all of the shares of
Company Stock owned by BV Capital and subject to the BV Capital Put/Call
Agreement, then MLI (or such MLI Affiliate) shall be deemed for the purposes of
this Agreement, the Registration Rights Agreement and the BV Capital Put/Call
Agreement to be a BV Capital Controlled Affiliate; provided, however, that at no
time shall MLI (or such MLI Affiliate) be subject to Article 5 of this
Agreement.

                                      38
<PAGE>

     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement to be
effective as of the Effective Date.

TELEMUNDO COMMUNICATIONS                    COUNCIL TREE HISPANIC
GROUP, INC.                                 BROADCASTERS II, L.L.C.

By: /s/ Vincent L. Sadusky                  By: /s/ Steve Hillard
    ---------------------------------           --------------------------------
    Name:  Vincent L. Sadusky                   Name:  Steve Hillard
    Title: C.F.O. and Treasurer                 Title: Chief Executive Officer

THE BRON 2000 TRUST DATED                   TLMD LLC
SEPTEMBER 29, 2000
                                            By: DDG Capital, LLC, as Manager

By: /s/ William (Guillermo) Bron            By: /s/ William (Guillermo) Bron
    ---------------------------------           --------------------------------
    Name:  William (Guillermo) Bron             Name:  William (Guillermo) Bron
    Title: Trustee                              Title: its Manager

                                             By: /s/ Daniel D. Villanueva
                                                 -------------------------------
                                                 Name:  Daniel D. Villanueva
                                                 Title: its Manager

VILLANUEVA INVESTMENTS, INC.                BRON-VILLANUEVA CAPITAL, LLC

By: /s/ Daniel D. Villanueva                By: /s/ William (Guillermo) Bron
    ---------------------------------           --------------------------------
    Name:  Daniel D. Villanueva                 Name:  William (Guillermo) Bron
    Title: President                            Title: a Control Manager

SONY PICTURES ENTERTAINMENT INC.            LIBERTY MEDIA CORPORATION

By: /s/ Leah Weil                           By: /s/ David B. Koff
    ---------------------------------           --------------------------------
    Name:  Leah Weil                            Name:  David B. Koff
    Title: Senior Vice President and            Title: Senior Vice President
           Assistant Secretary
<PAGE>

BCF MEDIA, LLC                            STATION PARTNERS, LLC

By: /s/ William (Guillermo) Bron
    ---------------------------------
    Name:  William (Guillermo) Bron       By: Council Tree Hispanic Broadcasters
    Title: Manager                            II, L.L.C., as Managing Member

By: /s/ Daniel D. Villanueva
    --------------------------------          By: /s/ Steve Hillard
    Name:  Daniel D. Villanueva                   ------------------------------
    Title: Manager                                Name:  Steve Hillard
                                                  Title: Chief Executive Officer

BASTION CAPITAL FUND, L.P.

By:  Bastion Partners, L.P.,
     Its General Partner

     By:  Bron Corp.,
          Its Co-general Partner

          By: /s/ William (Guillermo) Bron
              -------------------------------------
              William (Guillermo) Bron, President

     By:  Villanueva Investments, Inc.,
          Its Co-general Partner

          By: /s/ Daniel D. Villanueva
              -------------------------------------
              Daniel D. Villanueva, President

With respect to Article 5 hereof,

/s/ Steve Hillard
------------------------------------
Steve Hillard<PAGE>

                                                                     Exhibit 4.1
                                                                     -----------

                             REDBACK NETWORKS INC.

                                      and

                US STOCK TRANSFER CORPORATION, as Rights Agent

                               RIGHTS AGREEMENT

                           Dated as of June 12, 2001
<PAGE>

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

<TABLE>
<CAPTION>
                                                                                                                     Page
                                                                                                                     ----
<S>                                                                                                                  <C>
Section 1.      Certain Definitions..............................................................................       1

Section 2.      Appointment of Rights Agent......................................................................       5

Section 3.      Issue of Right Certificates......................................................................       5

Section 4.      Form of Right Certificates.......................................................................       7

Section 5.      Countersignature and Registration................................................................       7

Section 6.      Transfer, Split Up, Combination and Exchange of Right Certificates; Mutilated, Destroyed,
                Lost or Stolen Right Certificates................................................................       8

Section 7.      Exercise of Rights, Purchase Price; Expiration Date of Rights....................................       8

Section 8.      Cancellation and Destruction of Right Certificates...............................................       9

Section 9.      Availability of Shares of Preferred Stock........................................................      10

Section 10.     Preferred Stock Record Date......................................................................      11

Section 11.     Adjustment of Purchase Price, Number and Kind of Shares and Number of Rights.....................      11

Section 12.     Certificate of Adjusted Purchase Price or Number of Shares.......................................      18

Section 13.     Consolidation, Merger or Sale or Transfer of Assets or Earning Power.............................      18

Section 14.     Fractional Rights and Fractional Shares..........................................................      22

Section 15.     Rights of Action.................................................................................      23

Section 16.     Agreement of Right Holders.......................................................................      23

Section 17.     Right Certificate Holder Not Deemed a Stockholder................................................      23

Section 18.     Concerning the Rights Agent......................................................................      24

Section 19.     Merger or Consolidation or Change of Name of Rights Agent........................................      24

Section 20.     Duties of Rights Agent...........................................................................      25

Section 21.     Change of Rights Agent...........................................................................      27

Section 22.     Issuance of New Right Certificates...............................................................      27
</TABLE>

                                       i
<PAGE>

<TABLE>
<S>                                                                                                                    <C>
Section 23.     Redemption.......................................................................................      28

Section 24.     Exchange.........................................................................................      28

Section 25.     Notice of Certain Events.........................................................................      29

Section 26.     Notices..........................................................................................      30

Section 27.     Supplements and Amendments.......................................................................      30

Section 28.     Successors.......................................................................................      31

Section 29.     Benefits of this Agreement.......................................................................      31

Section 30.     Determinations and Actions by the Board of Directors.............................................      31

Section 31.     Severability.....................................................................................      31

Section 32.     Governing Law....................................................................................      31

Section 33.     Counterparts.....................................................................................      32

Section 34.     Descriptive Headings.............................................................................      32
</TABLE>

                                      ii
<PAGE>

                               RIGHTS AGREEMENT
                               ----------------

          Rights Agreement, dated as of June 12, 2001 ("Agreement"), between
Redback Networks Inc., a Delaware corporation (the "Company"), and US Stock
Transfer Corporation, as Rights Agent (the "Rights Agent").

          The Board of Directors of the Company has authorized and declared a
dividend of one preferred share purchase right (a "Right") for each share of
Common Stock (as hereinafter defined) of the Company outstanding as of the Close
of Business (as defined below) on June 27, 2001 (the "Record Date"), each Right
representing the right to purchase one one-thousandth (subject to adjustment) of
a share of Preferred Stock (as hereinafter defined), upon the terms and subject
to the conditions herein set forth, and has further authorized and directed the
issuance of one Right (subject to adjustment as provided herein) with respect to
each share of Common Stock that shall become outstanding between the Record Date
and the earlier of the Distribution Date and the Expiration Date (as such terms
are hereinafter defined); provided, however, that Rights may be issued with
                          --------
respect to shares of Common Stock that shall become outstanding after the
Distribution Date and prior to the Expiration Date in accordance with Section
22.

          Accordingly, in consideration of the premises and the mutual
agreements herein set forth, the parties hereby agree as follows:

          Section 1. Certain Definitions. For purposes of this Agreement, the
                     -------------------
following terms have the meaning indicated:

          (a)  "Acquiring Person" shall mean any Person (as such term is
hereinafter defined) who or which shall be the Beneficial Owner (as such term is
hereinafter defined) of 15% or more of the shares of Common Stock then
outstanding, but shall not include an Exempt Person (as such term is hereinafter
defined); provided, however, that (i) if the Board of Directors of the Company
          --------  -------
determines in good faith that a Person who would otherwise be an "Acquiring
Person" became the Beneficial Owner of a number of shares of Common Stock such
that the Person would otherwise qualify as an "Acquiring Person" inadvertently
(including, without limitation, because (A) such Person was unaware that it
beneficially owned a percentage of Common Stock that would otherwise cause such
Person to be an "Acquiring Person" or (B) such Person was aware of the extent of
its Beneficial Ownership of Common Stock but had no actual knowledge of the
consequences of such Beneficial Ownership under this Agreement) and without any
intention of changing or influencing control of the Company, then such Person
shall not be deemed to be or to have become an "Acquiring Person" for any
purposes of this Agreement unless and until such Person shall have failed to
divest itself, as soon as practicable (as determined, in good faith, by the
Board of Directors of the Company), of Beneficial Ownership of a sufficient
number of shares of Common Stock so that such Person would no longer otherwise
qualify as an "Acquiring Person"; (ii) if, as of the date hereof or prior to the
first public announcement of the adoption of this Agreement, any Person is or
becomes the Beneficial Owner of 15% or more of the shares of Common Stock
outstanding, such Person shall not be deemed to be or to become an "Acquiring
Person" unless and until such time as such Person shall, after the first public
announcement of the adoption of this Agreement, become the Beneficial Owner of
additional shares of Common Stock (other than pursuant to a dividend or
<PAGE>

distribution paid or made by the Company on the outstanding Common Stock or
pursuant to a split or subdivision of the outstanding Common Stock), unless,
upon becoming the Beneficial Owner of such additional shares of Common Stock,
such Person is not then the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding; and (iii) no Person shall become an "Acquiring
Person" as the result of an acquisition of shares of Common Stock by the Company
which, by reducing the number of shares outstanding, increases the proportionate
number of shares of Common Stock beneficially owned by such Person to 15% or
more of the shares of Common Stock then outstanding, provided, however, that if
                                                     --------  -------
a Person shall become the Beneficial Owner of 15% or more of the shares of
Common Stock then outstanding by reason of such share acquisitions by the
Company and shall thereafter become the Beneficial Owner of any additional
shares of Common Stock (other than pursuant to a dividend or distribution paid
or made by the Company on the outstanding Common Stock or pursuant to a split or
subdivision of the outstanding Common Stock), then such Person shall be deemed
to be an "Acquiring Person" unless upon becoming the Beneficial Owner of such
additional shares of Common Stock such Person does not beneficially own 15% or
more of the shares of Common Stock then outstanding. For all purposes of this
Agreement, any calculation of the number of shares of Common Stock outstanding
at any particular time, including for purposes of determining the particular
percentage of such outstanding shares of Common Stock of which any Person is the
Beneficial Owner, shall be made in accordance with the last sentence of Rule
13d-3(d)(1)(i) of the General Rules and Regulations under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date
hereof.

          (b)  "Affiliate" and "Associate" shall have the respective meanings
ascribed to such terms in Rule 12b-2 of the General Rules and Regulations under
the Exchange Act, as in effect on the date hereof.

          (c)  A Person shall be deemed the "Beneficial Owner" of, shall be
deemed to have "Beneficial Ownership" of and shall be deemed to "beneficially
own" any securities:

               (i)    which such Person or any of such Person's Affiliates or
Associates is deemed to beneficially own, directly or indirectly, within the
meaning of Rule l3d-3 of the General Rules and Regulations under the Exchange
Act as in effect on the date hereof;

               (ii)   which such Person or any of such Person's Affiliates or
Associates has (A) the right to acquire (whether such right is exercisable
immediately or only after the passage of time) pursuant to any agreement,
arrangement or understanding (other than customary agreements with and between
underwriters and selling group members with respect to a bona fide public
offering of securities), or upon the exercise of conversion rights, exchange
rights, rights, warrants or options, or otherwise; provided, however, that a
                                                   --------  -------
Person shall not be deemed the Beneficial Owner of, or to beneficially own, (x)
securities tendered pursuant to a tender or exchange offer made by or on behalf
of such Person or any of such Person's Affiliates or Associates until such
tendered securities are accepted for purchase, (y) securities which such Person
has a right to acquire upon the exercise of Rights at any time prior to the time
that any Person becomes an Acquiring Person or (z) securities issuable upon the
exercise of Rights from and after the time that any Person becomes an Acquiring
Person if such Rights were acquired by such Person or any of such Person's
Affiliates or Associates prior to the Distribution Date or pursuant to Section
3(a) or Section 22 hereof ("Original Rights") or pursuant to Section 11(i) or

                                       2
<PAGE>

Section 11(n) with respect to an adjustment to Original Rights; or (B) the right
to vote pursuant to any agreement, arrangement or understanding; provided,
                                                                 --------
however, that a Person shall not be deemed the Beneficial Owner of, or to
-------
beneficially own, any security by reason of such agreement, arrangement or
understanding if the agreement, arrangement or understanding to vote such
security (1) arises solely from a revocable proxy or consent given to such
Person in response to a public proxy or consent solicitation made pursuant to,
and in accordance with, the applicable rules and regulations promulgated under
the Exchange Act and (2) is not also then reportable on Schedule 13D under the
Exchange Act (or any comparable or successor report); or

               (iii)  which are beneficially owned, directly or indirectly, by
any other Person and with respect to which such Person or any of such Person's
Affiliates or Associates has any agreement, arrangement or understanding (other
than customary agreements with and between underwriters and selling group
members with respect to a bona fide public offering of securities) for the
purpose of acquiring, holding, voting (except to the extent contemplated by the
proviso to Section 1(c)(ii)(B)) or disposing of such securities of the Company;

provided, however, that no Person who is an officer, director or employee of an
--------  -------
Exempt Person shall be deemed, solely by reason of such Person's status or
authority as such, to be the "Beneficial Owner" of, to have "Beneficial
Ownership" of or to "beneficially own" any securities that are "beneficially
owned" (as defined in this Section l(c)), including, without limitation, in a
fiduciary capacity, by an Exempt Person or by any other such officer, director
or employee of an Exempt Person.

          (d)  "Business Day" shall mean any day other than a Saturday, a Sunday
or a day on which banking institutions in the State of New York or the city in
which the principal office of the Rights Agent is located are authorized or
obligated by law or executive order to close.

          (e)  "Close of Business" on any given date shall mean 5:00 P.M., New
York City time, on such date; provided, however, that if such date is not a
                              --------  -------
Business Day it shall mean 5:00 P.M., New York City time, on the next succeeding
Business Day.

          (f)  "Common Stock" when used with reference to the Company shall mean
the Common Stock, presently par value $.0001 per share, of the Company. "Common
Stock" when used with reference to any Person other than the Company shall mean
the common stock (or, in the case of an unincorporated entity, the equivalent
equity interest) with the greatest voting power of such other Person or, if such
other Person is a Subsidiary of another Person, the Person or Persons which
ultimately control such first-mentioned Person.

          (g)  "Common Stock Equivalents" shall have the meaning set forth in
Section 11(a)(iii) hereof.

          (h)  "Current Value" shall have the meaning set forth in Section
11(a)(iii) hereof.

          (i)  "Distribution Date" shall have the meaning set forth in Section 3
hereof.

                                       3
<PAGE>

          (j)  "Equivalent Preferred Shares" shall have the meaning set forth in
Section 11(b) hereof.

          (k)  "Exempt Person" shall mean the Company or any Subsidiary (as such
term is hereinafter defined) of the Company, in each case including, without
limitation, in its fiduciary capacity, or any employee benefit plan of the
Company or of any Subsidiary of the Company, or any entity or trustee holding
Common Stock for or pursuant to the terms of any such plan or for the purpose of
funding any such plan or funding other employee benefits for employees of the
Company or of any Subsidiary of the Company.

          (l)  "Exchange Ratio" shall have the meaning set forth in Section 24
hereof.

          (m)  "Expiration Date" shall have the meaning set forth in Section 7
hereof.

          (n)  "Final Expiration Date" shall have the meaning set forth in
Section 7 hereof.

          (o)  "Flip-In Event" shall have the meaning set forth in Section
11(a)(ii) hereof.

          (p)  "NASDAQ" shall mean The Nasdaq Stock Market.

          (q)  "New York Stock Exchange" shall mean the New York Stock Exchange,
Inc.

          (r)  "Person" shall mean any individual, firm, corporation,
partnership, limited liability company, trust or other entity, and shall include
any successor (by merger or otherwise) to such entity.

          (s)  "Preferred Stock" shall mean the Series A Junior Participating
Preferred Stock, par value $.0001 per share, of the Company having the rights
and preferences set forth in the Form of Certificate of Designation attached to
this Agreement as Exhibit A.

          (t)  "Principal Party" shall have the meaning set forth in Section
13(b) hereof.

          (u)  "Purchase Price" shall have the meaning set forth in Section 7(b)
hereof.

          (v)  "Redemption Date" shall have the meaning set forth in Section 7
hereof.

          (w)  "Redemption Price" shall have the meaning set forth in Section 23
hereof.

          (x)  "Right Certificate" shall have the meaning set forth in Section 3
hereof.

          (y)  "Securities Act" shall mean the Securities Act of 1933, as
amended.

          (z)  "Section 11(a)(ii) Trigger Date" shall have the meaning set forth
in Section 11(a)(iii) hereof.

          (aa) "Spread" shall have the meaning set forth in Section 11(a)(iii)
hereof.

                                       4
<PAGE>

          (bb) "Stock Acquisition Date" shall mean the first date of public
announcement (which, for purposes of this definition, shall include, without
limitation, a report filed pursuant to Section 13(d) of the Exchange Act) by the
Company or an Acquiring Person that an Acquiring Person has become such, or such
earlier date as a majority of the Board of Directors shall become aware of the
existence of an Acquiring Person.

          (cc) "Subsidiary" of any Person shall mean any corporation or other
entity of which securities or other ownership interests having ordinary voting
power sufficient to elect a majority of the board of directors or other persons
performing similar functions are beneficially owned, directly or indirectly, by
such Person, and any corporation or other entity that is otherwise controlled by
such Person.

          (dd) "Substitution Period" shall have the meaning set forth in Section
11(a)(iii) hereof.

          (ee) "Summary of Rights" shall have the meaning set forth in Section 3
hereof.

          (ff) "Trading Day" shall have the meaning set forth in Section
11(d)(i) hereof.

          Section 2. Appointment of Rights Agent. The Company hereby appoints
                     ---------------------------
the Rights Agent to act as agent for the Company and the holders of the Rights
(who, in accordance with Section 3 hereof, shall prior to the Distribution Date
be the holders of Common Stock) in accordance with the terms and conditions
hereof, and the Rights Agent hereby accepts such appointment. The Company may
from time to time appoint such co-Rights Agents as it may deem necessary or
desirable.

          Section 3. Issue of Right Certificates.
                     ---------------------------

          (a)  Until the Close of Business on the earlier of (i) the tenth day
after the Stock Acquisition Date or (ii) the tenth Business Day (or such later
date as may be determined by action of the Board of Directors prior to such time
as any Person becomes an Acquiring Person) after the date of the commencement by
any Person (other than an Exempt Person) of, or of the first public announcement
of the intention of such Person (other than an Exempt Person) to commence, a
tender or exchange offer the consummation of which would result in any Person
(other than an Exempt Person) becoming the Beneficial Owner of shares of Common
Stock aggregating 15% or more of the Common Stock then outstanding (the earlier
of such dates being herein referred to as the "Distribution Date", provided,
                                                                   --------
however, that if either of such dates occurs after the date of this Agreement
-------
and on or prior to the Record Date, then the Distribution Date shall be the
Record Date), (x) the Rights will be evidenced (subject to the provisions of
Section 3(b) hereof) by the certificates for Common Stock registered in the
names of the holders thereof and not by separate Right Certificates, and (y) the
Rights will be transferable only in connection with the transfer of Common
Stock. As soon as practicable after the Distribution Date, the Company will
prepare and execute, the Rights Agent will countersign and the Company will send
or cause to be sent (and the Rights Agent will, if requested, send) by
first-class, insured, postage-prepaid mail, to each record holder of Common
Stock as of the close of business on the Distribution Date (other than any
Acquiring Person or any Associate or Affiliate of an Acquiring Person), at the
address of such holder shown on the records of the

                                       5
<PAGE>

Company, a Right Certificate, in substantially the form of Exhibit B hereto (a
"Right Certificate"), evidencing one Right (subject to adjustment as provided
herein) for each share of Common Stock so held. As of the Distribution Date, the
Rights will be evidenced solely by such Right Certificates.

          (b)  On the Record Date, or as soon as practicable thereafter, the
Company will send a copy of a Summary of Rights to Purchase Shares of Preferred
Stock, in substantially the form of Exhibit C hereto (the "Summary of Rights"),
by first-class, postage-prepaid mail, to each record holder of Common Stock as
of the Close of Business on the Record Date (other than any Acquiring Person or
any Associate or Affiliate of any Acquiring Person), at the address of such
holder shown on the records of the Company. With respect to certificates for
Common Stock outstanding as of the Record Date, until the Distribution Date, the
Rights will be evidenced by such certificates registered in the names of the
holders thereof together with the Summary of Rights. Until the Distribution Date
(or, if earlier, the Expiration Date), the surrender for transfer of any
certificate for Common Stock outstanding on the Record Date, with or without a
copy of the Summary of Rights, shall also constitute the transfer of the Rights
associated with the Common Stock represented thereby.

          (c)  Rights shall be issued in respect of all shares of Common Stock
issued or disposed of (including, without limitation, upon disposition of Common
Stock out of treasury stock or issuance or reissuance of Common Stock out of
authorized but unissued shares) after the Record Date but prior to the earlier
of the Distribution Date and the Expiration Date, or in certain circumstances
provided in Section 22 hereof, after the Distribution Date. Certificates issued
for Common Stock (including, without limitation, upon transfer of outstanding
Common Stock, disposition of Common Stock out of treasury stock or issuance or
reissuance of Common Stock out of authorized but unissued shares) after the
Record Date but prior to the earlier of the Distribution Date and the Expiration
Date shall have impressed on, printed on, written on or otherwise affixed to
them the following legend:

          This certificate also evidences and entitles the holder
          hereof to certain rights as set forth in a Rights Agreement
          between Redback Networks Inc. (the "Company") and US Stock
          Transfer Corporation, as Rights Agent, dated as of June 12,
          2001 and as amended from time to time (the "Rights
          Agreement"), the terms of which are hereby incorporated
          herein by reference and a copy of which is on file at the
          principal executive offices of the Company. Under certain
          circumstances, as set forth in the Rights Agreement, such
          Rights will be evidenced by separate certificates and will
          no longer be evidenced by this certificate. The Company will
          mail to the holder of this certificate a copy of the Rights
          Agreement without charge after receipt of a written request
          therefor. Under certain circumstances, as set forth in the
                    ------------------------------------------------
          Rights Agreement, Rights owned by or transferred to any
          -------------------------------------------------------
          Person who is or becomes an Acquiring Person (as defined in
          -----------------------------------------------------------
          the Rights Agreement) and certain transferees thereof will
          ----------------------------------------------------------
          become null and void and will no longer be transferable.
          -------------------------------------------------------

                                  6
<PAGE>

With respect to such certificates containing the foregoing legend, until the
Distribution Date the Rights associated with the Common Stock represented by
such certificates shall be evidenced by such certificates alone, and the
surrender for transfer of any such certificate, except as otherwise provided
herein, shall also constitute the transfer of the Rights associated with the
Common Stock represented thereby. In the event that the Company purchases or
otherwise acquires any Common Stock after the Record Date but prior to the
Distribution Date, any Rights associated with such Common Stock shall be deemed
canceled and retired so that the Company shall not be entitled to exercise any
Rights associated with the Common Stock which are no longer outstanding.

          Notwithstanding this paragraph (c), the omission of a legend shall not
affect the enforceability of any part of this Agreement or the rights of any
holder of the Rights.

          Section 4. Form of Right Certificates. The Right Certificates
                     --------------------------
(and the forms of election to purchase shares and of assignment to be printed on
the reverse thereof) shall be substantially in the form set forth in Exhibit B
hereto and may have such marks of identification or designation and such
legends, summaries or endorsements printed thereon as the Company may deem
appropriate and as are not inconsistent with the provisions of this Agreement,
or as may be required to comply with any applicable law or with any rule or
regulation made pursuant thereto or with any rule or regulation of any stock
exchange or interdealer quotation system on which the Rights may from time to
time be listed or quoted, or to conform to usage. Subject to the provisions of
this Agreement, the Right Certificates shall entitle the holders thereof to
purchase such number of one one-thousandths of a share of Preferred Stock as
shall be set forth therein at the Purchase Price, but the number of such one
one-thousandths of a share of Preferred Stock and the Purchase Price shall be
subject to adjustment as provided herein.

          Section 5. Countersignature and Registration.
                     ---------------------------------
          (a)  The Right Certificates shall be executed on behalf of the Company
by the President of the Company, either manually or by facsimile signature,
shall have affixed thereto the Company's seal or a facsimile thereof and shall
be attested by the Secretary of the Company, either manually or by facsimile
signature. The Right Certificates shall be manually countersigned by the Rights
Agent and shall not be valid for any purpose unless countersigned. In case any
officer of the Company who shall have signed any of the Right Certificates shall
cease to be such officer of the Company before countersignature by the Rights
Agent and issuance and delivery by the Company, such Right Certificates,
nevertheless, may be countersigned by the Rights Agent and issued and delivered
by the Company with the same force and effect as though the Person who signed
such Right Certificates had not ceased to be such officer of the Company; and
any Right Certificate may be signed on behalf of the Company by any Person who,
at the actual date of the execution of such Right Certificate, shall be a proper
officer of the Company to sign such Right Certificate, although at the date of
the execution of this Agreement any such Person was not such an officer.

          (b)  Following the Distribution Date, the Rights Agent will keep or
cause to be kept, at an office or agency designated for such purpose, books for
registration and transfer of the Right Certificates issued hereunder. Such books
shall show the names and addresses of the

                                       7
<PAGE>

respective holders of the Right Certificates, the number of Rights evidenced on
its face by each of the Right Certificates and the date of each of the Right
Certificates.

          Section 6. Transfer, Split Up, Combination and Exchange of Right
                     -----------------------------------------------------
Certificates; Mutilated, Destroyed, Lost or Stolen Right Certificates.
---------------------------------------------------------------------

          (a)  Subject to the provisions of this Agreement, at any time after
the Distribution Date and prior to the Expiration Date, any Right Certificate or
Right Certificates may be transferred, split up, combined or exchanged for
another Right Certificate or Right Certificates, entitling the registered holder
to purchase a like number of one one-thousandths of a share of Preferred Stock
as the Right Certificate or Right Certificates surrendered then entitled such
holder to purchase. Any registered holder desiring to transfer, split up,
combine or exchange any Right Certificate or Right Certificates shall make such
request in writing delivered to the Rights Agent, and shall surrender the Right
Certificate or Right Certificates to be transferred, split up, combined or
exchanged at the office or agency of the Rights Agent designated for such
purpose. Thereupon the Rights Agent shall countersign and deliver to the Person
entitled thereto a Right Certificate or Right Certificates, as the case may be,
as so requested. The Company may require payment of a sum sufficient to cover
any tax or governmental charge that may be imposed in connection with any
transfer, split up, combination or exchange of Right Certificates.

          (b)  Subject to the provisions of this Agreement, at any time after
the Distribution Date and prior to the Expiration Date, upon receipt by the
Company and the Rights Agent of evidence reasonably satisfactory to them of the
loss, theft, destruction or mutilation of a Right Certificate, and, in case of
loss, theft or destruction, of indemnity or security reasonably satisfactory to
them, and, at the Company's request, reimbursement to the Company and the Rights
Agent of all reasonable expenses incidental thereto, and upon surrender to the
Rights Agent and cancellation of the Right Certificate if mutilated, the Company
will make and deliver a new Right Certificate of like tenor to the Rights Agent
for delivery to the registered holder in lieu of the Right Certificate so lost,
stolen, destroyed or mutilated.

          Section 7. Exercise of Rights, Purchase Price; Expiration Date of
                     ------------------------------------------------------
Rights.
------

          (a)  Except as otherwise provided herein, the Rights shall become
exercisable on the Distribution Date, and thereafter the registered holder of
any Right Certificate may, subject to Section 11(a)(ii) hereof and except as
otherwise provided herein, exercise the Rights evidenced thereby in whole or in
part upon surrender of the Right Certificate, with the form of election to
purchase on the reverse side thereof duly executed, to the Rights Agent at the
office or agency of the Rights Agent designated for such purpose, together with
payment of the aggregate Purchase Price with respect to the total number of one
one-thousandths of a share of Preferred Stock (or other securities, cash or
other assets, as the case may be) as to which the Rights are exercised, at any
time which is both after the Distribution Date and prior to the time (the
"Expiration Date") that is the earliest of (i) the Close of Business on July 14,
2011 (the "Final Expiration Date"), (ii) the time at which the Rights are
redeemed as provided in Section 23 hereof (the "Redemption Date") or (iii) the
time at which such Rights are exchanged as provided in Section 24 hereof.

                                       8
<PAGE>

          (b)  The Purchase Price shall be initially $83.28 for each one
one-thousandth of a share of Preferred Stock purchasable upon the exercise of a
Right. The Purchase Price and the number of one one-thousandths of a share of
Preferred Stock or other securities or property to be acquired upon exercise of
a Right shall be subject to adjustment from time to time as provided in Sections
11 and 13 hereof and shall be payable in lawful money of the United States of
America in accordance with paragraph (c) of this Section 7.

          (c)  Except as otherwise provided herein, upon receipt of a Right
Certificate representing exercisable Rights, with the form of election to
purchase duly executed, accompanied by payment of the aggregate Purchase Price
for the shares of Preferred Stock to be purchased and an amount equal to any
applicable transfer tax required to be paid by the holder of such Right
Certificate in accordance with Section 9 hereof, in cash or by certified check,
cashier's check or money order payable to the order of the Company, the Rights
Agent shall thereupon promptly (i) (A) requisition from any transfer agent of
the Preferred Stock, or make available if the Rights Agent is the transfer agent
for the Preferred Stock, certificates for the number of shares of Preferred
Stock to be purchased, and the Company hereby irrevocably authorizes its
transfer agent to comply with all such requests, or (B) requisition from a
depositary agent appointed by the Company depositary receipts representing
interests in such number of one one-thousandths of a share of Preferred Stock as
are to be purchased (in which case certificates for the Preferred Stock
represented by such receipts shall be deposited by the transfer agent with the
depositary agent), and the Company hereby directs any such depositary agent to
comply with such request, (ii) when appropriate, requisition from the Company
the amount of cash to be paid in lieu of issuance of fractional shares in
accordance with Section 14 hereof, (iii) promptly after receipt of such
certificates or depositary receipts, cause the same to be delivered to or upon
the order of the registered holder of such Right Certificate, registered in such
name or names as may be designated by such holder and (iv) when appropriate,
after receipt, promptly deliver such cash to or upon the order of the registered
holder of such Right Certificate.

          (d)  Except as otherwise provided herein, in case the registered
holder of any Right Certificate shall exercise less than all of the Rights
evidenced thereby, a new Right Certificate evidencing Rights equivalent to the
exercisable Rights remaining unexercised shall be issued by the Rights Agent to
the registered holder of such Right Certificate or to his duly authorized
assigns, subject to the provisions of Section 14 hereof.

          (e)  Notwithstanding anything in this Agreement to the contrary,
neither the Rights Agent nor the Company shall be obligated to undertake any
action with respect to a registered holder of Rights upon the occurrence of any
purported transfer or exercise of Rights pursuant to Section 6 hereof or this
Section 7 unless such registered holder shall have (i) completed and signed the
certificate contained in the form of assignment or form of election to purchase
set forth on the reverse side of the Right Certificate surrendered for such
transfer or exercise and (ii) provided such additional evidence of the identity
of the Beneficial Owner (or former Beneficial Owner) thereof as the Company
shall reasonably request.

          Section 8. Cancellation and Destruction of Right Certificates. All
                     --------------------------------------------------
Right Certificates surrendered for the purpose of exercise, transfer, split up,
combination or exchange shall, if surrendered to the Company or to any of its
agents, be delivered to the Rights Agent for cancellation or in canceled form,
or, if surrendered to the Rights Agent, shall be canceled by it,

                                       9
<PAGE>

and no Right Certificates shall be issued in lieu thereof except as expressly
permitted by any of the provisions of this Agreement. The Company shall deliver
to the Rights Agent for cancellation and retirement, and the Rights Agent shall
so cancel and retire, any other Right Certificate purchased or acquired by the
Company otherwise than upon the exercise thereof. The Rights Agent shall deliver
all canceled Right Certificates to the Company, or shall, at the written request
of the Company, destroy such canceled Right Certificates, and in such case shall
deliver a certificate of destruction thereof to the Company.

          Section 9. Availability of Shares of Preferred Stock.
                     -----------------------------------------

          (a)  The Company covenants and agrees that it will cause to be
reserved and kept available out of its authorized and unissued shares of
Preferred Stock or any shares of Preferred Stock held in its treasury, the
number of shares of Preferred Stock that will be sufficient to permit the
exercise in full of all outstanding Rights.

          (b)  So long as the shares of Preferred Stock issuable upon the
exercise of Rights may be listed or admitted to trading on any national
securities exchange, or quoted on NASDAQ, the Company shall use its best efforts
to cause, from and after such time as the Rights become exercisable, all shares
reserved for such issuance to be listed or admitted to trading on such exchange,
or quoted on NASDAQ, upon official notice of issuance upon such exercise.

          (c)  From and after such time as the Rights become exercisable, the
Company shall use its best efforts, if then necessary to permit the issuance of
shares of Preferred Stock upon the exercise of Rights, to register and qualify
such shares of Preferred Stock under the Securities Act and any applicable state
securities or "Blue Sky" laws (to the extent exemptions therefrom are not
available), cause such registration statement and qualifications to become
effective as soon as possible after such filing and keep such registration and
qualifications effective (with a prospectus at all times meeting the
requirements of the Securities Act) until the earlier of the date as of which
the Rights are no longer exercisable for such securities and the Expiration
Date. The Company may temporarily suspend, for a period of time not to exceed 90
days, the exercisability of the Rights in order to prepare and file a
registration statement under the Securities Act and permit it to become
effective. Upon any such suspension, the Company shall issue a public
announcement stating that the exercisability of the Rights has been temporarily
suspended, as well as a public announcement at such time as the suspension is no
longer in effect. Notwithstanding any provision of this Agreement to the
contrary, the Rights shall not be exercisable in any jurisdiction unless the
requisite qualification in such jurisdiction shall have been obtained and until
a registration statement under the Securities Act shall have been declared
effective, unless an exemption therefrom is available.

          (d)  The Company covenants and agrees that it will take all such
action as may be necessary to ensure that all shares of Preferred Stock
delivered upon exercise of Rights shall, at the time of delivery of the
certificates therefor (subject to payment of the Purchase Price), be duly and
validly authorized and issued and fully paid and nonassessable shares.

          (e)  The Company further covenants and agrees that it will pay when
due and payable any and all federal and state transfer taxes and charges which
may be payable in respect of the issuance or delivery of the Right Certificates
or of any shares of Preferred Stock upon the

                                      10
<PAGE>

exercise of Rights. The Company shall not, however, be required to pay any
transfer tax which may be payable in respect of any transfer or delivery of
Right Certificates to a Person other than, or the issuance or delivery of
certificates or depositary receipts for the Preferred Stock in a name other than
that of, the registered holder of the Right Certificate evidencing Rights
surrendered for exercise or to issue or deliver any certificates or depositary
receipts for Preferred Stock upon the exercise of any Rights until any such tax
shall have been paid (any such tax being payable by that holder of such Right
Certificate at the time of surrender) or until it has been established to the
Company's reasonable satisfaction that no such tax is due.

          Section 10. Preferred Stock Record Date. Each Person in whose name any
                      ---------------------------
certificate for Preferred Stock is issued upon the exercise of Rights shall for
all purposes be deemed to have become the holder of record of the shares of
Preferred Stock represented thereby on, and such certificate shall be dated, the
date upon which the Right Certificate evidencing such Rights was duly
surrendered and payment of the Purchase Price (and any applicable transfer
taxes) was made; provided, however, that if the date of such surrender and
                 --------  -------
payment is a date upon which the Preferred Stock transfer books of the Company
are closed, such Person shall be deemed to have become the record holder of such
shares on, and such certificate shall be dated, the next succeeding Business Day
on which the Preferred Stock transfer books of the Company are open. Prior to
the exercise of the Rights evidenced thereby, the holder of a Right Certificate
shall not be entitled to any rights of a holder of Preferred Stock for which the
Rights shall be exercisable, including, without limitation, the right to vote or
to receive dividends or other distributions, and shall not be entitled to
receive any notice of any proceedings of the Company, except as provided herein.

          Section 11. Adjustment of Purchase Price, Number and Kind of Shares
                      -------------------------------------------------------
and Number of Rights. The Purchase Price, the number of shares of Preferred
--------------------
Stock or other securities or property purchasable upon exercise of each Right
and the number of Rights outstanding are subject to adjustment from time to time
as provided in this Section 11.

          (a)  (i)  In the event the Company shall at any time after the date of
this Agreement (A) declare and pay a dividend on the Preferred Stock payable in
shares of Preferred Stock, (B) subdivide the outstanding Preferred Stock, (C)
combine the outstanding Preferred Stock into a smaller number of shares of
Preferred Stock or (D) issue any shares of its capital stock in a
reclassification of the Preferred Stock (including any such reclassification in
connection with a consolidation or merger in which the Company is the continuing
or surviving corporation), except as otherwise provided in this Section 11(a),
the number and kind of shares of capital stock issuable upon exercise of a Right
as of the record date for such dividend or the effective date of such
subdivision, combination or reclassification shall be proportionately adjusted
so that the holder of any Right exercised after such time shall be entitled to
receive the aggregate number and kind of shares of capital stock which, if such
Right had been exercised immediately prior to such date and at a time when the
Preferred Stock transfer books of the Company were open, the holder would have
owned upon such exercise and been entitled to receive by virtue of such
dividend, subdivision, combination or reclassification.

               (ii) Subject to Section 24 of this Agreement, in the event any
Person becomes an Acquiring Person (the first occurrence of such event being
referred to hereinafter as the "Flip-In Event"), then (A) the Purchase Price
shall be adjusted to be the Purchase Price in

                                      11
<PAGE>

effect immediately prior to the Flip-In Event multiplied by the number of one
one-thousandths of a share of Preferred Stock for which a Right was exercisable
immediately prior to such Flip-In Event, whether or not such Right was then
exercisable, and (B) each holder of a Right, except as otherwise provided in
this Section 11(a)(ii) and Section 11(a)(iii) hereof, shall thereafter have the
right to receive, upon exercise thereof at a price equal to the Purchase Price
(as so adjusted), in accordance with the terms of this Agreement and in lieu of
shares of Preferred Stock, such number of shares of Common Stock as shall equal
the result obtained by dividing the Purchase Price (as so adjusted) by 50% of
the current per share market price of the Common Stock (determined pursuant to
Section 11(d) hereof) on the date of such Flip-In Event; provided, however, that
the Purchase Price (as so adjusted) and the number of shares of Common Stock so
receivable upon exercise of a Right shall, following the Flip-In Event, be
subject to further adjustment as appropriate in accordance with Section 11(f)
hereof. Notwithstanding anything in this Agreement to the contrary, however,
from and after the Flip-In Event, any Rights that are beneficially owned by (x)
any Acquiring Person (or any Affiliate or Associate of any Acquiring Person),
(y) a transferee of any Acquiring Person (or any such Affiliate or Associate)
who becomes a transferee after the Flip-In Event or (z) a transferee of any
Acquiring Person (or any such Affiliate or Associate) who became a transferee
prior to or concurrently with the Flip-In Event pursuant to either (I) a
transfer from the Acquiring Person to holders of its equity securities or to any
Person with whom it has any continuing agreement, arrangement or understanding
regarding the transferred Rights or (II) a transfer which the Board of Directors
has determined is part of a plan, arrangement or understanding which has the
purpose or effect of avoiding the provisions of this paragraph, and subsequent
transferees of such Persons, shall be void without any further action and any
holder of such Rights shall thereafter have no rights whatsoever with respect to
such Rights under any provision of this Agreement. The Company shall use all
reasonable efforts to ensure that the provisions of this Section 11(a)(ii) are
complied with, but shall have no liability to any holder of Right Certificates
or other Person as a result of its failure to make any determinations with
respect to an Acquiring Person or its Affiliates, Associates or transferees
hereunder. From and after the Flip-In Event, no Right Certificate shall be
issued pursuant to Section 3 or Section 6 hereof that represents Rights that are
or have become void pursuant to the provisions of this paragraph, and any Right
Certificate delivered to the Rights Agent that represents Rights that are or
have become void pursuant to the provisions of this paragraph shall be canceled.
From and after the occurrence of an event specified in Section 13(a) hereof, any
Rights that theretofore have not been exercised pursuant to this Section
11(a)(ii) shall thereafter be exercisable only in accordance with Section 13 and
not pursuant to this Section 11(a)(ii).

               (iii) The Company may at its option substitute for a share of
Common Stock issuable upon the exercise of Rights in accordance with the
foregoing subparagraph (ii) a number of shares of Preferred Stock or fraction
thereof such that the current per share market price of one share of Preferred
Stock multiplied by such number or fraction is equal to the current per share
market price of one share of Common Stock. In the event that there shall not be
sufficient shares of Common Stock issued but not outstanding or authorized but
unissued to permit the exercise in full of the Rights in accordance with the
foregoing subparagraph (ii), the Board of Directors shall, with respect to such
deficiency, to the extent permitted by applicable law and any material
agreements then in effect to which the Company is a party, (A) determine the
excess (such excess, the "Spread") of (1) the value of the shares of Common
Stock issuable upon the exercise of a Right in accordance with the foregoing
subparagraph (ii) (the "Current

                                      12
<PAGE>

Value") over (2) the Purchase Price (as adjusted in accordance with the
foregoing subparagraph (ii)), and (B) with respect to each Right (other than
Rights which have become void pursuant to the foregoing subparagraph (ii)), make
adequate provision to substitute for the shares of Common Stock issuable in
accordance with the foregoing subparagraph (ii) upon exercise of the Right and
payment of the Purchase Price (as adjusted in accordance therewith), (1) cash,
(2) a reduction in such Purchase Price, (3) shares of Preferred Stock or other
equity securities of the Company (including, without limitation, shares or
fractions of shares of preferred stock which, by virtue of having dividend,
voting and liquidation rights substantially comparable to those of the shares of
Common Stock, are deemed in good faith by the Board of Directors to have
substantially the same value as the shares of Common Stock (such shares of
Preferred Stock and shares or fractions of shares of preferred stock are
hereinafter referred to as "Common Stock Equivalents")), (4) debt securities of
the Company, (5) other assets, or (6) any combination of the foregoing, having a
value which, when added to the value of the shares of Common Stock issued upon
exercise of such Right, shall have an aggregate value equal to the Current Value
(less the amount of any reduction in such Purchase Price), where such aggregate
value has been determined by the Board of Directors upon the advice of a
nationally recognized investment banking firm selected in good faith by the
Board of Directors; provided, however, that if the Company shall not make
                    --------  -------
adequate provision to deliver value pursuant to clause (B) above within thirty
(30) days following the Flip-In Event (the date of the Flip-In Event being the
"Section 11(a)(ii) Trigger Date"), then the Company shall be obligated to
deliver, to the extent permitted by applicable law and any material agreements
then in effect to which the Company is a party, upon the surrender for exercise
of a Right and without requiring payment of such Purchase Price, shares of
Common Stock (to the extent available), and then, if necessary, such number or
fractions of shares of Preferred Stock (to the extent available) and then, if
necessary, cash, which shares and/or cash have an aggregate value equal to the
Spread. If, upon the occurrence of the Flip-In Event, the Board of Directors
shall determine in good faith that it is likely that sufficient additional
shares of Common Stock could be authorized for issuance upon exercise in full of
the Rights, then, if the Board of Directors so elects, the thirty (30) day
period set forth above may be extended to the extent necessary, but not more
than ninety (90) days after the Section 11(a)(ii) Trigger Date, in order that
the Company may seek stockholder approval for the authorization of such
additional shares (such thirty (30) day period, as it may be extended, is herein
called the "Substitution Period"). To the extent that the Company determines
that some action need be taken pursuant to the second and/or third sentence of
this Section 11(a)(iii), the Company (x) shall provide, subject to Section
11(a)(ii) hereof and the last sentence of this Section 11(a)(iii) hereof, that
such action shall apply uniformly to all outstanding Rights and (y) may suspend
the exercisability of the Rights until the expiration of the Substitution Period
in order to seek any authorization of additional shares and/or to decide the
appropriate form of distribution to be made pursuant to such second sentence and
to determine the value thereof. In the event of any such suspension, the Company
shall issue a public announcement stating that the exercisability of the Rights
has been temporarily suspended, as well as a public announcement at such time as
the suspension is no longer in effect. For purposes of this Section 11(a)(iii),
the value of the shares of Common Stock shall be the current per share market
price (as determined pursuant to Section 11(d)(i)) on the Section 11(a)(ii)
Trigger Date and the per share or fractional value of any "Common Stock
Equivalent" shall be deemed to equal the current per share market price of the
Common Stock. The Board of Directors of the Company may, but shall not be
required to,

                                      13
<PAGE>

establish procedures to allocate the right to receive shares of Common Stock
upon the exercise of the Rights among holders of Rights pursuant to this Section
11(a)(iii).

          (b)  In case the Company shall fix a record date for the issuance of
rights, options or warrants to all holders of Preferred Stock entitling them
(for a period expiring within 45 calendar days after such record date) to
subscribe for or purchase Preferred Stock (or shares having the same rights,
privileges and preferences as the Preferred Stock ("Equivalent Preferred
Shares")) or securities convertible into Preferred Stock or Equivalent Preferred
Shares at a price per share of Preferred Stock or Equivalent Preferred Shares
(or having a conversion price per share, if a security convertible into shares
of Preferred Stock or Equivalent Preferred Shares) less than the then current
per share market price of the Preferred Stock (determined pursuant to Section
11(d) hereof) on such record date, the Purchase Price to be in effect after such
record date shall be determined by multiplying the Purchase Price in effect
immediately prior to such record date by a fraction, the numerator of which
shall be the number of shares of Preferred Stock and Equivalent Preferred Shares
outstanding on such record date plus the number of shares of Preferred Stock and
Equivalent Preferred Shares which the aggregate offering price of the total
number of shares of Preferred Stock and/or Equivalent Preferred Shares so to be
offered (and/or the aggregate initial conversion price of the convertible
securities so to be offered) would purchase at such current market price, and
the denominator of which shall be the number of shares of Preferred Stock and
Equivalent Preferred Shares outstanding on such record date plus the number of
additional shares of Preferred Stock and/or Equivalent Preferred Shares to be
offered for subscription or purchase (or into which the convertible securities
so to be offered are initially convertible); provided, however, that in no event
                                             --------  -------
shall the consideration to be paid upon the exercise of one Right be less than
the aggregate par value of the shares of capital stock of the Company issuable
upon exercise of one Right. In case such subscription price may be paid in a
consideration part or all of which shall be in a form other than cash, the value
of such consideration shall be as determined in good faith by the Board of
Directors of the Company, whose determination shall be described in a statement
filed with the Rights Agent. Shares of Preferred Stock and Equivalent Preferred
Shares owned by or held for the account of the Company shall not be deemed
outstanding for the purpose of any such computation. Such adjustment shall be
made successively whenever such a record date is fixed; and in the event that
such rights, options or warrants are not so issued, the Purchase Price shall be
adjusted to be the Purchase Price which would then be in effect if such record
date had not been fixed.

          (c)  In case the Company shall fix a record date for the making of a
distribution to all holders of the Preferred Stock (including any such
distribution made in connection with a consolidation or merger in which the
Company is the continuing or surviving corporation) of evidences of indebtedness
or assets (other than a regular quarterly cash dividend or a dividend payable in
Preferred Stock) or subscription rights or warrants (excluding those referred to
in Section 11(b) hereof), the Purchase Price to be in effect after such record
date shall be determined by multiplying the Purchase Price in effect immediately
prior to such record date by a fraction, the numerator of which shall be the
then current per share market price of the Preferred Stock (determined pursuant
to Section 11(d) hereof) on such record date, less the fair market value (as
determined in good faith by the Board of Directors of the Company whose
determination shall be described in a statement filed with the Rights Agent) of
the portion of the assets or evidences of indebtedness so to be distributed or
of such subscription rights or warrants applicable to one share of Preferred
Stock, and the denominator of which shall be such current

                                      14
<PAGE>

per share market price (determined pursuant to Section 11(d) hereof) of the
Preferred Stock; provided, however, that in no event shall the consideration to
                 --------  -------
be paid upon the exercise of one Right be less than the aggregate par value of
the shares of capital stock of the Company to be issued upon exercise of one
Right. Such adjustments shall be made successively whenever such a record date
is fixed; and in the event that such distribution is not so made, the Purchase
Price shall again be adjusted to be the Purchase Price which would then be in
effect if such record date had not been fixed.

          (d)  (i)  Except as otherwise provided herein, for the purpose of any
computation hereunder, the "current per share market price" of any security (a
"Security" for the purpose of this Section 11(d)(i)) on any date shall be deemed
to be the average of the daily closing prices per share of such Security for the
30 consecutive Trading Days (as such term is hereinafter defined) immediately
prior to such date; provided, however, that in the event that the current per
                    --------  -------
share market price of the Security is determined during a period following the
announcement by the issuer of such Security of (A) a dividend or distribution on
such Security payable in shares of such Security or securities convertible into
such shares, or (B) any subdivision, combination or reclassification of such
Security, and prior to the expiration of 30 Trading Days after the ex-dividend
date for such dividend or distribution, or the record date for such subdivision,
combination or reclassification, then, and in each such case, the current per
share market price shall be appropriately adjusted to reflect the current market
price per share equivalent of such Security. The closing price for each day
shall be the last sale price, regular way, or, in case no such sale takes place
on such day, the average of the closing bid and asked prices, regular way, in
either case as reported by the principal consolidated transaction reporting
system with respect to securities listed or admitted to trading on the New York
Stock Exchange or, if the Security is not listed or admitted to trading on the
New York Stock Exchange, as reported in the principal consolidated transaction
reporting system with respect to securities listed on the principal national
securities exchange on which the Security is listed or admitted to trading or,
if the Security is not listed or admitted to trading on any national securities
exchange, the last quoted price or, if not so quoted, the average of the high
bid and low asked prices in the over-the-counter market, as reported by NASDAQ
or such other system then in use, or, if on any such date the Security is not
quoted by any such organization, the average of the closing bid and asked prices
as furnished by a professional market maker making a market in the Security
selected by the Board of Directors of the Company. The term "Trading Day" shall
mean a day on which the principal national securities exchange on which the
Security is listed or admitted to trading is open for the transaction of
business or, if the Security is not listed or admitted to trading on any
national securities exchange, a Business Day.

               (ii) For the purpose of any computation hereunder, if the
Preferred Stock is publicly traded, the "current per share market price" of the
Preferred Stock shall be determined in accordance with the method set forth in
Section 11(d)(i). If the Preferred Stock is not publicly traded but the Common
Stock is publicly traded, the "current per share market price" of the Preferred
Stock shall be conclusively deemed to be the current per share market price of
the Common Stock as determined pursuant to Section 11(d)(i) multiplied by the
then applicable Adjustment Number (as defined in and determined in accordance
with the Certificate of Designation for the Preferred Stock). If neither the
Common Stock nor the Preferred Stock is publicly traded, "current per share
market price" shall mean the fair value per share as

                                      15
<PAGE>

determined in good faith by the Board of Directors of the Company, whose
determination shall be described in a statement filed with the Rights Agent.

          (e)  No adjustment in the Purchase Price shall be required unless such
adjustment would require an increase or decrease of at least 1% in the Purchase
Price; provided, however, that any adjustments which by reason of this Section
       --------  -------
11(e) are not required to be made shall be carried forward and taken into
account in any subsequent adjustment. All calculations under this Section 11
shall be made to the nearest cent or to the nearest one hundred-thousandth of a
share of Preferred Stock or one-hundredth of a share of Common Stock or other
share or security as the case may be. Notwithstanding the first sentence of this
Section 11(e), any adjustment required by this Section 11 shall be made no later
than the earlier of (i) three years from the date of the transaction which
requires such adjustment or (ii) the Expiration Date.

          (f)  If as a result of an adjustment made pursuant to Section 11(a)
hereof, the holder of any Right thereafter exercised shall become entitled to
receive any shares of capital stock of the Company other than the Preferred
Stock, thereafter the Purchase Price and the number of such other shares so
receivable upon exercise of a Right shall be subject to adjustment from time to
time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Preferred Stock contained in Sections 11(a),
11(b), 11(c), 11(e), 11(h), 11(i) and 11(m) hereof, as applicable, and the
provisions of Sections 7, 9, 10, 13 and 14 hereof with respect to the Preferred
Stock shall apply on like terms to any such other shares.

          (g)  All Rights originally issued by the Company subsequent to any
adjustment made to the Purchase Price hereunder shall evidence the right to
purchase, at the adjusted Purchase Price, the number of one one-thousandths of a
share of Preferred Stock purchasable from time to time hereunder upon exercise
of the Rights, all subject to further adjustment as provided herein.

          (h)  Unless the Company shall have exercised its election as provided
in Section 11(i), upon each adjustment of the Purchase Price as a result of the
calculations made in Sections 11(b) and 11(c), each Right outstanding
immediately prior to the making of such adjustment shall thereafter evidence the
right to purchase, at the adjusted Purchase Price, that number of one one-
thousandths of a share of Preferred Stock (calculated to the nearest one
hundred-thousandth of a share of Preferred Stock) obtained by (i) multiplying
(x) the number of one one-thousandths of a share purchasable upon the exercise
of a Right immediately prior to such adjustment by (y) the Purchase Price in
effect immediately prior to such adjustment and (ii) dividing the product so
obtained by the Purchase Price in effect immediately after such adjustment.

          (i)  The Company may elect on or after the date of any adjustment of
the Purchase Price pursuant to Sections 11(b) or 11(c) hereof to adjust the
number of Rights, in substitution for any adjustment in the number of one one-
thousandths of a share of Preferred Stock purchasable upon the exercise of a
Right. Each of the Rights outstanding after such adjustment of the number of
Rights shall be exercisable for the number of one one-thousandths of a share of
Preferred Stock for which a Right was exercisable immediately prior to such
adjustment. Each Right held of record prior to such adjustment of the number of
Rights shall become that number of Rights (calculated to the nearest one-
hundredth) obtained by dividing the

                                      16
<PAGE>

Purchase Price in effect immediately prior to adjustment of the Purchase Price
by the Purchase Price in effect immediately after adjustment of the Purchase
Price. The Company shall make a public announcement of its election to adjust
the number of Rights, indicating the record date for the adjustment, and, if
known at the time, the amount of the adjustment to be made. Such record date may
be the date on which the Purchase Price is adjusted or any day thereafter, but,
if the Right Certificates have been issued, shall be at least 10 days later than
the date of the public announcement. If Right Certificates have been issued,
upon each adjustment of the number of Rights pursuant to this Section 11(i), the
Company may, as promptly as practicable, cause to be distributed to holders of
record of Right Certificates on such record date Right Certificates evidencing,
subject to Section 14 hereof, the additional Rights to which such holders shall
be entitled as a result of such adjustment, or, at the option of the Company,
shall cause to be distributed to such holders of record in substitution and
replacement for the Right Certificates held by such holders prior to the date of
adjustment, and upon surrender thereof, if required by the Company, new Right
Certificates evidencing all the Rights to which such holders shall be entitled
after such adjustment. Right Certificates so to be distributed shall be issued,
executed and countersigned in the manner provided for herein and shall be
registered in the names of the holders of record of Right Certificates on the
record date specified in the public announcement.

          (j)  Irrespective of any adjustment or change in the Purchase Price or
the number of one one-thousandths of a share of Preferred Stock issuable upon
the exercise of a Right, the Right Certificates theretofore and thereafter
issued may continue to express the Purchase Price and the number of one one-
thousandths of a share of Preferred Stock which were expressed in the initial
Right Certificates issued hereunder.

          (k)  Before taking any action that would cause an adjustment reducing
the Purchase Price below the then par value, if any, of the fraction of
Preferred Stock or other shares of capital stock issuable upon exercise of a
Right, the Company shall take any corporate action which may, in the opinion of
its counsel, be necessary in order that the Company may validly and legally
issue fully paid and nonassessable shares of Preferred Stock or other such
shares at such adjusted Purchase Price.

          (l)  In any case in which this Section 11 shall require that an
adjustment in the Purchase Price be made effective as of a record date for a
specified event, the Company may elect to defer until the occurrence of such
event issuing to the holder of any Right exercised after such record date the
Preferred Stock and other capital stock or securities of the Company, if any,
issuable upon such exercise over and above the Preferred Stock and other capital
stock or securities of the Company, if any, issuable upon such exercise on the
basis of the Purchase Price in effect prior to such adjustment; provided,
                                                                --------
however, that the Company shall deliver to such holder a due bill or other
-------
appropriate instrument evidencing such holder's right to receive such additional
shares upon the occurrence of the event requiring such adjustment.

          (m)  Anything in this Section 11 to the contrary notwithstanding, the
Company shall be entitled to make such adjustments in the Purchase Price, in
addition to those adjustments expressly required by this Section 11, as and to
the extent that it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Preferred Stock, issuance
wholly for cash of any shares of Preferred Stock at less than the current market
price, issuance wholly for cash of Preferred Stock or securities which by their
terms are convertible

                                      17
<PAGE>

into or exchangeable for Preferred Stock, dividends on Preferred Stock payable
in shares of Preferred Stock or issuance of rights, options or warrants referred
to hereinabove in Section 11(b), hereafter made by the Company to holders of its
Preferred Stock shall not be taxable to such stockholders.

          (n)  Anything in this Agreement to the contrary notwithstanding, in
the event that at any time after the date of this Agreement and prior to the
Distribution Date, the Company shall (i) declare and pay any dividend on the
Common Stock payable in Common Stock or (ii) effect a subdivision, combination
or consolidation of the Common Stock (by reclassification or otherwise than by
payment of a dividend payable in Common Stock) into a greater or lesser number
of shares of Common Stock, then, in each such case, the number of Rights
associated with each share of Common Stock then outstanding, or issued or
delivered thereafter, shall be proportionately adjusted so that the number of
Rights thereafter associated with each share of Common Stock following any such
event shall equal the result obtained by multiplying the number of Rights
associated with each share of Common Stock immediately prior to such event by a
fraction the numerator of which shall be the total number of shares of Common
Stock outstanding immediately prior to the occurrence of the event and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately following the occurrence of such event.

          (o)  The Company agrees that, after the earlier of the Distribution
Date or the Stock Acquisition Date, it will not, except as permitted by Sections
23, 24 or 27 hereof, take (or permit any Subsidiary to take) any action if at
the time such action is taken it is reasonably foreseeable that such action will
diminish substantially or eliminate the benefits intended to be afforded by the
Rights.

          Section 12. Certificate of Adjusted Purchase Price or Number of
                      ---------------------------------------------------
Shares. Whenever an adjustment is made as provided in Section 11 or 13 hereof,
------
the Company shall promptly (a) prepare a certificate setting forth such
adjustment, and a brief statement of the facts accounting for such adjustment,
(b) file with the Rights Agent and with each transfer agent for the Common Stock
and the Preferred Stock a copy of such certificate and (c) mail a brief summary
thereof to each holder of a Right Certificate in accordance with Section 25
hereof (if so required under Section 25 hereof). The Rights Agent shall be fully
protected in relying on any such certificate and on any adjustment therein
contained and shall not be deemed to have knowledge of any such adjustment
unless and until it shall have received such certificate.

          Section 13. Consolidation, Merger or Sale or Transfer of Assets or
                      ------------------------------------------------------
Earning Power.
-------------

          (a)  In the event, directly or indirectly, at any time after the Flip-
In Event (i) the Company shall consolidate with or shall merge into any other
Person, (ii) any Person shall merge with and into the Company and the Company
shall be the continuing or surviving corporation of such merger and, in
connection with such merger, all or part of the Common Stock shall be changed
into or exchanged for stock or other securities of any other Person (or of the
Company) or cash or any other property, or (iii) the Company shall sell or
otherwise transfer (or one or more of its Subsidiaries shall sell or otherwise
transfer), in one or more transactions, assets or earning power aggregating 50%
or more of the assets or earning power of the Company

                                      18
<PAGE>

and its Subsidiaries (taken as a whole) to any other Person (other than the
Company or one or more wholly-owned Subsidiaries of the Company), then upon the
first occurrence of such event, proper provision shall be made so that: (A) each
holder of a Right (other than Rights which have become void pursuant to Section
11(a)(ii) hereof) shall thereafter have the right to receive, upon the exercise
thereof at the Purchase Price (as theretofore adjusted in accordance with
Section 11(a)(ii) hereof), in accordance with the terms of this Agreement and in
lieu of shares of Preferred Stock or Common Stock of the Company, such number of
validly authorized and issued, fully paid, non-assessable and freely tradeable
shares of Common Stock of the Principal Party (as such term is hereinafter
defined), not subject to any liens, encumbrances, rights of first refusal or
other adverse claims, as shall equal the result obtained by dividing the
Purchase Price (as theretofore adjusted in accordance with Section 11(a)(ii)
hereof) by 50% of the current per share market price of the Common Stock of such
Principal Party (determined pursuant to Section 11(d) hereof) on the date of
consummation of such consolidation, merger, sale or transfer; provided, however,
                                                              --------  -------
that the Purchase Price (as theretofore adjusted in accordance with Section
11(a)(ii) hereof) and the number of shares of Common Stock of such Principal
Party so receivable upon exercise of a Right shall be subject to further
adjustment as appropriate in accordance with Section 11(f) hereof to reflect any
events occurring in respect of the Common Stock of such Principal Party after
the occurrence of such consolidation, merger, sale or transfer; (B) such
Principal Party shall thereafter be liable for, and shall assume, by virtue of
such consolidation, merger, sale or transfer, all the obligations and duties of
the Company pursuant to this Agreement; (C) the term "Company" shall thereafter
be deemed to refer to such Principal Party; and (D) such Principal Party shall
take such steps (including, but not limited to, the reservation of a sufficient
number of its shares of Common Stock in accordance with Section 9 hereof) in
connection with such consummation of any such transaction as may be necessary to
assure that the provisions hereof shall thereafter be applicable, as nearly as
reasonably may be, in relation to the shares of its Common Stock thereafter
deliverable upon the exercise of the Rights; provided that, upon the subsequent
occurrence of any consolidation, merger, sale or transfer of assets or other
extraordinary transaction in respect of such Principal Party, each holder of a
Right shall thereupon be entitled to receive, upon exercise of a Right and
payment of the Purchase Price as provided in this Section 13(a), such cash,
shares, rights, warrants and other property which such holder would have been
entitled to receive had such holder, at the time of such transaction, owned the
Common Stock of the Principal Party receivable upon the exercise of a Right
pursuant to this Section 13(a), and such Principal Party shall take such steps
(including, but not limited to, reservation of shares of stock) as may be
necessary to permit the subsequent exercise of the Rights in accordance with the
terms hereof for such cash, shares, rights, warrants and other property.

          (b)  "Principal Party" shall mean:

               (i)  in the case of any transaction described in (i) or (ii) of
the first sentence of Section 13(a) hereof: (A) the Person that is the issuer of
the securities into which the shares of Common Stock are converted in such
merger or consolidation, or, if there is more than one such issuer, the issuer
the shares of Common Stock of which have the greatest aggregate market value of
shares outstanding, or (B) if no securities are so issued, (x) the Person that
is the other party to the merger, if such Person survives said merger, or, if
there is more than one such Person, the Person the shares of Common Stock of
which have the greatest aggregate market value of shares outstanding or (y) if
the Person that is the other party to the merger does not

                                      19
<PAGE>

survive the merger, the Person that does survive the merger (including the
Company if it survives) or (z) the Person resulting from the consolidation; and

               (ii) in the case of any transaction described in (iii) of the
first sentence of Section 13(a) hereof, the Person that is the party receiving
the greatest portion of the assets or earning power transferred pursuant to such
transaction or transactions, or, if each Person that is a party to such
transaction or transactions receives the same portion of the assets or earning
power so transferred or if the Person receiving the greatest portion of the
assets or earning power cannot be determined, whichever of such Persons is the
issuer of Common Stock having the greatest aggregate market value of shares
outstanding;

provided, however, that in any such case described in the foregoing clause
(b)(i) or (b)(ii), if the Common Stock of such Person is not at such time or has
not been continuously over the preceding 12-month period registered under
Section 12 of the Exchange Act, then (1) if such Person is a direct or indirect
Subsidiary of another Person the Common Stock of which is and has been so
registered, the term "Principal Party" shall refer to such other Person, or (2)
if such Person is a Subsidiary, directly or indirectly, of more than one Person,
the Common Stock of all of which is and has been so registered, the term
"Principal Party" shall refer to whichever of such Persons is the issuer of
Common Stock having the greatest aggregate market value of shares outstanding,
or (3) if such Person is owned, directly or indirectly, by a joint venture
formed by two or more Persons that are not owned, directly or indirectly, by the
same Person, the rules set forth in clauses (1) and (2) above shall apply to
each of the owners having an interest in the venture as if the Person owned by
the joint venture was a Subsidiary of both or all of such joint venturers, and
the Principal Party in each such case shall bear the obligations set forth in
this Section 13 in the same ratio as its interest in such Person bears to the
total of such interests.

          (c)  The Company shall not consummate any consolidation, merger, sale
or transfer referred to in Section 13(a) hereof unless prior thereto the Company
and the Principal Party involved therein shall have executed and delivered to
the Rights Agent an agreement confirming that the requirements of Sections 13(a)
and (b) hereof shall promptly be performed in accordance with their terms and
that such consolidation, merger, sale or transfer of assets shall not result in
a default by the Principal Party under this Agreement as the same shall have
been assumed by the Principal Party pursuant to Sections 13(a) and (b) hereof
and providing that, as soon as practicable after executing such agreement
pursuant to this Section 13, the Principal Party will:

               (i)  prepare and file a registration statement under the
Securities Act, if necessary, with respect to the Rights and the securities
purchasable upon exercise of the Rights on an appropriate form, use its best
efforts to cause such registration statement to become effective as soon as
practicable after such filing and use its best efforts to cause such
registration statement to remain effective (with a prospectus at all times
meeting the requirements of the Securities Act) until the Expiration Date and
similarly comply with applicable state securities laws;

               (ii) use its best efforts, if the Common Stock of the Principal
Party shall be listed or admitted to trading on the New York Stock Exchange or
on another national securities exchange, to list or admit to trading (or
continue the listing of) the Rights and the

                                      20
<PAGE>

securities purchasable upon exercise of the Rights on the New York Stock
Exchange or such securities exchange, or, if the Common Stock of the Principal
Party shall not be listed or admitted to trading on the New York Stock Exchange
or a national securities exchange, to cause the Rights and the securities
receivable upon exercise of the Rights to be authorized for quotation on NASDAQ
or on such other system then in use;

               (iii) deliver to holders of the Rights historical financial
statements for the Principal Party which comply in all respects with the
requirements for registration on Form 10 (or any successor form) under the
Exchange Act; and

               (iv)  obtain waivers of any rights of first refusal or preemptive
rights in respect of the Common Stock of the Principal Party subject to purchase
upon exercise of outstanding Rights.

          (d)  In case the Principal Party has a provision in any of its
authorized securities or in its certificate of incorporation or by-laws or other
instrument governing its affairs, which provision would have the effect of (i)
causing such Principal Party to issue (other than to holders of Rights pursuant
to this Section 13), in connection with, or as a consequence of, the
consummation of a transaction referred to in this Section 13, shares of Common
Stock or Common Stock Equivalents of such Principal Party at less than the then
current market price per share thereof (determined pursuant to Section 11(d)
hereof) or securities exercisable for, or convertible into, Common Stock or
Common Stock Equivalents of such Principal Party at less than such then current
market price, or (ii) providing for any special payment, tax or similar
provision in connection with the issuance of the Common Stock of such Principal
Party pursuant to the provisions of Section 13, then, in such event, the Company
hereby agrees with each holder of Rights that it shall not consummate any such
transaction unless prior thereto the Company and such Principal Party shall have
executed and delivered to the Rights Agent a supplemental agreement providing
that the provision in question of such Principal Party shall have been canceled,
waived or amended, or that the authorized securities shall be redeemed, so that
the applicable provision will have no effect in connection with, or as a
consequence of, the consummation of the proposed transaction.

          (e)  The Company covenants and agrees that it shall not, at any time
after the Flip-In Event, enter into any transaction of the type described in
clauses (i) through (iii) of Section 13(a) hereof if (i) at the time of or
immediately after such consolidation, merger, sale, transfer or other
transaction there are any rights, warrants or other instruments or securities
outstanding or agreements in effect which would substantially diminish or
otherwise eliminate the benefits intended to be afforded by the Rights, (ii)
prior to, simultaneously with or immediately after such consolidation, merger,
sale, transfer or other transaction, the stockholders of the Person who
constitutes, or would constitute, the Principal Party for purposes of Section
13(b) hereof shall have received a distribution of Rights previously owned by
such Person or any of its Affiliates or Associates or (iii) the form or nature
of organization of the Principal Party would preclude or limit the
exercisability of the Rights.

                                      21
<PAGE>

          Section 14. Fractional Rights and Fractional Shares.
                      ---------------------------------------

          (a)  The Company shall not be required to issue fractions of Rights
(except prior to the Distribution Date in accordance with Section 11(n) hereof)
or to distribute Right Certificates which evidence fractional Rights. In lieu of
such fractional Rights, there shall be paid to the registered holders of the
Right Certificates with regard to which such fractional Rights would otherwise
be issuable, an amount in cash equal to the same fraction of the current market
value of a whole Right. For the purposes of this Section 14(a), the current
market value of a whole Right shall be the closing price of the Rights for the
Trading Day immediately prior to the date on which such fractional Rights would
have been otherwise issuable. The closing price for any day shall be the last
sale price, regular way, or, in case no such sale takes place on such day, the
average of the closing bid and asked prices, regular way, in either case as
reported in the principal consolidated transaction reporting system with respect
to securities listed or admitted to trading on the New York Stock Exchange or,
if the Rights are not listed or admitted to trading on the New York Stock
Exchange, as reported in the principal consolidated transaction reporting system
with respect to securities listed on the principal national securities exchange
on which the Rights are listed or admitted to trading or, if the Rights are not
listed or admitted to trading on any national securities exchange, the last
quoted price or, if not so quoted, the average of the high bid and low asked
prices in the over-the-counter market, as reported by NASDAQ or such other
system then in use or, if on any such date the Rights are not quoted by any such
organization, the average of the closing bid and asked prices as furnished by a
professional market maker making a market in the Rights selected by the Board of
Directors of the Company. If on any such date no such market maker is making a
market in the Rights, the fair value of the Rights on such date as determined in
good faith by the Board of Directors of the Company shall be used.

          (b)  The Company shall not be required to issue fractions of Preferred
Stock (other than fractions which are integral multiples of one one-thousandth
of a share of Preferred Stock) or to distribute certificates which evidence
fractional shares of Preferred Stock (other than fractions which are integral
multiples of one one-thousandth of a share of Preferred Stock) upon the exercise
or exchange of Rights. Interests in fractions of Preferred Stock in integral
multiples of one one-thousandth of a share of Preferred Stock may, at the
election of the Company, be evidenced by depositary receipts, pursuant to an
appropriate agreement between the Company and a depositary selected by it;
provided, that such agreement shall provide that the holders of such depositary
--------
receipts shall have all the rights, privileges and preferences to which they are
entitled as beneficial owners of the Preferred Stock represented by such
depositary receipts. In lieu of fractional shares of Preferred Stock that are
not integral multiples of one one-thousandth of a share of Preferred Stock, the
Company shall pay to the registered holders of Right Certificates at the time
such Rights are exercised or exchanged as herein provided an amount in cash
equal to the same fraction of the current market value of a whole share of
Preferred Stock (as determined in accordance with Section 14(a) hereof) for the
Trading Day immediately prior to the date of such exercise or exchange.

          (c)  The Company shall not be required to issue fractions of shares of
Common Stock or to distribute certificates which evidence fractional shares of
Common Stock upon the exercise or exchange of Rights. In lieu of such fractional
shares of Common Stock, the Company shall pay to the registered holders of the
Right Certificates with regard to which such

                                      22
<PAGE>

fractional shares of Common Stock would otherwise be issuable an amount in cash
equal to the same fraction of the current market value of a whole share of
Common Stock (as determined in accordance with Section 14(a) hereof) for the
Trading Day immediately prior to the date of such exercise or exchange.

          (d)  The holder of a Right by the acceptance of the Right expressly
waives his right to receive any fractional Rights or any fractional shares upon
exercise or exchange of a Right (except as provided above).

          Section 15. Rights of Action. All rights of action in respect of this
                      ----------------
Agreement, excepting the rights of action given to the Rights Agent under
Section 18 hereof, are vested in the respective registered holders of the Right
Certificates (and, prior to the Distribution Date, the registered holders of the
Common Stock); and any registered holder of any Right Certificate (or, prior to
the Distribution Date, of the Common Stock), without the consent of the Rights
Agent or of the holder of any other Right Certificate (or, prior to the
Distribution Date, of the Common Stock), on his own behalf and for his own
benefit, may enforce, and may institute and maintain any suit, action or
proceeding against the Company to enforce, or otherwise act in respect of, his
right to exercise the Rights evidenced by such Right Certificate (or, prior to
the Distribution Date, such Common Stock) in the manner provided therein and in
this Agreement. Without limiting the foregoing or any remedies available to the
holders of Rights, it is specifically acknowledged that the holders of Rights
would not have an adequate remedy at law for any breach of this Agreement and
will be entitled to specific performance of the obligations under, and
injunctive relief against actual or threatened violations of, the obligations of
any Person subject to this Agreement.

          Section 16. Agreement of Right Holders. Every holder of a Right, by
                      --------------------------
accepting the same, consents and agrees with the Company and the Rights Agent
and with every other holder of a Right that:

          (a)  prior to the Distribution Date, the Rights will be transferable
only in connection with the transfer of the Common Stock;

          (b)  after the Distribution Date, the Right Certificates are
transferable only on the registry books of the Rights Agent if surrendered at
the office or agency of the Rights Agent designated for such purpose, duly
endorsed or accompanied by a proper instrument of transfer; and

          (c)  the Company and the Rights Agent may deem and treat the Person in
whose name the Right Certificate (or, prior to the Distribution Date, the Common
Stock certificate) is registered as the absolute owner thereof and of the Rights
evidenced thereby (notwithstanding any notations of ownership or writing on the
Right Certificates or the Common Stock certificate made by anyone other than the
Company or the Rights Agent) for all purposes whatsoever, and neither the
Company nor the Rights Agent, subject to Section 7(e) hereof, shall be affected
by any notice to the contrary.

          Section 17. Right Certificate Holder Not Deemed a Stockholder. No
                      -------------------------------------------------
holder, as such, of any Right Certificate shall be entitled to vote, receive
dividends or be deemed for any

                                      23
<PAGE>

purpose the holder of the Preferred Stock or any other securities of the Company
which may at any time be issuable on the exercise or exchange of the Rights
represented thereby, nor shall anything contained herein or in any Right
Certificate be construed to confer upon the holder of any Right Certificate, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in this Agreement), or to receive dividends or subscription rights, or
otherwise, until the Rights evidenced by such Right Certificate shall have been
exercised or exchanged in accordance with the provisions hereof.

          Section 18. Concerning the Rights Agent.
                      ---------------------------

          (a)  The Company agrees to pay to the Rights Agent reasonable
compensation for all services rendered by it hereunder and, from time to time,
on demand of the Rights Agent, its reasonable expenses and counsel fees and
other disbursements incurred in the administration and execution of this
Agreement and the exercise and performance of its duties hereunder. The Company
also agrees to indemnify the Rights Agent for, and to hold it harmless against,
any loss, liability or expense, incurred without negligence, bad faith or
willful misconduct on the part of the Rights Agent, for anything done or omitted
by the Rights Agent in connection with the acceptance and administration of this
Agreement, including the costs and expenses of defending against any claim of
liability arising therefrom, directly or indirectly.

          (b)  The Rights Agent shall be protected and shall incur no liability
for, or in respect of any action taken, suffered or omitted by it in connection
with, its administration of this Agreement in reliance upon any Right
Certificate or certificate for the Preferred Stock or Common Stock or for other
securities of the Company, instrument of assignment or transfer, power of
attorney, endorsement, affidavit, letter, notice, direction, consent,
certificate, statement or other paper or document believed by it to be genuine
and to be signed, executed and, where necessary, verified or acknowledged, by
the proper Person or Persons, or otherwise upon the advice of counsel as set
forth in Section 20 hereof.

          Section 19. Merger or Consolidation or Change of Name of Rights Agent.
                      ---------------------------------------------------------

          (a)  Any corporation into which the Rights Agent or any successor
Rights Agent may be merged or with which it may be consolidated, or any
corporation resulting from any merger or consolidation to which the Rights Agent
or any successor Rights Agent shall be a party, or any corporation succeeding to
the stock transfer or corporate trust powers of the Rights Agent or any
successor Rights Agent, shall be the successor to the Rights Agent under this
Agreement without the execution or filing of any paper or any further act on the
part of any of the parties hereto; provided, that such corporation would be
eligible for appointment as a successor Rights Agent under the provisions of
Section 21 hereof. In case at the time such successor Rights Agent shall succeed
to the agency created by this Agreement, any of the Right Certificates shall
have been countersigned but not delivered, any such successor Rights Agent may
adopt the countersignature of the predecessor Rights Agent and deliver such
Right Certificates so countersigned; and in case at that time any of the Right
Certificates shall not have been countersigned, any successor Rights Agent may
countersign such Right Certificates either in the name of the predecessor Rights
Agent or in the name of the successor Rights Agent; and in

                                      24
<PAGE>

all such cases such Right Certificates shall have the full force provided in the
Right Certificates and in this Agreement.

          (b)  In case at any time the name of the Rights Agent shall be changed
and at such time any of the Right Certificates shall have been countersigned but
not delivered, the Rights Agent may adopt the countersignature under its prior
name and deliver Right Certificates so countersigned; and in case at that time
any of the Right Certificates shall not have been countersigned, the Rights
Agent may countersign such Right Certificates either in its prior name or in its
changed name and in all such cases such Right Certificates shall have the full
force provided in the Right Certificates and in this Agreement.

          Section 20. Duties of Rights Agent. The Rights Agent undertakes the
                      ----------------------
duties and obligations imposed by this Agreement upon the following terms and
conditions, by all of which the Company and the holders of Right Certificates,
by their acceptance thereof, shall be bound:

          (a)  The Rights Agent may consult with legal counsel (who may be legal
counsel for the Company), and the opinion of such counsel shall be full and
complete authorization and protection to the Rights Agent as to any action taken
or omitted by it in good faith and in accordance with such opinion.

          (b)  Whenever in the performance of its duties under this Agreement
the Rights Agent shall deem it necessary or desirable that any fact or matter be
proved or established by the Company prior to taking or suffering any action
hereunder, such fact or matter (unless other evidence in respect thereof be
herein specifically prescribed) may be deemed to be conclusively proved and
established by a certificate signed by the President and the Secretary of the
Company and delivered to the Rights Agent; and such certificate shall be full
authorization to the Rights Agent for any action taken or suffered in good faith
by it under the provisions of this Agreement in reliance upon such certificate.

          (c)  The Rights Agent shall be liable hereunder to the Company and any
other Person only for its own negligence, bad faith or willful misconduct.

          (d)  The Rights Agent shall not be liable for or by reason of any of
the statements of fact or recitals contained in this Agreement or in the Right
Certificates (except its countersignature thereof) or be required to verify the
same, but all such statements and recitals are and shall be deemed to have been
made by the Company only.

          (e)  The Rights Agent shall not be under any responsibility in respect
of the validity of this Agreement or the execution and delivery hereof (except
the due execution hereof by the Rights Agent) or in respect of the validity or
execution of any Right Certificate (except its countersignature thereof); nor
shall it be responsible for any breach by the Company of any covenant or
condition contained in this Agreement or in any Right Certificate; nor shall it
be responsible for any change in the exercisability of the Rights (including the
Rights becoming void pursuant to Section 11(a)(ii) hereof) or any adjustment in
the terms of the Rights provided for in Sections 3, 11, 13, 23 and 24, or the
ascertaining of the existence of facts that would require any such change or
adjustment (except with respect to the exercise of Rights evidenced by Right
Certificates after receipt of a certificate furnished pursuant to Section 12,
describing

                                      25
<PAGE>

such change or adjustment); nor shall it by any act hereunder be deemed to make
any representation or warranty as to the authorization or reservation of any
shares of Preferred Stock or other securities to be issued pursuant to this
Agreement or any Right Certificate or as to whether any shares of Preferred
Stock or other securities will, when issued, be validly authorized and issued,
fully paid and nonassessable.

          (f)  The Company agrees that it will perform, execute, acknowledge and
deliver or cause to be performed, executed, acknowledged and delivered all such
further and other acts, instruments and assurances as may reasonably be required
by the Rights Agent for the carrying out or performing by the Rights Agent of
the provisions of this Agreement.

          (g)  The Rights Agent is hereby authorized and directed to accept
instructions with respect to the performance of its duties hereunder from any
person reasonably believed by the Rights Agent to be one of the President or the
Secretary of the Company, and to apply to such officers for advice or
instructions in connection with its duties, and it shall not be liable for any
action taken or suffered by it in good faith in accordance with instructions of
any such officer or for any delay in acting while waiting for those
instructions. Any application by the Rights Agent for written instructions from
the Company may, at the option of the Rights Agent, set forth in writing any
action proposed to be taken or omitted by the Rights Agent under this Agreement
and the date on and/or after which such action shall be taken or such omission
shall be effective. The Rights Agent shall not be liable for any action taken
by, or omission of, the Rights Agent in accordance with a proposal included in
any such application on or after the date specified in such application (which
date shall not be less than five Business Days after the date any officer of the
Company actually receives such application unless any such officer shall have
consented in writing to an earlier date) unless, prior to taking any such action
(or the effective date in the case of an omission), the Rights Agent shall have
received written instructions in response to such application specifying the
action to be taken or omitted.

          (h)  The Rights Agent and any stockholder, director, officer or
employee of the Rights Agent may buy, sell or deal in any of the Rights or other
securities of the Company or become pecuniarily interested in any transaction in
which the Company may be interested, or contract with or lend money to the
Company or otherwise act as fully and freely as though it were not Rights Agent
under this Agreement. Nothing herein shall preclude the Rights Agent from acting
in any other capacity for the Company or for any other legal entity.

          (i)  The Rights Agent may execute and exercise any of the rights or
powers hereby vested in it or perform any duty hereunder either itself or by or
through its attorneys or agents, and the Rights Agent shall not be answerable or
accountable for any act, default, neglect or misconduct of any such attorneys or
agents or for any loss to the Company resulting from any such act, default,
neglect or misconduct, provided reasonable care was exercised in the selection
and continued employment thereof.

          (j)  If, with respect to any Right Certificate surrendered to the
Rights Agent for exercise or transfer, the certificate contained in the form of
assignment or the form of election to purchase set forth on the reverse thereof,
as the case may be, has not been completed to certify the holder is not an
Acquiring Person (or an Affiliate or Associate thereof) or a transferee

                                      26
<PAGE>

thereof, the Rights Agent shall not take any further action with respect to such
requested exercise or transfer without first consulting with the Company.

          Section 21. Change of Rights Agent. The Rights Agent or any successor
                      ----------------------
Rights Agent may resign and be discharged from its duties under this Agreement
upon 30 days' notice in writing mailed to the Company and to each transfer agent
of the Common Stock or Preferred Stock by registered or certified mail, and,
following the Distribution Date, to the holders of the Right Certificates by
first-class mail. The Company may remove the Rights Agent or any successor
Rights Agent upon 30 days' notice in writing, mailed to the Rights Agent or
successor Rights Agent, as the case may be, and to each transfer agent of the
Common Stock or Preferred Stock by registered or certified mail, and, following
the Distribution Date, to the holders of the Right Certificates by first-class
mail. If the Rights Agent shall resign or be removed or shall otherwise become
incapable of acting, the Company shall appoint a successor to the Rights Agent.
If the Company shall fail to make such appointment within a period of 30 days
after giving notice of such removal or after it has been notified in writing of
such resignation or incapacity by the resigning or incapacitated Rights Agent or
by the holder of a Right Certificate (who shall, with such notice, submit his
Right Certificate for inspection by the Company), then the registered holder of
any Right Certificate may apply to any court of competent jurisdiction for the
appointment of a new Rights Agent. Any successor Rights Agent, whether appointed
by the Company or by such a court, shall be a corporation organized and doing
business under the laws of the United States or the laws of any state of the
United States or the District of Columbia, in good standing, having an office in
the State of California or the State of New York, which is authorized under such
laws to exercise corporate trust or stock transfer powers and is subject to
supervision or examination by federal or state authority and which has at the
time of its appointment as Rights Agent a combined capital and surplus of at
least $50 million. After appointment, the successor Rights Agent shall be vested
with the same powers, rights, duties and responsibilities as if it had been
originally named as Rights Agent without further act or deed; but the
predecessor Rights Agent shall deliver and transfer to the successor Rights
Agent any property at the time held by it hereunder, and execute and deliver any
further assurance, conveyance, act or deed necessary for the purpose. Not later
than the effective date of any such appointment the Company shall file notice
thereof in writing with the predecessor Rights Agent and each transfer agent of
the Common Stock or Preferred Stock, and, following the Distribution Date, mail
a notice thereof in writing to the registered holders of the Right Certificates.
Failure to give any notice provided for in this Section 21, however, or any
defect therein, shall not affect the legality or validity of the resignation or
removal of the Rights Agent or the appointment of the successor Rights Agent, as
the case may be.

          Section 22. Issuance of New Right Certificates. Notwithstanding any of
                      ----------------------------------
the provisions of this Agreement or of the Rights to the contrary, the Company
may, at its option, issue new Right Certificates evidencing Rights in such forms
as may be approved by its Board of Directors to reflect any adjustment or change
in the Purchase Price and the number or kind or class of shares or other
securities or property purchasable under the Right Certificates made in
accordance with the provisions of this Agreement. In addition, in connection
with the issuance or sale of Common Stock following the Distribution Date and
prior to the Expiration Date, the Company may with respect to shares of Common
Stock so issued or sold pursuant to (i) the exercise of stock options, (ii)
under any employee plan or arrangement, (iii) upon the exercise, conversion or
exchange of securities, notes or debentures issued by the Company or (iv) a

                                      27
<PAGE>

contractual obligation of the Company, in each case existing prior to the
Distribution Date, issue Right Certificates representing the appropriate number
of Rights in connection with such issuance or sale.

          Section 23. Redemption.
                      ----------

          (a)  The Board of Directors of the Company may, at any time prior to
the Flip-In Event, redeem all but not less than all the then outstanding Rights
at a redemption price of $.0001 per Right, appropriately adjusted to reflect any
stock split, stock dividend or similar transaction occurring in respect of the
Common Stock after the date hereof (the redemption price being hereinafter
referred to as the "Redemption Price"). The redemption of the Rights may be made
effective at such time, on such basis and with such conditions as the Board of
Directors in its sole discretion may establish. The Redemption Price shall be
payable, at the option of the Company, in cash, shares of Common Stock, or such
other form of consideration as the Board of Directors shall determine.

          (b)  Immediately upon the action of the Board of Directors ordering
the redemption of the Rights pursuant to paragraph (a) of this Section 23 (or at
such later time as the Board of Directors may establish for the effectiveness of
such redemption), and without any further action and without any notice, the
right to exercise the Rights will terminate and the only right thereafter of the
holders of Rights shall be to receive the Redemption Price. The Company shall
promptly give public notice of any such redemption; provided, however, that the
                                                    --------  -------
failure to give, or any defect in, any such notice shall not affect the validity
of such redemption. Within 10 days after such action of the Board of Directors
ordering the redemption of the Rights (or such later time as the Board of
Directors may establish for the effectiveness of such redemption), the Company
shall mail a notice of redemption to all the holders of the then outstanding
Rights at their last addresses as they appear upon the registry books of the
Rights Agent or, prior to the Distribution Date, on the registry books of the
transfer agent for the Common Stock. Any notice which is mailed in the manner
herein provided shall be deemed given, whether or not the holder receives the
notice. Each such notice of redemption shall state the method by which the
payment of the Redemption Price will be made.

          Section 24. Exchange.
                      --------

          (a)  The Board of Directors of the Company may, at its option, at any
time after the Flip-In Event, exchange all or part of the then outstanding and
exercisable Rights (which shall not include Rights that have become void
pursuant to the provisions of Section 11(a)(ii) hereof) for Common Stock at an
exchange ratio of one share of Common Stock per Right, appropriately adjusted to
reflect any stock split, stock dividend or similar transaction occurring in
respect of the Common Stock after the date hereof (such amount per Right being
hereinafter referred to as the "Exchange Ratio"). Notwithstanding the foregoing,
the Board of Directors shall not be empowered to effect such exchange at any
time after an Acquiring Person shall have become the Beneficial Owner of shares
of Common Stock aggregating 50% or more of the shares of Common Stock then
outstanding. From and after the occurrence of an event specified in Section
13(a) hereof, any Rights that theretofore have not been exchanged pursuant to
this Section 24(a) shall thereafter be exercisable only in accordance with
Section 13 and may not be exchanged pursuant to this Section 24(a). The exchange
of the Rights by the Board of

                                      28
<PAGE>

Directors may be made effective at such time, on such basis and with such
conditions as the Board of Directors in its sole discretion may establish.

          (b)  Immediately upon the effectiveness of the action of the Board of
Directors of the Company ordering the exchange of any Rights pursuant to
paragraph (a) of this Section 24 and without any further action and without any
notice, the right to exercise such Rights shall terminate and the only right
thereafter of a holder of such Rights shall be to receive that number of shares
of Common Stock equal to the number of such Rights held by such holder
multiplied by the Exchange Ratio. The Company shall promptly give public notice
of any such exchange; provided, however, that the failure to give, or any defect
in, such notice shall not affect the validity of such exchange. The Company
shall promptly mail a notice of any such exchange to all of the holders of the
Rights so exchanged at their last addresses as they appear upon the registry
books of the Rights Agent. Any notice which is mailed in the manner herein
provided shall be deemed given, whether or not the holder receives the notice.
Each such notice of exchange will state the method by which the exchange of the
shares of Common Stock for Rights will be effected and, in the event of any
partial exchange, the number of Rights which will be exchanged. Any partial
exchange shall be effected pro rata based on the number of Rights (other than
Rights which have become void pursuant to the provisions of Section 11(a)(ii)
hereof) held by each holder of Rights.

          (c)  The Company may at its option substitute, and, in the event that
there shall not be sufficient shares of Common Stock issued but not outstanding
or authorized but unissued to permit an exchange of Rights for Common Stock as
contemplated in accordance with this Section 24, the Company shall substitute to
the extent of such insufficiency, for each share of Common Stock that would
otherwise be issuable upon exchange of a Right, a number of shares of Preferred
Stock or fraction thereof (or Equivalent Preferred Shares, as such term is
defined in Section 11(b)) such that the current per share market price
(determined pursuant to Section 11(d) hereof) of one share of Preferred Stock
(or Equivalent Preferred Share) multiplied by such number or fraction is equal
to the current per share market price of one share of Common Stock (determined
pursuant to Section 11(d) hereof) as of the date of such exchange.

          Section 25. Notice of Certain Events.
                      ------------------------

          (a)  In case the Company shall at any time after the earlier of the
Distribution Date or the Stock Acquisition Date propose (i) to pay any dividend
payable in stock of any class to the holders of its Preferred Stock or to make
any other distribution to the holders of its Preferred Stock (other than a
regular quarterly cash dividend), (ii) to offer to the holders of its Preferred
Stock rights or warrants to subscribe for or to purchase any additional shares
of Preferred Stock or shares of stock of any class or any other securities,
rights or options, (iii) to effect any reclassification of its Preferred Stock
(other than a reclassification involving only the subdivision or combination of
outstanding Preferred Stock), (iv) to effect the liquidation, dissolution or
winding up of the Company, or (v) to pay any dividend on the Common Stock
payable in Common Stock or to effect a subdivision, combination or consolidation
of the Common Stock (by reclassification or otherwise than by payment of
dividends in Common Stock), then, in each such case, the Company shall give to
each holder of a Right Certificate, in accordance with Section 26 hereof, a
notice of such proposed action, which shall specify the record date for the
purposes of such dividend or distribution or offering of rights or warrants, or

                                      29
<PAGE>

the date on which such liquidation, dissolution, winding up, reclassification,
subdivision, combination or consolidation is to take place and the date of
participation therein by the holders of the Common Stock and/or Preferred Stock,
if any such date is to be fixed, and such notice shall be so given in the case
of any action covered by clause (i) or (ii) above at least 10 days prior to the
record date for determining holders of the Preferred Stock for purposes of such
action, and in the case of any such other action, at least 10 days prior to the
date of the taking of such proposed action or the date of participation therein
by the holders of the Common Stock and/or Preferred Stock, whichever shall be
the earlier.

          (b)  In case any event described in Section 11(a)(ii) or Section 13
shall occur then the Company shall as soon as practicable thereafter give to
each holder of a Right Certificate (or if occurring prior to the Distribution
Date, the holders of the Common Stock) in accordance with Section 26 hereof, a
notice of the occurrence of such event, which notice shall describe such event
and the consequences of such event to holders of Rights under Section 11(a)(ii)
and Section 13 hereof.

          Section 26. Notices. Notices or demands authorized by this Agreement
                      -------
to be given or made by the Rights Agent or by the holder of any Right
Certificate to or on the Company shall be sufficiently given or made if sent by
first-class mail, postage prepaid, addressed (until another address is filed in
writing with the Rights Agent) as follows:

               Redback Networks Inc.
               250 Holger Way
               San Jose, California 95134
               Attention: Thomas Cronan

Subject to the provisions of Section 21 hereof, any notice or demand authorized
by this Agreement to be given or made by the Company or by the holder of any
Right Certificate to or on the Rights Agent shall be sufficiently given or made
if sent by first-class mail, postage prepaid, addressed (until another address
is filed in writing with the Company) as follows:

               US Stock Transfer Corporation
               1745 Gardena Avenue, Suite 200
               Glendale, California 91204
               Attention: William Garza

Notices or demands authorized by this Agreement to be given or made by the
Company or the Rights Agent to the holder of any Right Certificate shall be
sufficiently given or made if sent by first-class mail, postage prepaid,
addressed to such holder at the address of such holder as shown on the registry
books of the Company.

          Section 27. Supplements and Amendments. Except as provided in the
                      --------------------------
penultimate sentence of this Section 27, for so long as the Rights are then
redeemable, the Company may in its sole and absolute discretion, and the Rights
Agent shall if the Company so directs, supplement or amend any provision of this
Agreement in any respect without the approval of any holders of the Rights. At
any time when the Rights are no longer redeemable, except as provided in the
penultimate sentence of this Section 27, the Company may, and the

                                      30
<PAGE>

Rights Agent shall, if the Company so directs, supplement or amend this
Agreement without the approval of any holders of Rights, provided that no such
supplement or amendment may (a) adversely affect the interests of the holders of
Rights as such (other than an Acquiring Person or an Affiliate or Associate of
an Acquiring Person), (b) cause this Agreement again to become amendable other
than in accordance with this sentence or (c) cause the Rights again to become
redeemable. Notwithstanding anything contained in this Agreement to the
contrary, no supplement or amendment shall be made which changes the Redemption
Price. Upon the delivery of a certificate from an appropriate officer of the
Company which states that the supplement or amendment is in compliance with the
terms of this Section 27, the Rights Agent shall execute such supplement or
amendment, provided that any supplement or amendment that does not amend
Sections 18, 19, 20 or 21 hereof in a manner adverse to the Rights Agent shall
become effective immediately upon execution by the Company, whether or not also
executed by the Rights Agent.

          Section 28. Successors. All the covenants and provisions of this
                      ----------
Agreement by or for the benefit of the Company or the Rights Agent shall bind
and inure to the benefit of their respective successors and assigns hereunder.

          Section 29. Benefits of this Agreement. Nothing in this Agreement
                      --------------------------
shall be construed to give to any Person other than the Company, the Rights
Agent and the registered holders of the Right Certificates (and, prior to the
Distribution Date, the Common Stock) any legal or equitable right, remedy or
claim under this Agreement; but this Agreement shall be for the sole and
exclusive benefit of the Company, the Rights Agent and the registered holders of
the Right Certificates (and, prior to the Distribution Date, the Common Stock).

          Section 30. Determinations and Actions by the Board of Directors. The
                      ----------------------------------------------------
Board of Directors of the Company shall have the exclusive power and authority
to administer this Agreement and to exercise the rights and powers specifically
granted to the Board of Directors of the Company or to the Company, or as may be
necessary or advisable in the administration of this Agreement, including,
without limitation, the right and power to (i) interpret the provisions of this
Agreement and (ii) make all determinations deemed necessary or advisable for the
administration of this Agreement (including, without limitation, a determination
to redeem or not redeem the Rights or to amend or not amend this Agreement). All
such actions, calculations, interpretations and determinations that are done or
made by the Board of Directors of the Company in good faith shall be final,
conclusive and binding on the Company, the Rights Agent, the holders of the
Rights, as such, and all other parties.

          Section 31. Severability. If any term, provision, covenant or
                      ------------
restriction of this Agreement is held by a court of competent jurisdiction or
other authority to be invalid, void or unenforceable, the remainder of the
terms, provisions, covenants and restrictions of this Agreement shall remain in
full force and effect and shall in no way be affected, impaired or invalidated.

          Section 32. Governing Law. This Agreement and each Right Certificate
                      -------------
issued hereunder shall be deemed to be a contract made under the laws of the
State of Delaware and for all purposes shall be governed by and construed in
accordance with the laws of such State applicable to contracts to be made and
performed entirely within such State.

                                      31
<PAGE>

          Section 33. Counterparts. This Agreement may be executed in any number
                      ------------
of counterparts and each of such counterparts shall for all purposes be deemed
to be an original, and all such counterparts shall together constitute but one
and the same instrument.

          Section 34. Descriptive Headings. Descriptive headings of the several
                      --------------------
Sections of this Agreement are inserted for convenience only and shall not
control or affect the meaning or construction of any of the provisions hereof.

                                      32
<PAGE>

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

                                 REDBACK NETWORKS INC.

                                 By: ___________________________________________
                                 Name:  Dennis P. Wolf
                                 Title: Vice President of Finance &
                                 Administration and Chief Financial Officer

                                 US STOCK TRANSFER CORPORATION,
                                 as Rights Agent

                                 By: ___________________________________________
                                 Name:  William Garza
                                 Title: ________________________________________

<PAGE>

                                                                       Exhibit A
                                                                       ---------

                                     FORM OF
                           CERTIFICATE OF DESIGNATION

                                       of

                  SERIES A JUNIOR PARTICIPATING PREFERRED STOCK

                                       of

                              REDBACK NETWORKS INC.

             Pursuant to Section 151 of the General Corporation Law
                            of the State of Delaware

          Redback Networks Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), in
accordance with the provisions of Section 103 thereof, DOES HEREBY CERTIFY:

          That pursuant to the authority vested in the Board of Directors in
accordance with the provisions of the Amended and Restated Certificate of
Incorporation of the said Corporation, the said Board of Directors on June 12,
2001 adopted the following resolution creating a series of 250,000 shares of
Preferred Stock designated as "Series A Junior Participating Preferred Stock":

               RESOLVED, that pursuant to the authority vested in the
          Board of Directors of this Corporation in accordance with
          the provisions of the Amended and Restated Certificate of
          Incorporation, a series of Preferred Stock, par value $.0001
          per share, of the Corporation be and hereby is created, and
          that the designation and number of shares thereof and the
          voting and other powers, preferences and relative,
          participating, optional or other rights of the shares of
          such series and the qualifications, limitations and
          restrictions thereof are as follows:

                  Series A Junior Participating Preferred Stock

          1.   Designation and Amount. There shall be a series of Preferred
Stock that shall be designated as "Series A Junior Participating Preferred
Stock," and the number of shares constituting such series shall be 250,000. Such
number of shares may be increased or decreased by resolution of the Board of
Directors; provided, however, that no decrease shall reduce the number of shares
of Series A Junior Participating Preferred Stock to less than the number of
shares then issued and outstanding plus the number of shares issuable upon
exercise of outstanding rights, options or warrants or upon conversion of
outstanding securities issued by the Corporation.

                                      E-1
<PAGE>

          2.   Dividends and Distribution.

               (A)  Subject to the prior and superior rights of the holders of
any shares of any class or series of stock of the Corporation ranking prior and
superior to the shares of Series A Junior Participating Preferred Stock with
respect to dividends, the holders of shares of Series A Junior Participating
Preferred Stock, in preference to the holders of shares of any class or series
of stock of the Corporation ranking junior to the Series A Junior Participating
Preferred Stock in respect thereof, shall be entitled to receive, when, as and
if declared by the Board of Directors out of funds legally available for the
purpose, quarterly dividends payable in cash on the last day of March, June,
September and December, in each year (each such date being referred to herein as
a "Quarterly Dividend Payment Date"), commencing on the first Quarterly Dividend
Payment Date after the first issuance of a share or fraction of a share of
Series A Junior Participating Preferred Stock, in an amount per share (rounded
to the nearest cent) equal to the greater of (a) $1.00 or (b) the Adjustment
Number (as defined below) times the aggregate per share amount of all cash
dividends, and the Adjustment Number times the aggregate per share amount
(payable in kind) of all non-cash dividends or other distributions other than a
dividend payable in shares of Common Stock or a subdivision of the outstanding
shares of Common Stock (by reclassification or otherwise), declared on the
Common Stock, par value $.0001 per share, of the Corporation (the "Common
Stock") since the immediately preceding Quarterly Dividend Payment Date, or,
with respect to the first Quarterly Dividend Payment Date, since the first
issuance of any share or fraction of a share of Series A Junior Participating
Preferred Stock. The "Adjustment Number" shall initially be 1000. In the event
the Corporation shall at any time after July 15, 2001 (i) declare and pay any
dividend on Common Stock payable in shares of Common Stock, (ii) subdivide the
outstanding Common Stock or (iii) combine the outstanding Common Stock into a
smaller number of shares, then in each such case the Adjustment Number in effect
immediately prior to such event shall be adjusted by multiplying such Adjustment
Number by a fraction the numerator of which is the number of shares of Common
Stock outstanding immediately after such event and the denominator of which is
the number of shares of Common Stock that were outstanding immediately prior to
such event.

          (B)  The Corporation shall declare a dividend or distribution on the
Series A Junior Participating Preferred Stock as provided in paragraph (A) above
immediately after it declares a dividend or distribution on the Common Stock
(other than a dividend payable in shares of Common Stock).

          (C)  Dividends shall begin to accrue and be cumulative on outstanding
shares of Series A Junior Participating Preferred Stock from the Quarterly
Dividend Payment Date next preceding the date of issue of such shares of Series
A Junior Participating Preferred Stock, unless the date of issue of such shares
is prior to the record date for the first Quarterly Dividend Payment Date, in
which case dividends on such shares shall begin to accrue from the date of issue
of such shares, or unless the date of issue is a Quarterly Dividend Payment Date
or is a date after the record date for the determination of holders of shares of
Series A Junior Participating Preferred Stock entitled to receive a quarterly
dividend and before such Quarterly Dividend Payment Date, in either of which
events such dividends shall begin to accrue and be cumulative from such
Quarterly Dividend Payment Date. Accrued but unpaid dividends shall not bear
interest. Dividends paid on the shares of Series A Junior Participating
Preferred Stock in an amount less than the total amount of such dividends at the
time accrued and payable on

                                      E-2
<PAGE>

such shares shall be allocated pro rata on a share-by-share basis among all such
shares at the time outstanding. The Board of Directors may fix a record date for
the determination of holders of shares of Series A Junior Participating
Preferred Stock entitled to receive payment of a dividend or distribution
declared thereon, which record date shall be no more than 60 days prior to the
date fixed for the payment thereof.

          3.   Voting Rights. The holders of shares of Series A Junior
Participating Preferred Stock shall have the following voting rights:

               (A)  Each share of Series A Junior Participating Preferred Stock
shall entitle the holder thereof to a number of votes equal to the Adjustment
Number on all matters submitted to a vote of the stockholders of the
Corporation.

               (B)  Except as required by law, by Section 3(C) and by Section 10
hereof, holders of Series A Junior Participating Preferred Stock shall have no
special voting rights and their consent shall not be required (except to the
extent they are entitled to vote with holders of Common Stock as set forth
herein) for taking any corporate action.

               (C)  If, at the time of any annual meeting of stockholders for
the election of directors, the equivalent of six quarterly dividends (whether or
not consecutive) payable on any share or shares of Series A Junior Participating
Preferred Stock are in default, the number of directors constituting the Board
of Directors of the Corporation shall be increased by two. In addition to voting
together with the holders of Common Stock for the election of other directors of
the Corporation, the holders of record of the Series A Junior Participating
Preferred Stock, voting separately as a class to the exclusion of the holders of
Common Stock, shall be entitled at said meeting of stockholders (and at each
subsequent annual meeting of stockholders), unless all dividends in arrears on
the Series A Junior Participating Preferred Stock have been paid or declared and
set apart for payment prior thereto, to vote for the election of two directors
of the Corporation, the holders of any Series A Junior Participating Preferred
Stock being entitled to cast a number of votes per share of Series A Junior
Participating Preferred Stock as is specified in paragraph (A) of this Section
3. Until the default in payments of all dividends which permitted the election
of said directors shall cease to exist, any director who shall have been so
elected pursuant to the provisions of this Section 3(C) may be removed at any
time, without cause, only by the affirmative vote of the holders of the shares
of Series A Junior Participating Preferred Stock at the time entitled to cast a
majority of the votes entitled to be cast for the election of any such director
at a special meeting of such holders called for that purpose, and any vacancy
thereby created may be filled by the vote of such holders. If and when such
default shall cease to exist, the holders of the Series A Junior Participating
Preferred Stock shall be divested of the foregoing special voting rights,
subject to revesting in the event of each and every subsequent like default in
payments of dividends. Upon the termination of the foregoing special voting
rights, the terms of office of all persons who may have been elected directors
pursuant to said special voting rights shall forthwith terminate, and the number
of directors constituting the Board of Directors shall be reduced by two. The
voting rights granted by this Section 3(C) shall be in addition to any other
voting rights granted to the holders of the Series A Junior Participating
Preferred Stock in this Section 3.

                                      E-3
<PAGE>

          4.   Certain Restrictions.

          (A)  Whenever quarterly dividends or other dividends or distributions
payable on the Series A Junior Participating Preferred Stock as provided in
Section 2 are in arrears, thereafter and until all accrued and unpaid dividends
and distributions, whether or not declared, on shares of Series A Junior
Participating Preferred Stock outstanding shall have been paid in full, the
Corporation shall not:

               (i)   declare or pay dividends on, make any other distributions
on, or redeem or purchase or otherwise acquire for consideration any shares of
stock ranking junior (either as to dividends or upon liquidation, dissolution or
winding up) to the Series A Junior Participating Preferred Stock;

               (ii)  declare or pay dividends on or make any other distributions
on any shares of stock ranking on a parity (either as to dividends or upon
liquidation, dissolution or winding up) with the Series A Junior Participating
Preferred Stock, except dividends paid ratably on the Series A Junior
Participating Preferred Stock and all such parity stock on which dividends are
payable or in arrears in proportion to the total amounts to which the holders of
all such shares are then entitled; or

               (iii) purchase or otherwise acquire for consideration any shares
of Series A Junior Participating Preferred Stock, or any shares of stock ranking
on a parity with the Series A Junior Participating Preferred Stock, except in
accordance with a purchase offer made in writing or by publication (as
determined by the Board of Directors) to all holders of Series A Junior
Participating Preferred Stock, or to such holders and holders of any such shares
ranking on a parity therewith, upon such terms as the Board of Directors, after
consideration of the respective annual dividend rates and other relative rights
and preferences of the respective series and classes, shall determine in good
faith will result in fair and equitable treatment among the respective series or
classes.

               (B)  The Corporation shall not permit any subsidiary of the
Corporation to purchase or otherwise acquire for consideration any shares of
stock of the Corporation unless the Corporation could, under paragraph (A) of
this Section 4, purchase or otherwise acquire such shares at such time and in
such manner.

          5.   Reacquired Shares. Any shares of Series A Junior Participating
Preferred Stock purchased or otherwise acquired by the Corporation in any manner
whatsoever shall be retired promptly after the acquisition thereof. All such
shares shall upon their retirement become authorized but unissued shares of
Preferred Stock and may be reissued as part of a new series of Preferred Stock
to be created by resolution or resolutions of the Board of Directors, subject to
any conditions and restrictions on issuance set forth herein.

          6.   Liquidation, Dissolution or Winding Up. (A) Upon any liquidation,
dissolution or winding up of the Corporation, voluntary or otherwise, no
distribution shall be made to the holders of shares of stock ranking junior
(either as to dividends or upon liquidation, dissolution or winding up) to the
Series A Junior Participating Preferred Stock unless, prior thereto, the holders
of shares of Series A Junior Participating Preferred Stock shall have received

                                      E-4
<PAGE>

an amount per share (the "Series A Liquidation Preference") equal to the greater
of (i) $1.00 plus an amount equal to accrued and unpaid dividends and
distributions thereon, whether or not declared, to the date of such payment, or
(ii) the Adjustment Number times the per share amount of all cash and other
property to be distributed in respect of the Common Stock upon such liquidation,
dissolution or winding up of the Corporation.

               (B)  In the event, however, that there are not sufficient assets
available to permit payment in full of the Series A Liquidation Preference and
the liquidation preferences of all other classes and series of stock of the
Corporation, if any, that rank on a parity with the Series A Junior
Participating Preferred Stock in respect thereof, then the assets available for
such distribution shall be distributed ratably to the holders of the Series A
Junior Participating Preferred Stock and the holders of such parity shares in
proportion to their respective liquidation preferences.

               (C)  Neither the merger or consolidation of the Corporation into
or with another corporation nor the merger or consolidation of any other
corporation into or with the Corporation shall be deemed to be a liquidation,
dissolution or winding up of the Corporation within the meaning of this Section
6.

          7.   Consolidation, Merger, Etc. In case the Corporation shall enter
into any consolidation, merger, combination or other transaction in which the
outstanding shares of Common Stock are exchanged for or changed into other stock
or securities, cash and/or any other property, then in any such case each share
of Series A Junior Participating Preferred Stock shall at the same time be
similarly exchanged or changed in an amount per share equal to the Adjustment
Number times the aggregate amount of stock, securities, cash and/or any other
property (payable in kind), as the case may be, into which or for which each
share of Common Stock is changed or exchanged.

          8.   No Redemption. Shares of Series A Junior Participating Preferred
Stock shall not be subject to redemption by the Corporation.

          9.   Ranking. The Series A Junior Participating Preferred Stock shall
rank junior to all other series of the Preferred Stock as to the payment of
dividends and as to the distribution of assets upon liquidation, dissolution or
winding up, unless the terms of any such series shall provide otherwise, and
shall rank senior to the Common Stock as to such matters.

          10.  Amendment. At any time that any shares of Series A Junior
Participating Preferred Stock are outstanding, the Amended and Restated
Certificate of Incorporation of the Corporation shall not be amended in any
manner which would materially alter or change the powers, preferences or special
rights of the Series A Junior Participating Preferred Stock so as to affect them
adversely without the affirmative vote of the holders of two-thirds of the
outstanding shares of Series A Junior Participating Preferred Stock, voting
separately as a class.

          11.  Fractional Shares. Series A Junior Participating Preferred Stock
may be issued in fractions of a share that shall entitle the holder, in
proportion to such holder's fractional shares, to exercise voting rights,
receive dividends, participate in distributions and to have the benefit of all
other rights of holders of Series A Junior Participating Preferred Stock.

                                      E-5
<PAGE>

          IN WITNESS WHEREOF, the undersigned has executed this Certificate this
__ day of _________________, 2001.

                              REDBACK NETWORKS INC.

                              By: ______________________________________________
                                  Name:  Dennis P. Wolf
                                  Title:  Vice President of Finance &
                                  Administration and Chief Financial Officer

                                      E-6
<PAGE>

                                                                       Exhibit B
                                                                       ---------

                           Form of Right Certificate

Certificate No. R-______

                  NOT EXERCISABLE AFTER July 14, 2011 OR EARLIER IF REDEMPTION
                  OR EXCHANGE OCCURS. THE RIGHTS ARE SUBJECT TO REDEMPTION AT
                  $.0001 PER RIGHT AND TO EXCHANGE ON THE TERMS SET FORTH IN THE
                  RIGHTS AGREEMENT. UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN
                  THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR TRANSFERRED TO ANY
                  PERSON WHO IS OR BECOMES AN ACQUIRING PERSON (AS DEFINED IN
                  THE RIGHTS AGREEMENT) AND CERTAIN TRANSFEREES THEREOF WILL
                  BECOME NULL AND VOID AND WILL NO LONGER BE TRANSFERABLE.

                               RIGHT CERTIFICATE

                             REDBACK NETWORKS INC.

                  This certifies that ____________________________ or registered
assigns, is the registered owner of the number of Rights set forth above, each
of which entitles the owner thereof, subject to the terms, provisions and
conditions of the Rights Agreement, dated as of June 12, 2001, as the same may
be amended from time to time (the "Rights Agreement"), between Redback Networks
Inc., a Delaware corporation (the "Company"), and US Stock Transfer Corporation,
as Rights Agent (the "Rights Agent"), to purchase from the Company at any time
after the Distribution Date (as such term is defined in the Rights Agreement)
and prior to 5:00 P.M., New York City time, on July 14, 2011 at the office or
agency of the Rights Agent designated for such purpose, or of its successor as
Rights Agent, one one-thousandth of a fully paid non-assessable share of Series
A Junior Participating Preferred Stock, par value $.0001 per share (the
"Preferred Stock"), of the Company at a purchase price of $83.28 per one
one-thousandth of a share of Preferred Stock (the "Purchase Price"), upon
presentation and surrender of this Right Certificate with the Form of Election
to Purchase duly executed. The number of Rights evidenced by this Right
Certificate (and the number of one one-thousandths of a share of Preferred Stock
which may be purchased upon exercise hereof) set forth above, and the Purchase
Price set forth above, are the number and Purchase Price as of June 27, 2001,
based on the Preferred Stock as constituted at such date. As provided in the
Rights Agreement, the Purchase Price, the number of one one-thousandths of a
share of Preferred Stock (or other securities or property) which may be
purchased upon the exercise of the Rights and the number of Rights evidenced by
this Right Certificate are subject to modification and adjustment upon the
happening of certain events.

                  This Right Certificate is subject to all of the terms,
provisions and conditions of the Rights Agreement, which terms, provisions and
conditions are hereby incorporated herein by

                                      E-7
<PAGE>

reference and made a part hereof and to which Rights Agreement reference is
hereby made for a full description of the rights, limitations of rights,
obligations, duties and immunities hereunder of the Rights Agent, the Company
and the holders of the Right Certificates. Copies of the Rights Agreement are on
file at the principal executive offices of the Company and the above-mentioned
office or agency of the Rights Agent. The Company will mail to the holder of
this Right Certificate a copy of the Rights Agreement without charge after
receipt of a written request therefor.

          This Right Certificate, with or without other Right Certificates, upon
surrender at the office or agency of the Rights Agent designated for such
purpose, may be exchanged for another Right Certificate or Right Certificates of
like tenor and date evidencing Rights entitling the holder to purchase a like
aggregate number of shares of Preferred Stock as the Rights evidenced by the
Right Certificate or Right Certificates surrendered shall have entitled such
holder to purchase. If this Right Certificate shall be exercised in part, the
holder shall be entitled to receive upon surrender hereof another Right
Certificate or Right Certificates for the number of whole Rights not exercised.

          Subject to the provisions of the Rights Agreement, the Rights
evidenced by this Certificate (i) may be redeemed by the Company at a redemption
price of $.0001 per Right or (ii) may be exchanged in whole or in part for
shares of the Company's Common Stock, par value $.0001 per share, or shares of
Preferred Stock.

          No fractional shares of Preferred Stock or Common Stock will be issued
upon the exercise or exchange of any Right or Rights evidenced hereby (other
than fractions of Preferred Stock which are integral multiples of one one-
thousandth of a share of Preferred Stock, which may, at the election of the
Company, be evidenced by depository receipts), but in lieu thereof a cash
payment will be made, as provided in the Rights Agreement.

          No holder of this Right Certificate, as such, shall be entitled to
vote or receive dividends or be deemed for any purpose the holder of the
Preferred Stock or of any other securities of the Company which may at any time
be issuable on the exercise or exchange hereof, nor shall anything contained in
the Rights Agreement or herein be construed to confer upon the holder hereof, as
such, any of the rights of a stockholder of the Company or any right to vote for
the election of directors or upon any matter submitted to stockholders at any
meeting thereof, or to give or withhold consent to any corporate action, or to
receive notice of meetings or other actions affecting stockholders (except as
provided in the Rights Agreement) or to receive dividends or subscription
rights, or otherwise, until the Right or Rights evidenced by this Right
Certificate shall have been exercised or exchanged as provided in the Rights
Agreement.

          This Right Certificate shall not be valid or obligatory for any
purpose until it shall have been countersigned by the Rights Agent.

                                      E-8
<PAGE>

          WITNESS the facsimile signature of the proper officers of the Company
and its corporate seal. Dated as of _________ __, 2001.

                                REDBACK NETWORKS INC.

                                     ___________________________________________
                                     By: Dennis P. Wolf
                                     Title: Vice President of Finance &
                                     Administration and Chief Financial Officer

ATTEST:

___________________________
By: Thomas Cronan
Title: General Counsel

Countersigned:

US STOCK TRANSFER CORPORATION, as Rights Agent

By: __________________________
    William Garza

                                      E-9
<PAGE>

                   Form of Reverse Side of Right Certificate

                              FORM OF ASSIGNMENT

               (To be executed by the registered holder if such
               holder desires to transfer the Right Certificate)

          FOR VALUE RECEIVED __________________________ hereby sells, assigns
and transfers unto_____________________________________________________________

_______________________________________________________________________________
                 (Please print name and address of transferee)

_______ Rights represented by this Right Certificate, together with all right,
title and interest therein, and does hereby irrevocably constitute and appoint
___________________________ Attorney, to transfer said Rights on the books of
the within-named Company, with full power of substitution.

Dated:  ____________________________

                                            ___________________________________
                                                          Signature

Signature Guaranteed:

               Signatures must be guaranteed by a bank, trust company,
broker, dealer or other eligible institution participating in a recognized
signature guarantee medallion program.

_______________________________________________________
                         (To be completed)

               The undersigned hereby certifies that the Rights evidenced by
this Right Certificate are not beneficially owned by, were not acquired by the
undersigned from, and are not being assigned to an Acquiring Person or an
Affiliate or Associate thereof (as defined in the Rights Agreement).

                                            ___________________________________
                                                          Signature

                                     E-10
<PAGE>

             Form of Reverse Side of Right Certificate - continued

                         FORM OF ELECTION TO PURCHASE
                         ----------------------------

                 (To be executed if holder desires to exercise
                 Rights represented by the Right Certificate)

To REDBACK NETWORKS INC.:

          The undersigned hereby irrevocably elects to exercise ________ Rights
represented by this Right Certificate to purchase the shares of Preferred Stock
(or other securities or property) issuable upon the exercise of such Rights and
requests that certificates for such shares of Preferred Stock (or such other
securities) be issued in the name of:

________________________________________________________________________________
                        (Please print name and address)

________________________________________________________________________________

If such number of Rights shall not be all the Rights evidenced by this Right
Certificate, a new Right Certificate for the balance remaining of such Rights
shall be registered in the name of and delivered to:

Please insert social security
or other identifying number

________________________________________________________________________________
                        (Please print name and address)

________________________________________________________________________________

Dated:________________________

                                           _____________________________________
                                                          Signature

          (Signature must conform to holder specified on Right Certificate)

Signature Guaranteed:

          Signature must be guaranteed by a bank, trust company, broker,
dealer or other eligible institution participating in a recognized signature
guarantee medallion program.

                                     E-11
<PAGE>

             Form of Reverse Side of Right Certificate - continued

________________________________________________________________________________
                               (To be completed)

          The undersigned certifies that the Rights evidenced by this Right
Certificate are not beneficially owned by, and were not acquired by the
undersigned from, an Acquiring Person or an Affiliate or Associate thereof (as
defined in the Rights Agreement).

                                               _________________________________
                                                            Signature

________________________________________________________________________________

                                    NOTICE
                                    ------

          The signature in the Form of Assignment or Form of Election to
Purchase, as the case may be, must conform to the name as written upon the face
of this Right Certificate in every particular, without alteration or enlargement
or any change whatsoever.

          In the event the certification set forth above in the Form of
Assignment or the Form of Election to Purchase, as the case may be, is not
completed, such Assignment or Election to Purchase will not be honored.

                                     E-12
<PAGE>

                                                                       Exhibit C
                                                                       ---------

          UNDER CERTAIN CIRCUMSTANCES, AS SET FORTH IN
          THE RIGHTS AGREEMENT, RIGHTS OWNED BY OR
          TRANSFERRED TO ANY PERSON WHO IS OR BECOMES AN
          ACQUIRING PERSON (AS DEFINED IN THE RIGHTS
          AGREEMENT) AND CERTAIN TRANSFEREES THEREOF
          WILL BECOME NULL AND VOID AND WILL NO LONGER
          BE TRANSFERABLE.

                         SUMMARY OF RIGHTS TO PURCHASE
                         SHARES OF PREFERRED STOCK OF
                             REDBACK NETWORKS INC.

          On June 12, 2001, the Board of Directors of Redback Networks Inc. (the
"Company") declared a dividend of one preferred share purchase right (a "Right")
for each outstanding share of common stock, par value $.0001 per share, of the
Company (the "Common Stock"). The dividend is payable on July 15, 2001 to the
stockholders of record on June 27, 2001 (the "Record Date"). Each Right entitles
the registered holder to purchase from the Company one one-thousandth of a share
of Series A Junior Participating Preferred Stock, par value $.0001 per share, of
the Company (the "Preferred Stock") at a price of $83.28 per one one-thousandth
of a share of Preferred Stock (the "Purchase Price"), subject to adjustment, or
under certain circumstances, a number of shares of Common Stock of the Company
with a market value equal to two times the Purchase Price. The description and
terms of the Rights are set forth in a Rights Agreement dated as of June 12,
2001, as the same may be amended from time to time (the "Rights Agreement"),
between the Company and US Stock Transfer Corporation, as Rights Agent (the
"Rights Agent").

          Until the earlier to occur of (i) 10 days following a public
announcement that a person or group of affiliated or associated persons (with
certain exceptions, an "Acquiring Person") has acquired beneficial ownership of
15% or more of the outstanding shares of Common Stock or (ii) 10 business days
(or such later date as may be determined by action of the Board of Directors
prior to such time as any person or group of affiliated persons becomes an
Acquiring Person) following the commencement of, or announcement of an intention
to make, a tender offer or exchange offer the consummation of which would result
in the beneficial ownership by a person or group of 15% or more of the
outstanding shares of Common Stock (the earlier of such dates being called the
"Distribution Date"), the Rights will be evidenced, with respect to any of the
Common Stock certificates outstanding as of the Record Date, by such Common
Stock certificate together with this Summary of Rights.

          The Rights Agreement provides that, until the Distribution Date (or
earlier expiration of the Rights), the Rights will be transferred with and only
with the Common Stock. Until the Distribution Date (or earlier expiration of the
Rights), new Common Stock certificates issued after the Record Date upon
transfer or new issuances of Common Stock will contain a notation incorporating
the Rights Agreement by reference. Until the Distribution Date (or earlier

                                     E-13
<PAGE>

expiration of the Rights), the surrender for transfer of any certificates for
shares of Common Stock outstanding as of the Record Date, even without such
notation or a copy of this Summary of Rights, will also constitute the transfer
of the Rights associated with the shares of Common Stock represented by such
certificate. As soon as practicable following the Distribution Date, separate
certificates evidencing the Rights ("Right Certificates") will be mailed to
holders of record of the Common Stock as of the close of business on the
Distribution Date and such separate Right Certificates alone will evidence the
Rights.

          The Rights are not exercisable until the Distribution Date. The Rights
will expire on July 14, 2011 (the "Final Expiration Date"), unless the Final
Expiration Date is advanced or extended or unless the Rights are earlier
redeemed or exchanged by the Company, in each case as described below.

          The Purchase Price payable, and the number of shares of Preferred
Stock or other securities or property issuable, upon exercise of the Rights is
subject to adjustment from time to time to prevent dilution (i) in the event of
a stock dividend on, or a subdivision, combination or reclassification of, the
Preferred Stock, (ii) upon the grant to holders of the Preferred Stock of
certain rights or warrants to subscribe for or purchase Preferred Stock at a
price, or securities convertible into Preferred Stock with a conversion price,
less than the then-current market price of the Preferred Stock or (iii) upon the
distribution to holders of the Preferred Stock of evidences of indebtedness or
assets (excluding regular periodic cash dividends or dividends payable in
Preferred Stock) or of subscription rights or warrants (other than those
referred to above).

          The number of outstanding Rights is subject to adjustment in the event
of a stock dividend on the Common Stock payable in shares of Common Stock or
subdivisions, consolidations or combinations of the Common Stock occurring, in
any such case, prior to the Distribution Date.

          Shares of Preferred Stock purchasable upon exercise of the Rights will
not be redeemable. Each share of Preferred Stock will be entitled, when, as and
if declared, to a minimum preferential quarterly dividend payment of the greater
of (a) $1.00 per share, and (b) an amount equal to 1000 times the dividend
declared per share of Common Stock. In the event of liquidation, dissolution or
winding up of the Company, the holders of the Preferred Stock will be entitled
to a minimum preferential payment of the greater of (a) $1.00 per share (plus
any accrued but unpaid dividends), and (b) an amount equal to 1000 times the
payment made per share of Common Stock. Each share of Preferred Stock will have
1000 votes, voting together with the Common Stock. Finally, in the event of any
merger, consolidation or other transaction in which outstanding shares of Common
Stock are converted or exchanged, each share of Preferred Stock will be entitled
to receive 1000 times the amount received per share of Common Stock. These
rights are protected by customary antidilution provisions.

          Because of the nature of the Preferred Stock's dividend, liquidation
and voting rights, the value of the one one-thousandth interest in a share of
Preferred Stock purchasable upon exercise of each Right should approximate the
value of one share of Common Stock.

          In the event that any person or group of affiliated or associated
persons becomes an Acquiring Person, each holder of a Right, other than Rights
beneficially owned by the

                                     E-14
<PAGE>

Acquiring Person (which will thereupon become void), will thereafter have the
right to receive upon exercise of a Right that number of shares of Common Stock
having a market value of two times the exercise price of the Right.

          In the event that, after a person or group has become an Acquiring
Person, the Company is acquired in a merger or other business combination
transaction or 50% or more of its consolidated assets or earning power are sold,
proper provisions will be made so that each holder of a Right (other than Rights
beneficially owned by an Acquiring Person which will have become void) will
thereafter have the right to receive upon the exercise of a Right that number of
shares of common stock of the person with whom the Company has engaged in the
foregoing transaction (or its parent) that at the time of such transaction have
a market value of two times the exercise price of the Right.

          At any time after any person or group becomes an Acquiring Person and
prior to the earlier of one of the events described in the previous paragraph or
the acquisition by such Acquiring Person of 50% or more of the outstanding
shares of Common Stock, the Board of Directors of the Company may exchange the
Rights (other than Rights owned by such Acquiring Person which will have become
void), in whole or in part, for shares of Common Stock or Preferred Stock (or a
series of the Company's preferred stock having equivalent rights, preferences
and privileges), at an exchange ratio of one share of Common Stock, or a
fractional share of Preferred Stock (or other preferred stock) equivalent in
value thereto, per Right.

          With certain exceptions, no adjustment in the Purchase Price will be
required until cumulative adjustments require an adjustment of at least 1% in
such Purchase Price. No fractional shares of Preferred Stock or Common Stock
will be issued (other than fractions of Preferred Stock which are integral
multiples of one one-thousandth of a share of Preferred Stock, which may, at the
election of the Company, be evidenced by depositary receipts), and in lieu
thereof an adjustment in cash will be made based on the current market price of
the Preferred Stock or the Common Stock.

          At any time prior to the time an Acquiring Person becomes such, the
Board of Directors of the Company may redeem the Rights in whole, but not in
part, at a price of $.0001 per Right (the "Redemption Price") payable, at the
option of the Company, in cash, shares of Common Stock or such other form of
consideration as the Board of Directors of the Company shall determine. The
redemption of the Rights may be made effective at such time, on such basis and
with such conditions as the Board of Directors in its sole discretion may
establish. Immediately upon any redemption of the Rights, the right to exercise
the Rights will terminate and the only right of the holders of Rights will be to
receive the Redemption Price.

          For so long as the Rights are then redeemable, the Company may, except
with respect to the Redemption Price, amend the Rights Agreement in any manner.
After the Rights are no longer redeemable, the Company may, except with respect
to the Redemption Price, amend the Rights Agreement in any manner that does not
adversely affect the interests of holders of the Rights.

                                     E-15
<PAGE>

          Until a Right is exercised or exchanged, the holder thereof, as such,
will have no rights as a stockholder of the Company, including, without
limitation, the right to vote or to receive dividends.

          A copy of the Rights Agreement has been filed with the Securities and
Exchange Commission as an Exhibit to a Registration Statement on Form 8-A dated
________________, 2001. A copy of the Rights Agreement is available free of
charge from the Company. This summary description of the Rights does not purport
to be complete and is qualified in its entirety by reference to the Rights
Agreement, as the same may be amended from time to time, which is hereby
incorporated herein by reference.

                                     E-16

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