Document:

<PAGE>

                                                                    Exhibit 10.2

                               Surrender of Lease
                                       and
                          Lease Modification Agreement

This Agreement dated for reference June 19, 2002.

Between:

           2725312 Canada Inc.

           (the "Landlord")

And:

           Redback Networks Inc.

           (the "Tenant")

Whereas:

A.   By a lease (the "Original Lease") made October 3, 2000 between the Landlord
     and the Tenant, the Landlord leased to the Tenant all of the space situate
     in the building (the "Building") located at 2955 Virtual Way, Vancouver,
     British Columbia, as such premises are more particularly described in the
     Original Lease (the "Original Premises");

B.   The Tenant requested that it be permitted to surrender its leasehold
     interest in that portion of the Original Premises located on the 5th floor
     of the Building and having a Rentable Area of 28,243.93 square feet (the
     "5th Floor Premises") and, accordingly, the Landlord and the Tenant entered
     into an agreement dated for reference March 11, 2002 with respect thereto
     (the "First Amendment");

C.   The Tenant requested that it be permitted to surrender its leasehold
     interest in that portion of the Original Premises located on the 2nd floor
     of the Building and having a Rentable Area of 27,535.60 square feet and in
     a portion of the Original Premises forming part of the 1st floor of the
     Building and having a Rentable Area of 7,823.95 square feet (together, the
     "Titan Premises") and that it also be permitted to surrender its leasehold
     interest in that portion of the Original Premises located on the 3rd floor
     of the Building and having a Rentable Area of 32,980.50 square feet and in
     that portion of the Original Premises located on the 4th floor of the
     Building and having a Rentable Area of 32,968.66 square feet (together, the
     "ING Premises") and, accordingly, the Landlord and the Tenant entered into
     an agreement dated for reference June 4, 2002 with respect thereto (the
     "Second Amendment") (the Original Lease, the First Amendment and the Second
     Amendment are hereafter collectively referred to as the "Lease" and that
     part of the Original Premises which does not include the 5th Floor
     Premises, the Titan Premises and the ING Premises is hereafter referred to
     as the "Remaining Premises");

D.   The Tenant has requested that it be permitted to surrender its leasehold
     interest in the Remaining Premises, being that portion of the Original
     Premises located on the 1st floor of

<PAGE>

     the Building, as shown hatched on the plan attached hereto as Schedule A,
     and having a Rentable Area of 17,566.2 square feet; and

E.   The Landlord has agreed to permit the Tenant to surrender the Remaining
     Premises to the Landlord subject to the terms and conditions set out in
     this Agreement and in connection with a new lease which is to be entered
     into between the Landlord and the IWA Forest Industry Pension Plan ("IWA")
     with respect to the Remaining Premises (the "IWA Lease").

Therefore, in consideration of the sum of One Dollar ($1.00) (all monetary
amounts described in this Agreement shall be Canadian dollars) now paid by each
party to the other, the mutual covenants and agreements contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged by the parties, the parties agree as follows:

                                    ARTICLE 1
                         SURRENDER OF REMAINING PREMISES

1.1  Surrender. The Tenant agrees that, effective as of 11:59 p.m. on July 31,
     2002 (the "Surrender Date"), the Tenant assigns, releases and surrenders to
     the Landlord all of the right, title and interest of the Tenant in and to
     the Lease and all of the right, title and interest of the Tenant in the
     Remaining Premises, such that all rights of the Tenant in the Remaining
     Premises shall be merged and extinguished in the reversion held by the
     Landlord.

1.2  Surrender Payment for Period Pre November 1, 2002. In consideration of the
     Landlord agreeing to the surrender by the Tenant of the Remaining Premises,
     the Tenant covenants and agrees to pay to the Landlord a surrender payment
     of an amount (the "Pre Nov 1/02 Surrender Payment") that is equal to the
     Rent that would have been applicable to the Remaining Premises for the
     period from August 1, 2002 to October 31, 2002 had the Remaining Premises
     remained part of the "Premises" under the Lease until 11:59 p.m. on October
     31, 2002. The Pre Nov 1/02 Surrender Payment will be paid by the Tenant to
     the Landlord by monthly payments commencing August 1, 2002 and to and
     including October 1, 2002 in the amount that would have been due as Rent
     for the Remaining Premises had the Remaining Premises remained leased to
     the Tenant pursuant to the terms of the Lease. The Tenant acknowledges and
     agrees that the Pre Nov 1/02 Surrender Payment shall be secured by the
     Letter of Credit referred to in section 4.16 of the Lease (as such section
     is amended by this Agreement).

1.3  Surrender Payment for Period From and After November 1, 2002. In further
     consideration of the Landlord agreeing to the surrender by the Tenant of
     the Remaining Premises, the Tenant covenants and agrees to pay to the
     Landlord a surrender payment of $873,291.24 plus goods and services tax
     (the "Post Nov 1/02 Surrender Payment") on or before November 1, 2002. The
     Tenant acknowledges and agrees that the Post Nov 1/02 Surrender Payment
     shall be secured by the Letter of Credit referred to in section 4.16 of the
     Lease (as such section is amended by this Agreement).

1.4  Acceptance. In consideration of the Tenant's covenant and agreement to pay
     the Pre Nov 1/02 Surrender Payment to the Landlord as set out in section
     1.2 and the Post Nov 1/02 Surrender Payment to the Landlord as set out in
     section 1.3 and to pay the amounts referred to in section 1.9, the Landlord
     accepts the assignment, release and surrender referred to in section 1.1.

                                      -2-

<PAGE>

1.5  Representations and Warranties. The Tenant represents and warrants to the
     Landlord that the Tenant has the absolute right, power and authority to
     surrender to the Landlord the Remaining Premises and the Tenant's interest
     in the Remaining Premises as herein provided.

1.6  Landlord's Release. Effective as of the later of the Surrender Date and the
     receipt by the Landlord of the new Letter of Credit (or amendment to the
     existing Letter of Credit) referred to in section 2.3, the Landlord
     releases and forever discharges the Tenant and its successors and assigns
     of and from any and all manner and causes of action, suits, debts,
     contracts, claims, demands, liabilities and damages in respect of any
     matter in any way related to the Remaining Premises or any of the rents,
     covenants, conditions and agreements contained in the Lease to the extent
     they are applicable to the Remaining Premises. In no event shall the
     foregoing release and discharge be effective to release or discharge, or be
     interpreted or construed as releasing or discharging, the Tenant from its
     obligations to the Landlord as set out in sections 1.2, 1.3, 1.8 and 1.9 of
     this Agreement, sections 1.2, 1.3, 1.8 and 1.9 of the First Amendment and
     sections 1.2, 1.3, 1.8, 1.9, 2.2, 2.3, 2.8 and 2.9 of the Second Amendment.

1.7  Tenant's Release. Effective as of the Surrender Date, the Tenant releases
     and forever discharges the Landlord and its successors and assigns of and
     from any and all manner and causes of action, suits, debts, contracts,
     claims, demands, liabilities and damages in respect of any matter in any
     way related to the Landlord's obligations to the Tenant under the Lease.

1.8  Goods and Services Tax. The Tenant shall be responsible for the payment of
     the goods and services tax payable in respect of the surrender of the
     Remaining Premises by the Tenant. Concurrently with the payments to the
     Landlord referred to in sections 1.2 and 1.3, the Tenant shall pay to the
     Landlord the goods and services tax applicable to such payments, on the
     condition that the Landlord shall remit such tax amount to Canada Customs
     and Revenue Agency on account of the goods and services tax which it is the
     statutory obligation of the Landlord to collect and remit in connection
     with such payment.

1.9  Commission. The parties hereto agree as follows:

     (a)  The Tenant covenants and agrees that it shall pay when due any
          commission or fee (plus applicable goods and services tax thereon)
          which may be payable by the Tenant to any agent or broker retained by
          it which is in any way related to the Tenant's efforts to assign the
          Lease or sublet any portion of the Remaining Premises (or to effect
          the surrender contemplated herein as a result of the IWA Lease) and
          that it shall indemnify and save harmless the Landlord from and
          against any costs or damages incurred or suffered by the Landlord in
          any way as a result of the failure of the Tenant to pay such amounts.
          The Tenant acknowledges and agrees that the obligations of the Tenant
          to pay the amounts referred to in the preceding sentence shall be
          secured by the Letter of Credit referred to in section 4.16 of the
          Lease (as such section is amended by this Agreement).

     (b)  In addition, the Tenant covenants and agrees to pay forthwith when due
          the commission or fee (not to exceed $96,613) (plus goods and services
          tax thereon) payable to CB Richard Ellis Limited relating to the
          Remaining Premises (or to effect the surrender contemplated herein as
          a result of the IWA Lease) and to indemnify and save harmless the
          Landlord from and against any costs or damages incurred or suffered by
          the Landlord in any way as a result of the failure of the Tenant to
          pay

                                      -3-

<PAGE>

          such amounts. The Tenant acknowledges and agrees that the obligations
          of the Tenant to pay such amounts shall be secured by the Letter of
          Credit referred to in section 4.16 of the Lease (as such section is
          amended by this Agreement).

1.10 Amendment to Lease. The parties agree that this Article 1 constitutes an
     amendment to the Lease, that each of the covenants set out in sections 1.2,
     1.3, 1.8 and 1.9 hereof constitutes a covenant under the Lease by the
     Tenant in favour of the Landlord and that the term "Lease" as used in the
     Lease shall include this Article 1.

                                    ARTICLE 2
                                 STATUS OF LEASE

2.1  Status of Lease. The Landlord and the Tenant hereby covenant and agree
     that, effective as of the Surrender Date (if the condition precedent set
     out in section 4.1 has been satisfied or waived by the Landlord), all of
     the Original Premises will have been surrendered to the Landlord and all
     the terms of the Lease will have been terminated, except that the covenants
     of the Tenant set out in sections 1.2, 1.3, 1.8 and 1.9 of the First
     Amendment, in sections 1.2, 1.3, 1.8, 1.9, 2.2, 2.3, 2.8 and 2.9 of the
     Second Amendment and in sections 1.2, 1.3, 1.8 and 1.9 of this Agreement
     (all of which are covenants of the Tenant under the Lease) will remain in
     full force and effect until the Tenant has fully satisfied its obligations
     thereunder (the "Remaining Obligations"), and except that section 4.16 of
     the Lease (as such section is amended by this Agreement) will remain in
     full force and effect until the Tenant has fully satisfied all the Tenant's
     Remaining Obligations.

2.2  Modification to Lease. In connection with the surrender of the Remaining
     Premises pursuant to Article 1, the Landlord and the Tenant agree that
     section 4.16 of the Lease is amended so that, effective as of the Surrender
     Date (if the condition precedent set out in section 4.1 is satisfied or
     waived by the Landlord), the following is deleted from the information
     included under the "Term of Letter of Credit" and "Face Amount of Letter of
     Credit" headings in paragraph (a) thereof:

     "From the date of lease execution to July 9, 2002   $7,250,000.00
      From July 10, 2002 to October 9, 2002              $6,437,363.00
      From October 10, 2002 to November 4, 2002          $4,694,849.00
      From November 5, 2002 to February 7, 2003          $2,257,520.00
      February 8, 2003 to Month 60 of Lease Term         $1,000,000.00",

     and the following is substituted therefor:

     "From the date of lease execution to July 9, 2002   $7,250,000.00
      From July 10, 2002 to October 9, 2002               6,437,363.00
      From October 10, 2002 to November 6, 2002           4,694,849.00
      From November 7, 2002 to February 7, 2003           1,300,000.00
      February 8, 2003 to Month 60 of Lease Term         $        0.00".

2.3  New Letter of Credit. In connection with the amendment to section 4.16 of
     the Lease contained in this Agreement, the Tenant agrees to arrange for a
     new Letter of Credit (or for an appropriate amendment to the existing
     Letter of Credit) to be issued to the Landlord

                                      -4-

<PAGE>

     before the expiry date of the existing Letter of Credit. The new Letter of
     Credit shall be in substantially the same form as the existing Letter of
     Credit except that it shall reflect the terms of section 4.16 of the Lease,
     as such section is to be amended by section 2.2 of this Agreement, and
     except that each reference in the existing Letter of Credit to the Lease
     shall be amended, if necessary, to refer to the Lease "as amended from time
     to time". For greater certainty, the Tenant acknowledges and confirms that
     such Letter of Credit secures all payments which the Tenant is obligated to
     make to the Landlord under or pursuant to sections 1.2, 1.3, 1.8 and 1.9 of
     the First Amendment, sections 1.2, 1.3, 1.8. 1.9, 2.2, 2.3, 2.8 and 2.9 of
     the Second Amendment and sections 1.2, 1.3, 1.8 and 1.9 of this Agreement
     and that, in the event the Tenant is ever in default of its obligation to
     make any such payment, the Landlord may draw upon such Letter of Credit in
     full or in part in an amount corresponding to the amount required to cure
     such default.

                                    ARTICLE 3
                               GENERAL PROVISIONS

3.1  Defined Terms. All terms defined in this Lease and used in this Agreement
     will have the respective meanings ascribed to them in the Lease unless the
     context otherwise requires or unless otherwise defined in this Agreement.
     The defined terms in the recitals to this Agreement will have such meanings
     throughout this Agreement, unless otherwise stated herein.

3.2  Whole Agreement. The Lease will be read and construed in conjunction with
     this Agreement to the effect that the Lease and this Agreement will be read
     and construed as one document. For greater certainty, the parties confirm
     and agree that, if the condition precedent set out in section 4.1 has been
     satisfied or waived by the Landlord, the Lease will remain in full force
     and effect only to the extent described in section 2.1 hereof.

3.3  Confirmation and Ratification. The Landlord and the Tenant hereby confirm
     and ratify the terms and conditions contained in the Lease, as amended by
     the terms of this Agreement.

3.4  Counterparts/Facsimile. This Agreement may be executed in any number of
     counterparts, with the same effect as if both parties had signed the same
     document, and will become effective when one or more counterparts have been
     signed by both the parties and delivered to each of the parties. All
     counterparts will be construed together and evidence only one agreement,
     which, notwithstanding the dates of execution of any counterparts, will be
     deemed to be dated the date first above written. This Agreement may be
     executed by the parties and transmitted by facsimile and if so executed and
     transmitted this Agreement will be for all purposes as effective as if the
     parties had delivered an executed original Agreement.

3.5  Enurement. This Agreement shall enure to the benefit of and be binding upon
     the parties hereto and their respective heirs, executors, administrators,
     successors and permitted assigns. The Tenant will, at the request of the
     Landlord, promptly execute and deliver such further documents and
     instruments and do all such further acts and things as may be required in
     order to effect or perfect the surrender and cancellation of the Lease with
     respect to the Remaining Premises or to otherwise evidence, carry out and
     give full effect to this Agreement.

                                       -5-

<PAGE>

3.6  Legal Fees. In consideration of the Landlord undertaking all necessary
     negotiations and efforts concerning the IWA Lease and the surrender related
     thereto, the Tenant agrees to reimburse the Landlord for legal fees and
     disbursements, up to a maximum of $15,000 (plus goods and services tax and
     social services tax thereon), incurred by the Landlord in relation to the
     preparation and negotiation of this Agreement and the IWA Lease. The Tenant
     shall so reimburse the Landlord whether or not the condition precedent set
     out in section 4.1 is satisfied or waived by the Landlord and the Tenant
     will pay the amount due to the Landlord within 30 days of the Landlord
     providing evidence to the Tenant of the legal fees and disbursements as
     aforesaid being incurred.

                                    ARTICLE 4
                              CONDITIONS PRECEDENT

4.1  Conditions Precedent. The agreements set out in Article 1 hereof are
     subject to the Landlord and IWA entering into the IWA Lease on terms and
     conditions acceptable to the Landlord, in its sole discretion, and any
     conditions precedent in favour of IWA which may be contained therein or in
     any related offer to lease having been waived by IWA, in each case on or
     before July 15, 2002. The Landlord and the Tenant agree that the agreements
     set out in Article 1 and Article 2 hereof will become unconditional
     agreements with respect to or in connection with the surrender of the
     Remaining Premises forthwith upon the satisfaction or waiver by the
     Landlord of the foregoing condition precedent. The foregoing condition
     precedent is for the Landlord's sole benefit and may be waived,
     unilaterally by the Landlord, at the Landlord's election. The condition
     precedent will not be considered satisfied or waived unless the Landlord
     confirms to the Tenant in writing that the condition has been satisfied or
     waived. If the Landlord does not give the Tenant notice of the satisfaction
     or waiver of the condition precedent on or before July 15, 2002, then the
     agreements set out in Article 1 hereof and the related modifications to the
     Lease and to the Letter of Credit set out in Article 2 will be null and
     void and of no force or effect whatsoever.

In Witness Whereof the parties hereto have executed this Agreement as of the
date first above written.

2725312 Canada Inc.                   Redback Networks Inc.

By: /s/ Remco Daal
    -----------------------------
    Authorized Signatory                            By: /s/ Thomas L. Cronan III
                                                        ------------------------
                                                        Authorized Signatory

By:  /s/ Jake Silberberg
     -----------------------------
     Authorized Signatory

                                       -6-

<PAGE>

                                   SCHEDULE A

                           PLAN OF REMAINING PREMISES
                               ON THE FIRST FLOOR<PAGE>

                                                                    Exhibit 10.3

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)
                                                                    May 22, 2002

Redback Networks Inc.
300 Holger Way
San Jose, CA  95134

Attn: Mr. Dennis Wolf,
      Chief Financial Officer
Fax:  (408) 451-0570

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

Dear Sirs:

The purpose of this letter agreement (this "Confirmation") is to confirm the
terms and conditions of the Transaction entered into between Party A and Party B
on the Trade Date specified below (the "Transaction") on the terms set out
below. This Confirmation constitutes a "Confirmation" as referred to in the
Agreement specified below.

1.   The definitions and provisions contained in the 2000 ISDA Definitions (as
     published by the International Swaps and Derivatives Association, Inc.) are
     incorporated into this Confirmation. In the event of any inconsistency
     between those definitions and provisions and this Confirmation, this
     Confirmation will govern. References herein to a "Transaction" shall be
     deemed to be references to a "Swap Transaction" for the purposes of the
     2000 ISDA Definitions.

     If you and we are parties to the 1992 ISDA Master Agreement, (the
     "Agreement"), this Confirmation supplements, forms a part of, and is
     subject to such Agreement. If you and we are not yet parties to the
     Agreement, you and we agree to use our best efforts promptly to negotiate,
     execute, and deliver the Agreement, including our standard form of Schedule
     attached thereto and made a part thereof, with such modifications as you
     and we shall in good faith agree. Upon execution and delivery by you and us
     of the Agreement, this Confirmation shall supplement, form a part of, and
     be subject to such Agreement. Until you and we execute and deliver the
     Agreement, this Confirmation (together with all other Confirmations of
     Transactions previously entered into between us, notwithstanding anything
     to the contrary therein) shall supplement, form a part of, and be subject
     to the 1992 ISDA Master Agreement, as if, on the Trade Date of the first
     such Transaction between us, you and we had executed that agreement (with
     the terms set forth in section 4, below).

     The Agreement and each Confirmation thereunder will be governed by and
     construed in accordance with the law of the State of New York without
     reference to choice of law doctrine and each party hereby submits to the
     jurisdiction of the Courts of the State of New York.

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     Party A and Party B each represents to the other that it has entered into
     this Transaction in reliance upon such tax, accounting, regulatory, legal,
     and financial advice as it deems necessary and not upon any view expressed
     by the other.

     In this Confirmation, "Party A" means Credit Suisse First Boston
     International and "Party B" means Redback Networks Inc.

2.   General terms of the Transaction:

          Notional Amount:             $277,500,000, subject to redemptions,
                                       conversions or repurchases as determined
                                       by the Calculation Agent.

          Trade Date:                  May 22, 2002

          Effective Date:              May 24, 2002

          Termination Date:            The earlier of: (i) April 1, 2007,
                                       subject to adjustment in accordance with
                                       the Following Business Day Convention;
                                       or (ii) the Early Termination Date. The
                                       Early Termination Date shall be any date
                                       on which all of the Bonds have been
                                       either redeemed or converted or both.

     Fixed Amounts:

          Fixed Rate Payer:            Party A

          Fixed Rate Payer
          Payment Dates:               Each Bond Interest Payment Date (defined
                                       below), commencing on October 1, 2002
                                       and ending on April 1, 2007, inclusive
                                       with the final Payment Date on April 1,
                                       2007, subject to adjustment in
                                       accordance with the Following Business
                                       Day Convention, using no Adjustment of
                                       Period End Dates; provided, however,
                                       that upon a redemption, conversion or
                                       repurchase of the Bonds, in whole or in
                                       part, pursuant to the terms thereof, the
                                       Fixed Rate Payments related to such
                                       Redeemed, Converted or Repurchased Bonds
                                       shall terminate, with the exception of
                                       the Premium Payment Upon Redemption, if
                                       any, as described below.

                                      -2-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

                                       With respect to any Premium Payment Upon
                                       Redemption, the Premium Payment Upon
                                       Redemption Date shall be the date on
                                       which Party B is obligated to pay the
                                       Redemption Price to the Bondholders.

          Fixed Rate:                  5.00%

          Accrued Fixed Rate Pay-
          ments Upon Redemption
          or Conversion:               In the event of the redemption of the
                                       Bonds, Party A shall pay any Fixed Rate
                                       amounts which have accrued upon such
                                       Redeemed Bonds to, but excluding, the
                                       date fixed for such Redemption. In the
                                       event of the conversion of the Bonds, no
                                       accrued Fixed Rate amounts shall be paid
                                       upon such Converted Bonds.

          Fixed Rate
          Day Count Fraction:          30/360

          Premium Payment upon
          Redemption:                  The amount of Premium payable hereunder
                                       is equal to the Redemption Price payable
                                       upon redemption in respect of the Bonds,
                                       minus the par value (i.e., 100%) of such
                                       Redeemed Bonds.

                                       The Redemption Price payable in respect
                                       of the Bonds is the amount set forth in
                                       the schedule below:

                                              Period             Premium
                                              ------             -------

                                       April 1, 2003 through    102.8570%
                                       March 31, 2004
                                       April 1, 2004 through    102.1430%
                                       March 31, 2005
                                       April 1, 2005 through    101.4290%
                                       March 31, 2006
                                       April 1, 2006 and        100.7140%
                                       thereafter

                                      -3-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     Floating Amounts:

          Floating Rate Payer:         Party B

          Floating Rate Payer
          Payment Dates:               Each April 1 and October 1, commencing
                                       on October 1, 2002, and ending on April
                                       1, 2007, inclusive with the final
                                       Payment Date on April 1, 2007, subject
                                       to adjustment in accordance with the
                                       Following Business Day Convention, using
                                       Adjustment of Period End Dates;
                                       provided, however, that upon a
                                       redemption, conversion or repurchase of
                                       the Bonds, in whole or in part, pursuant
                                       to the terms thereof, the Floating Rate
                                       Payments related to such Redeemed,
                                       Converted or Repurchased Bonds shall
                                       terminate.

          Floating Rate for Initial
          Calculation Period:          2.247%

          Floating Rate Option:        U.S. Dollar LIBOR-BBA

          Accrued Floating Rate Pay-
          ments Upon Redemption
          or Conversion:               In the event of the redemption of the
                                       Bonds, Party B shall pay any Floating
                                       Rate amounts which have accrued upon
                                       such Redeemed Bonds to, but excluding,
                                       the date fixed for such Redemption. In
                                       the event of the conversion of the
                                       Bonds, no Floating Rate amounts accrued
                                       since the most recent interest payment
                                       date on the Bonds shall be paid upon
                                       such Converted Bonds.

          Designated Maturity:         3 months; except in respect of the first
                                       interest period for which an
                                       interpolation of 2 month and 3 month
                                       U.S. Dollar LIBOR-BBA rate shall apply.

          Spread:                      0.40%

          Floating Rate
          Day Count Fraction:          Actual/360

                                      -4-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

          Reset Dates:                 The first  day of each  Compounding
                                       Period

          Compounding:                 Applicable

          Compounding Dates:           Each January 1, April 1, July 1 and
                                       October 1, subject to adjustment in
                                       accordance with the Following Business
                                       Day Convention.

     Floating Rate Payer
     Notice Requirements:              Party B shall promptly deliver to Party
                                       A a copy of all notices and other
                                       communications required or permitted to
                                       be given to Bondholders pursuant to the
                                       indenture.

     Business Days:                    London and New York

     Calculation Agent:                Party A, whose determinations and
                                       calculations will be binding in the
                                       absence of manifest error. The
                                       Calculation Agent will have no
                                       responsibility for good faith errors or
                                       omissions in making any determination as
                                       provided herein.

3.   Reference Bond:

     The payment obligations of Party A and B under this interest rate swap
     transaction are related to the underlying Reference Bond:

     The description set forth herein is a summary of certain of the relevant
     terms and conditions of the Bonds (defined below) and is qualified in its
     entirety by the Indenture (defined below) and does not purport to be a
     complete statement of all the terms and conditions of the Bonds. In the
     case of any omission or inconsistency, the terms of the Indenture shall
     govern. It is the intention of the Parties that the obligations of Party A
     are strictly correlated to those of Party B under the Bonds.

     Party B's $500,000,000 aggregate principal amount of 5% Convertible
     Subordinated Notes due April 1, 2007, CUSIP 757209AB7, (the "Bonds")
     convertible into shares of $0.0001 par value common stock of Party B (the
     "Shares"). The Bonds were issued pursuant to an indenture dated as of March
     29, 2000, between Party B and Norwest Bank Minnesota, National Association
     (the "Indenture"). Capitalized terms used herein that are not defined
     herein but that are defined in the Indenture shall have the meaning herein
     ascribed to them therein.

     The Bonds will pay interest semi-annually, on each April 1 and October 1,
     commencing October 1, 2000 (each such date, a "Bond Interest Payment
     Date").

                                      -5-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     The Bonds may be redeemed by Party B at any time (each such Bond, a
     "Redeemed Bond"), in whole or in part (each such date, a Redemption Date)
     on or after April 1, 2005, subject to notice of redemption having been
     given not less than 30 or more than 60 days prior to the designated
     Redemption Date and subject to the payment in full of the related principal
     of, premium, if any, and interest on the aggregate principal amount of the
     Bonds subject to redemption (such amounts to be paid, respectively, the
     "Bond Principal", the "Premium" and the "Bond Interest", and collectively,
     the "Redemption Amount"). The Bonds may also be redeemed by Party B at any
     time, in whole or in part (each such date, a Redemption Date) on or after
     the third business day after April 1, 2003 and before April 1, 2005,
     subject to notice of Redemption having been given not less than 30 or more
     than 60 days prior to the designated Redemption Date and subject to the
     payment in full of the related Redemption Amount, provided that the closing
     price of the Shares exceeds 140% of the Conversion Price (as defined below)
     for at least 20 trading days within a period of 30 consecutive trading days
     ending within five trading days of the date of the notice of Redemption.
     For purposes hereof, "Conversion Price" shall mean $190.73 per share,
     subject to adjustment as described in the Indenture.

     The Holder of the Bonds may require Party B to purchase the Bonds (each
     such Bond, a "Repurchased Bond"), in whole or in part in integral multiples
     of $1,000 principal amount, in the event of a change of control of Party B
     (as defined in the Indenture). Party B is required to give notice of such a
     change in control within 30 days of the occurrence. Holders must give
     notice of their intention to exercise their rights within 30 days of the
     date of the notice of change of control, and Party B must purchase the
     Shares on the 45th day following such notice of change of control. Party B
     will purchase such Bonds for cash equal to 100% of the principal amount or,
     at Party B's option, for Shares valued at 95% of the average closing price
     of the Shares for the five trading days immediately preceding and including
     the third trading day prior to the repurchase date.

     The Holder of the Bonds may at any time convert the principal amount of the
     Bonds registered in such Holder's name (each such Bond, a "Converted Bond")
     into 5.2430 Shares per $1,000 principal amount of Bonds, subject to
     adjustment in certain events, by surrendering such Bonds to the Corporate
     Trust Office of the Trustee, accompanied by appropriate notices and
     payments with respect to interest or taxes, as applicable. Party B shall
     have no obligation to pay any accrued and unpaid interest to any Holder
     that has delivered a conversion notice for the related interest accrual
     period with respect to the Bonds designated for conversion (such unpaid
     interest, the "Foregone Accrued Interest").

4.   Master Agreement Provisions:

     The following terms will apply to this Transaction as if such terms were in
     the Schedule to the 1992 ISDA Master Agreement referenced in the third
     paragraph of the Confirmation. Any reference to the "Agreement" shall be
     deemed a reference to such 1992 ISDA Master Agreements supplemented by the
     following terms.

                                      -6-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     (a) Specified Entity. "Specified Entity" means "Affiliates" in relation to
     Party A and Party B for the purpose of the "Default under Specified
     Transaction" provision (Section 5(a)(v)).

     (b) Specified Transaction. Specified Transaction will have the meaning
     specified in Section 14.

     (c) Cross Default. The "Cross Default" provision (Section 5(a)(vi)) as
     amended below will apply to Party A and Party B:

     "Specified Indebtedness" shall mean any obligation (whether present or
     future, contingent or otherwise, as principal or surety or otherwise) (a)
     in respect of borrowed money, or (b) in respect of any Specified
     Transaction (except that, for this purpose only, the words "and any other
     entity" shall be substituted for the words "and the other party to this
     Agreement (or any Credit Support Provider of such other party or any
     applicable Specified Entity of such other party)" where they appear in the
     definition of Specified Transaction).

     "Threshold Amount" means $20,000,000 (including the United States Dollar
     equivalent of obligations stated in any other currency or currency unit).

     (d) Credit Event Upon Merger. The "Credit Event Upon Merger" provision
     (Section 5(b)(iv)) will apply to Party A and Party B restated as follows:

     "Credit Event Upon Merger" shall mean that a Designated Event (as defined
     below) occurs with respect to a party ("X"), and such Designated Event does
     not constitute an event described in Section 5(a)(viii) of this Agreement
     but the creditworthiness of X or, if applicable, the successor, surviving
     or transferee entity of X, is materially weaker than that of X immediately
     prior to such action (and, in such event, such party or its successor or
     transferee, as appropriate, will be the Affected Party). For purposes
     hereof, a Designated Event with respect to X means that, after the Trade
     Date of the first Transaction between the parties:

     (i)  X consolidates or amalgamates with or merges with or into, or
          transfers all or substantially all its assets (or any substantial part
          of the assets comprising the business conducted by X as of the
          execution date hereof) to, or receives all or substantially all the
          assets or obligations of, another entity;

     (ii) any person or entity acquires directly or indirectly the beneficial
          ownership of equity securities having the power to elect a majority of
          the board of directors of X or otherwise acquires directly or
          indirectly the power to control the policy-making decisions of X; or

                                      -7-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     (iii) X effects any substantial change in its capital structure by means of
          the issuance, incurrence or guarantee of debt or the issuance of
          preferred stock or other securities convertible into, or exchangeable
          for, debt or preferred stock.

     (e) Automatic Early Termination. The "Automatic Early Termination"
     provision of Section 6(a) will apply to Party A and Party B.

     (f) Payments on Early Termination. For the purpose of Section 6(e), the
     Second Method and Loss will apply.

     (g) Termination Currency. "Termination Currency" means the currency
     selected by the party which is not the Defaulting Party or the Affected
     Party, as the case may be, or where there is more than one Affected Party
     the currency agreed by Party A and Party B. However, the Termination
     Currency shall be one of the currencies in which payments are required to
     be made in respect of Transactions. If the currency selected is not freely
     available, or where there are two Affected Parties and they cannot agree on
     a Termination Currency, the Termination Currency shall be U.S. Dollars.

     (h) Additional Termination Events. If (i) Party B amends any term of the
     Bonds which amendment (A) requires the execution of a Supplemental
     Indenture with the consent of the Bondholders pursuant to Section 8.2 of
     the Indenture or (B) requires the execution of a Supplemental Indenture
     pursuant to Section 8.1(4) of the Indenture; or (ii) any Bonds are
     repurchased by Party B after exercise of the Bondholders' put option upon
     the occurrence of a change of control, such action will be deemed a
     Termination Event in which Party B is the sole Affected Party and this
     Transaction is the only Affected Transaction, and this Transaction shall be
     terminated in accordance with the Early Termination Provision of the
     Agreement.

     (i) Documents to be Delivered. Each party agrees to deliver the following
     documents as applicable: Party A and Party B (i) upon execution of this
     Agreement and, if requested, upon execution of any Confirmation, evidence
     reasonably satisfactory to the other party as to the names, true signatures
     and authority of the officers or officials signing this Agreement or any
     Confirmation on its behalf and (ii) upon request, as soon as publicly
     available, a copy of the annual report for such party containing audited or
     certified financial statements for the most recently ended financial year.
     Such documents shall be covered by the Section 3(d) Representation.

     (j)  Addresses for Notices. For the purpose of Section 12(a):

     (i)  (1)  Address for notices or communications to Party A (other than by
               facsimile) (for all purposes):

<TABLE>
<S>                                 <C>
     Address:  One Cabot Square     Attention:(1)  Head of Credit Risk Management;
               London E14 4QJ                 (2)  Managing Director - Operations Dept.
               England                        (3)  Managing Director - Legal Department
</TABLE>

                                      -8-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     Telex No.:264521               Answerback:CSFBI G

          (2)  For the purpose of facsimile notices or communications under this
               Agreement (other than a notice or communication under Section 5
               or 6):

<TABLE>
<S>                                 <C>
     Facsimile No.: 020 7888 2686   Attention: Managing Director - Legal Department
</TABLE>

     Telephone number for oral confirmation
     of receipt of facsimile in legible form:   020 7888 2028

     Designated responsible employee for the
     purposes of Section 12(a)(iii):            Senior Legal Secretary

     (ii) Address for notices or communications to Party B (for all purposes):

     Address:                              Attention:
                --------------------                    ----------------------

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

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

     Telex No.:                            Answerback:
                -----------                             -----------

     Telephone No.:                        Facsimile No.:
                    -----------                           -----------

     (k) Multibranch Party. For the purpose of Section 10(c): Party A is not a
     Multibranch Party and Party B is not a Multibranch Party.

     (l) Credit Support Document. Details of any Credit Support Document:
     Collateral Appendix, attached.

     (m) Governing Law. The Agreement and each Confirmation thereunder will be
     governed by and construed in accordance with the law of the State of New
     York without reference to choice of law doctrine and each party hereby
     submits to the jurisdiction of the Courts of the State of New York.

     (n) Independent Reliance. The parties agree to amend Section 3 of this
     Agreement by the addition of the following provision at the end thereof and
     marked as subsection (g).

          "(g) Independent Reliance. It is entering into this Agreement and will
          enter into each Transaction in reliance upon such tax, accounting,
          regulatory, legal, and financial advice as it deems necessary and not
          upon any view expressed by the other party."

                                      -9-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

     (o) Set-off. Without affecting the provisions of this Agreement requiring
     the calculation of certain net payment amounts, all payments under this
     Agreement will be made without set-off or counterclaim; provided, however,
     that upon the designation of any Early Termination Date, in addition to and
     not in limitation of any other right or remedy (including any right to
     set-off, counterclaim, or otherwise withhold payment) under applicable law:

     the Non-defaulting Party or the party that is not the Affected Party (in
     either case, "X") may, without prior notice to any person, set off any sum
     or obligation (whether or not arising under this Agreement, whether matured
     or unmatured and irrespective of the currency, place of payment or booking
     office of the sum or obligation) owed by the Defaulting Party or Affected
     Party (in either case, "Y") to X or to any Affiliate of X, against any sum
     or obligation (whether or not arising under this Agreement, whether matured
     or unmatured and irrespective of the currency, place of payment or booking
     office of the sum or obligation) owed by X or any Affiliate of X to Y, and,
     for this purpose, may convert one currency into another. If any sum or
     obligation is unascertained, X may in good faith estimate that sum or
     obligation and set off in respect of that estimate, subject to X or Y, as
     the case may be, accounting to the other party when such sum or obligation
     is ascertained.

     Nothing in this Agreement shall be effective or deemed to create any charge
     under English law.

     (p) Recording of Conversation. Each party to this Agreement acknowledges
     and agrees to the tape recording of conversations between the parties to
     this Agreement whether by one or other or both of the parties and each
     party hereby consents to such recordings being used as evidence in
     Proceedings.

     (q) Waiver of Right to Trial by Jury. Each party waives, to the fullest
     extent permitted by applicable law, any right it may have to a trial by
     jury in respect of any suit, action or proceeding relating to this
     Agreement or any Credit Support Document. Each party (i) certifies that no
     representative, agent or attorney of the other party or any Credit Support
     Provider has represented, expressly or otherwise, that such other party
     would not, in the event of such a suit action or proceeding, seek to
     enforce the foregoing waiver and (ii) acknowledges that it and the other
     party have been induced to enter into this Agreement and provide for any
     Credit Support Document, as applicable by, among other things, the mutual
     waivers and certifications in this Section.

5.   Other Terms:

     Notional Adjustment

          The Notional Amount may, on any Business Day, be adjusted by the
          Calculation Agent, following receipt of notice from Party B (a
          "Notional Principal Amount Adjustment Notice") following a Conversion
          Rights Event (a "Conversion Rights Event") as to the aggregate
          principal amount for the

                                      -10-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

          Bonds converted to Shares, or any reduction in aggregate principal
          amount of the Bonds due to any redemption by Party B, or due to any
          Party B Optional Termination of a portion of the Transaction. In the
          event of any reduction of the aggregate principal amount of the Bonds,
          Party B will be obliged to deliver a Notional Principal Amount
          Adjustment Notice to Party A promptly, and the Notional Amount will be
          adjusted by the Calculation Agent immediately upon receipt of such
          Notice. For purposes hereof, a Conversion Rights Event shall occur on
          any day on which a Bondholder irrevocably exercises its right to
          convert Bonds into Shares.

          Notwithstanding any right of Party B to reissue or resell the
          Reference Bonds, Party A has no obligation to increase or otherwise
          take into consideration any such reissued or resold Bonds in respect
          of the Notional Amount.

6.   Additional Party B Representations:   Party B hereby represents that, on
                                           the Trade Date, it is not in
                                           possession of any material
                                           non-public information concerning
                                           the Issuer or the Bonds and that
                                           all material non-public information
                                           has been disclosed as may be
                                           required to allow Party B to
                                           purchase or sell the Bonds in
                                           compliance with the applicable
                                           federal securities laws.

7.   Party B Optional Termination Right:   Party B shall have the right at any
                                           time or from time to time, upon
                                           thirty (30) days' prior written
                                           notice to Party A, to terminate all
                                           or any portion of the Transaction;
                                           provided that (i) if only a portion
                                           of the transaction is terminated,
                                           such portion will relate to at
                                           least $10,000,000 notional amount
                                           of the Bonds and (ii) any such
                                           optional termination will result in
                                           the calculation and payment of such
                                           amounts, if any, on a pro rata
                                           basis, as would be required to be
                                           paid by either party in the event
                                           of an Early Termination of the
                                           Transaction resulting from a
                                           default in which Party B is the
                                           sole Defaulting Party and the sole
                                           Affected Party.

8.   Account Details:

          Interest Rate Swap Transaction:

               Payments to Party A:        To be advised

               Payments to Party B:        To be advised

                                      -11-

<PAGE>

(LETTERHEAD CREDIT SUISSE FIRST BOSTON)

Credit Suisse First Boston International is regulated by The Financial Services
Authority and has entered into this transaction as principal. The time at which
the above transaction was executed will be notified to Party B on request.

Please confirm that the foregoing correctly sets forth the terms of our
agreement by signing and returning this Confirmation.

                                Yours faithfully,

                                CREDIT SUISSE FIRST BOSTON
                                INTERNATIONAL

                                By: /s/ Suanne Dunn
                                   -----------------------------
                                Name: Suanne Dunn
                                Title: Authorized Agent

Confirmed as of the date first written above:

REDBACK NETWORKS INC.

By: /s/ Dennis D. Wolf
   --------------------------
Name: Dennis P. Wolf
Title: Senior Vice President
       of Finance and Chief
       Financial Officer

                                      -12-

<PAGE>

               COLLATERAL APPENDIX IN RESPECT OF THE CONFIRMATION
                           OF THE TRANSACTION BETWEEN
                    CREDIT SUISSE FIRST BOSTON INTERNATIONAL
                                       AND
                              REDBACK NETWORKS INC.

                     (External ID: 6792642; TCN: 421420249)

This Appendix constitutes a security agreement under Articles 8 and 9 of the
Uniform Commercial Code of the State of New York (the "UCC") with respect to any
Collateral.

1.   Definitions:

1.1  In this Appendix, the following expressions have the following meanings:

     "Banking Day" means any day on which commercial banks are open for business
     (including dealings in foreign exchange and foreign currency deposits) in
     (a) London, and (b) in the case of a Transfer of Permitted Collateral (i)
     the location of the account into which such Transfer is to be made, and
     (ii) either, in the case of a Transfer of Cash, the principal financial
     centre of the currency of such Cash or, in the case of a Transfer of other
     Permitted Collateral, the location of the account out of which such
     Transfer shall be made and, if different, the place where the Transfer will
     be registered (if applicable);

     "Cash" means US Dollars and such other currency or currencies as may from
     time to time be acceptable to the Secured Party for the purposes of this
     Appendix;

     "Cash Collateral" means Collateral comprising Cash;

     "Collateral" means all the Permitted Collateral Transferred to and held by
     or for the Secured Party pursuant to this Appendix (for the avoidance of
     doubt including, without limitation, Initial Collateral) together with all
     proceeds, distributions, substitutions for and additions to the foregoing
     in accordance with this Appendix and which has not been retransferred to
     the Pledgor;

     "Initial Collateral" means Permitted Collateral Delivered to Party A by
     Party B pursuant to Paragraph 4;

     "Permitted Collateral" means collectively Cash, US Treasuries and such
     other assets as may from time to time be acceptable to the Secured Party
     for the purposes of this Appendix;

     "Pledgor" means Party B;

     "Quasi Agency Obligations" means the negotiable debt obligations of the US
     Government National Mortgage Association, the US Federal National Mortgage
     Association, the US Federal Home Loan Mortgage Corporation, the US Student
     Loan Marketing Association or a US Federal Home Loan Bank;

<PAGE>

     "Relevant Percentage" means, on any date, the percentage appearing below
     opposite the relevant Permitted Collateral:

<TABLE>
<CAPTION>
                                                                                         Relevant
     Type of Permitted Collateral                                                       Percentage
     ----------------------------                                                       ----------
     <S>                                                                                   <C>
     US Government Obligations:
     with a Residual Maturity of less than one year                                        100%
     with a Residual Maturity equal to or greater than 1 year but less than 5 years         97%
     with a Residual Maturity equal to or greater than 5 years but less than 10 years       95%

     Other Permitted Collateral (excluding             such  percentage as shall from time to time
     US Dollars)                                       be specified by the Valuation Agent;
</TABLE>

     "Required Amount" means, in respect of any party on any date, an amount
     expressed in US Dollars, agreed upon (orally or in writing) by Party A and
     Party B on such date or, if Party A and Party B are unable promptly to
     agree upon an amount on such date, the sum of:

     (a)  the Value of the Permitted Collateral required to be Delivered
          pursuant to Paragraph 4; and

     (b)  the amount, if any, determined by the Valuation Agent, which would be
          payable by the Pledgor to the Secured Party under Section 6(e)(ii)(1)
          of the Agreement if an Early Termination Date were to occur in respect
          of this Transaction on such date, as a result of a Termination Event
          on the basis that the Secured Party is not the Affected Party and
          provided that Loss will be determined by the Valuation Agent using its
          estimates of the total losses and costs (or gain, in which case
          expressed as a negative number) that would be borne by Party A upon an
          Early Termination of this Transaction (as that term is defined in the
          definition of Loss); provided that the amount calculated under this
          provision (b) shall be deemed to be zero whenever the calculation
          described herein produces a number less than zero;

     "Residual Maturity" means, on any date, in respect of any Permitted
     Collateral comprising securities, the residual maturity of such securities
     as of such date;

     "Secured Party" means Party A;

     "Transfer" or "Transferred" means the transfer by one party to the other
     party (or its account) of Permitted Collateral:

     (a)  in the case of Cash, by wire transfer into one or more bank accounts
          specified by the recipient;

     (b)  in the case of Permitted Collateral that cannot be delivered by book
          entry, by delivery in appropriate physical form for transfer and
          accompanied by duly executed instruments of transfer in blank and such
          other documentation as the recipient of such transfer may at any time
          reasonably request; or

                                       -2-

<PAGE>

     (c)  in the case of Permitted Collateral (other than Cash) that can be
          delivered by book entry, by giving written instructions to a Federal
          Reserve Bank, or the Euroclear S.A./N.V. or Clearstream Bank, societe
          anonyme clearing systems, or any other depositary institution or
          entity agreed between the parties, together with a written copy
          thereof to the recipient of such Permitted Collateral, which if
          complied with would result in a legally effective transfer of the
          relevant interest to such recipient; or

     (d)  by any other method mutually acceptable to the parties;

     As used herein, "Transfer" is intended to have the same meaning as when
     used in UCC Section 8-313 or, where applicable, in any federal regulation
     governing transfers of Permitted Collateral;

     "US Dollars" and "US$" means the lawful currency of the United States of
     America;

     "US Government Obligations" means the negotiable debt obligations of the
     United States of America issued by the US Treasury Department or any other
     agency thereof, or negotiable debt obligations which are fully guaranteed
     or guaranteed as to principal and interest by the United States of America,
     provided that such obligations shall have a Residual Maturity as of the
     date of their Transfer to the Secured Party of less than ten (10) years,
     and, for the avoidance of doubt, Quasi Agency Obligations shall not
     constitute US Government Obligations;

     "Valuation Agent" means Party A;

     "Valuation Date" means any New York Business Day during the operation of
     this Collateral Appendix; and

     "Value" means on any date:

     (a)  with respect to US Dollars, the amount thereof;

     (b)  with respect to Cash comprising currencies other than US Dollars, the
          equivalent amount thereof in US Dollars, determined by the Valuation
          Agent, multiplied by the applicable Relevant Percentage.

     (c)  with respect to any US Government Obligations, the bid price for such
          US Government Obligations, obtained by the Valuation Agent and
          expressed in US Dollars, multiplied by the applicable Relevant
          Percentage; and

     (d)  with respect to any other Permitted Collateral, the fair market value
          thereof (expressed in US Dollars) on such date as determined in any
          reasonable manner by the Valuation Agent multiplied by the applicable
          Relevant Percentage.

1.2  References to Paragraphs are to Paragraphs of this Appendix.

                                       -3-

<PAGE>

2.   Grant of Security Interest:

2.1  As continuing security for the payment and discharge of all its obligations
     under the Agreement and subject to Paragraph 2.2, the Pledgor, as sole
     beneficial owner hereby pledges and grants to the Secured Party a first
     priority security interest in, lien on, and right of set-off against, the
     Collateral and agrees to do all acts and execute and deliver all documents
     necessary to ensure that the Collateral remains at all times subject to the
     pledge and security interest referred to in this Paragraph 2.

2.2  Although the parties intend that the Pledgor shall have no continuing
     right, title or interest in or to Cash Collateral, in the event that the
     Pledgor is deemed to have any right, title or interest therein, the
     foregoing Paragraph 2.1 shall apply to such Cash Collateral.

2.3  The rights of the Secured Party with respect to any Collateral Transferred
     hereunder shall include, in addition to and without limiting any other
     rights provided for in this Appendix, the right on any terms to use,
     commingle, sell, pledge, repledge, hypothecate, assign, or otherwise
     dispose of such Collateral, provided that no such transaction shall relieve
     the Secured Party of its obligations to return such Collateral pursuant to
     this Appendix.

3.   Conditions Precedent:

     Any obligation on the part of the Secured Party to make a Transfer pursuant
     to this Appendix is subject to the following conditions precedent:

     (a)  no Event of Default, Termination Event and/or any event or condition
          that with the giving of notice or passage of time, or both, would
          constitute such an Event of Default or Termination Event, has occurred
          and is continuing as of the date for such Transfer with the Pledgor as
          the Defaulting Party or the Affected Party (as the case may be); and

     (b)  no breach by the Pledgor hereunder of any obligation to the Secured
          Party for any payment or delivery arising otherwise than under the
          Agreement has occurred and is continuing as of the date for such
          Transfer.

4.   Initial Collateral:

     On the Trade Date Pledgor shall Deliver to Secured Party Permitted
     Collateral, having a Value not less than 2.0% of the Notional Amount, in
     accordance with the delivery instructions in Section 7 of the Confirmation.

5.   Delivery of Collateral:

     Where, on any Valuation Date, the Required Amount exceeds the Value of the
     Collateral held by the Secured Party on such date, the Pledgor shall, if
     requested by the Secured Party, Transfer to the Secured Party Permitted
     Collateral having a Value equal to such excess (rounded upwards to the
     nearest integral multiple of US$100,000) within two (2) Banking Days of
     such request.

                                       -4-

<PAGE>

6.   Return of Collateral:

6.1  Where, on any Valuation Date, the Value of Collateral held by the Secured
     Party exceeds the Required Amount on such date, the Secured Party shall, if
     requested by the Pledgor and subject to Paragraph 3, Transfer to the
     Pledgor Collateral having a Value equal to such excess (rounded downwards
     to the nearest integral multiple of US$100,000) within two (2) Banking Days
     of such request.

6.2  The Secured Party may in lieu of returning to the Pledgor any Collateral
     comprising securities (as such term is defined in the UCC) return
     securities which are fungible (as such term is used in Section 1-201(17) of
     the UCC) therewith in satisfaction of its obligations under this Paragraph
     6.

7.   Interest on Cash Collateral:

7.1  Cash Collateral shall accrue interest for the benefit of the Pledgor at a
     rate equal to the overnight rate for deposits in US Dollars as displayed on
     Telerate page 118 and will be compounded on each Business Day provided that
     if, for any reason, Telerate page 118 shall be unavailable or any Cash
     Collateral shall comprise a currency other than US Dollars interest shall
     accrue at such rate and be compounded on such days as the Secured Party
     shall reasonably determine.

7.2  Interest accruing hereunder on Cash Collateral shall accrue from the date
     that the deposit of such Cash is confirmed to or to the order of the
     Secured Party and, subject to Paragraph 3, shall be paid to the Pledgor
     within two (2) Banking Days of the last day of each month, provided that
     such interest shall only be paid to the Pledgor to the extent that such
     interest when added to the Value of the Collateral, as of the date of such
     payment, exceeds the Required Amount on such date and any such interest not
     paid to the Pledgor shall be an accretion to the Collateral.

8.   Substitution:

     The Pledgor may, with the prior consent of the Secured Party (such consent
     not to be unreasonably withheld), substitute other Permitted Collateral for
     existing Collateral. In the event of the Secured Party granting its consent
     thereto the Pledgor shall pay all the costs involved in effecting such
     substitution and, subject to Paragraph 3, the Secured Party shall Transfer
     to the Pledgor the existing Collateral which is the subject of the
     substitution as soon as practicable after the Secured Party shall be
     satisfied that it has received Permitted Collateral in replacement therefor
     having a Value, on the date of Transfer, not less than that of the
     Collateral being substituted.

9.   Responsibility for and Care of Collateral:

9.1  Subject to Paragraph 12 all rights and powers conferred on or exercisable
     by the registered holder, bearer or legal owner of the Collateral
     (excluding Cash Collateral) shall be exercisable by the Pledgor or as the
     Pledgor shall direct and the Pledgor shall remain liable to observe and
     perform all conditions and obligations in respect of the Collateral
     (excluding Cash Collateral). The Secured Party shall, upon its receiving

                                       -5-

<PAGE>

     express and unequivocal instructions from the Pledgor, take all action
     necessary on its part to ensure that all such rights and powers are
     exercised in accordance with the Pledgor's instructions, provided that the
     Secured Party shall not be obliged to act in accordance with the Pledgor's
     instructions where: (a) such instructions involve any expense, and such
     expense has not been funded in advance by the Pledgor; or (b) to act in
     accordance with such instructions may reduce or in any way prejudice the
     value of such Collateral, and provided further that the Secured Party shall
     otherwise have no duty with respect to Collateral including, without
     limitation, any duty to collect any proceeds or enforce or preserve any
     rights pertaining thereto.

9.2  The Pledgor hereby undertakes not to exercise such rights as it may have
     retained in respect of the Collateral in such a way as to reduce or
     prejudice in any way the value of the Collateral.

9.3  The parties acknowledge and agree that upon the Transfer of Collateral to
     the Secured Party, or to an agent or custodian to receive and hold
     Collateral for or on behalf of the Secured Party, such Collateral will not
     necessarily be registered in the Pledgor's name.

10.  Representations, Warranties and Undertakings:

     The Pledgor represents and warrants that the provisions of Section 3 of the
     Agreement apply in full force and effect and, without limiting the
     foregoing:

     (a)  it has the power to enter into the Transaction and to execute and
          deliver this Confirmation and perform its obligations hereunder
          (including, for the avoidance of doubt, under this Appendix);

     (b)  its obligations under the Transaction (including, for the avoidance of
          doubt, under this Appendix) constitute its legal, valid and binding
          obligations, enforceable in accordance with their respective terms;

     (c)  it has taken all necessary action to authorise such entry, execution,
          delivery and performance;

     (d)  such entry, execution, delivery and performance do not violate or
          conflict with any applicable law, any provision of its constituent
          documents, any order or judgement of any court or other agency of
          government applicable to it or any of its assets or any contractual
          restriction binding on or affecting it or any of its assets;

     (e)  it is and, subject to Paragraph 2.2, will at all times be the sole,
          lawful and beneficial owner of the Collateral free from all
          encumbrances and forms of security interests (except for the charge or
          other security interest, howsoever described, created hereby), and no
          other person has, or will at any time have, any proprietary right or
          interest therein;

     (f)  except for the first priority security interest (howsoever described)
          in favor of the Secured Party and subject to Paragraph 2.2, no person
          has, (or in the case of after-acquired Collateral, at the time the
          Pledgor acquires rights therein, will

                                       -6-

<PAGE>

          have) any right, title, claim or interest (by way of charge, lien,
          mortgage, pledge, security interest (however described) or other
          encumbrance, or otherwise) in, against or to the Collateral;

     (g)  it will not (without the prior written consent of the Secured Party at
          any time) sell or agree to sell or otherwise dispose of, or agree to
          dispose of, the Collateral; and

     (h)  it will ensure, so far as it is able, that the Collateral is and at
          all times remains free from any restrictions on transfer.

11.  Events of Default:

     Notwithstanding anything to the contrary in the Agreement, the occurrence
     at any time with respect to the Pledgor of any of the following events
     constitutes an Event of Default with respect to it for the purposes of the
     Agreement:

     (a)  failure by it to Transfer Permitted Collateral in accordance with
          Paragraphs 4 and 5, if such failure is not remedied within one (1)
          Banking Day of notice of such failure being given to the Pledgor;

     (b)  failure by it to comply with or perform any other provision required
          to be complied with or performed by it which is contained in this
          Appendix if such failure is not remedied within seven (7) days of
          notice of such failure given to the Pledgor;

     (c)  the failing or ceasing of any provision of this Appendix to be in full
          force and effect prior to the satisfaction by the Pledgor of all its
          obligations to the Secured Party under the Agreement; or

     (d)  the Pledgor disaffirms, disclaims, repudiates or rejects, in whole or
          in part, or challenges the validity of, any part of this Appendix.

12.  Secured Party's Rights and Remedies:

     Upon the occurrence and continuance of any Event of Default with respect to
     the Pledgor or any Termination Event, or the breach by the Pledgor of any
     payment or delivery to the Secured Party otherwise than under the
     Agreement, the Secured Party may, to the extent permitted by applicable
     law, exercise as to all Collateral then held by the Secured Party the
     rights and remedies of a secured party under the UCC and as otherwise
     provided by law and, in addition, at its sole option and without notice to
     or demand upon the Pledgor, may exercise any or all of the following
     remedies:

     (a)  set off the Secured Party's obligation to repay any Cash to the
          Pledgor, against any amounts owing to the Secured Party by the
          Pledgor; and/or

     (b)  liquidate and apply all or any part of any Collateral other than Cash
          in any manner deemed commercially reasonable by the Secured Party,
          with the proceeds of such liquidation constituting Cash Collateral
          hereunder; and/or

                                       -7-

<PAGE>

     (c)  set off the Value of such Collateral against any amounts owing to the
          Secured Party by the Pledgor.

13.  Delivery Default:

     If the Pledgor fails to make, when due, any Transfer of Collateral, it
     shall pay to the Secured Party, to the extent permitted under applicable
     law, an amount equal to interest at the Default Rate (as that expression is
     defined in the Agreement) multiplied by the Value of the Collateral which
     was required to be Transferred, from (and including) the date that such
     Collateral was required to be Transferred to (but excluding) the date of
     the Transfer. This interest will be calculated on a daily rate by reference
     to the actual number of days elapsed.

14.  Currency Conversion:

     The equivalent on any day in one currency (the "first currency") of an
     amount denominated in another currency (the "second currency") shall be an
     amount in the first currency equal to the amount which the Valuation Agent
     would have received if the Valuation Agent had on such day made a purchase
     of the first currency with such amount of the second currency at its then
     prevailing offered spot rate of exchange.

15.  Set-off:

     Upon the designation or deemed designation of any Early Termination Date,
     in addition to and not in limitation of any other right or remedy
     (including any right to set-off, counterclaim, or otherwise withhold
     payment) under applicable law, the Non-defaulting Party or the party that
     is not the Affected Party (in either case, "X") may, without prior notice
     to any person, set off any sum or obligation (whether or not arising under
     the Agreement (including, without limitation this Appendix), whether
     matured or unmatured and irrespective of the currency, place of payment or
     booking office of the sum or obligation) owed by the Defaulting Party or
     Affected Party (in either case, "Y") to X or to any Affiliate of X, against
     any sum or obligation (whether or not arising under the Agreement
     (including, without limitation this Appendix), whether matured or unmatured
     and irrespective of the currency, place of payment or booking office of the
     sum or obligation) owed by X or any Affiliate of X to Y, and, for this
     purpose, may convert one currency into another. If any sum or obligation is
     unascertained, X may in good faith estimate that sum or obligation and set
     off in respect of that estimate, subject to X or Y, as the case may be,
     accounting to the other party when such sum or obligation is ascertained.

16.  Security and Performance Assurance:

     For the avoidance of doubt the parties agree that:

     (a)  Cash Collateral, is not and shall not be deemed to be "client money"
          for the purposes of the Financial Services (Client Money) Regulations
          1991 and the Secured Party shall not hold Cash Collateral as "client
          money" as contemplated by the Regulations; and

                                       -8-

<PAGE>

     (b)  Collateral constitutes security and performance assurance without
          which the Secured Party would not otherwise enter into and continue
          any and all Transactions.

17.  Notices:

     Any notice or demand to be given to or made by the Secured Party or the
     Pledgor pursuant to this Appendix shall be made as specified in Section 12
     of the Agreement save that such notice or demand:

     (a)  if given to the Secured Party, shall be given to or made in accordance
          with the following details:-

          Address:     One Cabot Square, London  E14 4QJ  England

          Telephone:   0207 883 8083
          Facsimile:   0207 883 7987
          Telex:       264521       Answerback: CSFBI G
          Swift:       CSFP GB 2L
                       Attention: CSFBi Operations Settlements

          or in accordance with such other details as the Secured Party may from
          time to time notify (in accordance with the terms of this Paragraph
          17) to the Pledgor; and

     (b)  shall be deemed to be effective at the time such notice is actually
          received unless such notice is received on a day which is not a
          Banking Day, or after 4.00 p.m. London time on any Banking Day, in
          which event such notice shall be deemed to be effective at 9.00 a.m.
          London time on the next succeeding Banking Day.

18.  Documentation and Inconsistency:

     The parties agree to execute a collateral agreement (or such other form of
     documentation as Party A deems appropriate) in the form provided by Party
     A, subject to good faith negotiation, as an appendix to the Agreement.

                                       -9-

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