According to the docket, on December 19, 2002, the Court entered both the Order approving the settlement proceeds and the Final Judgment and Order of Dismissal. On January 10, 2003, the Court further entered the Order awarding plaintiffs' counsel's attorneys' fees and reimbursement of expenses. A Notice of Appeal was soon after filed by the plaintiff, and on March 15, 2004, the Court entered the certified copy of the Order from the U.S. Court of Appeals affirming the decision of the District Court.

As stated in the Notice of Settlement, the parties reached an agreement-in-principle to settle the action. The Settlement creates a fund in the amount of $16.5 million in cash and will include any interest that accrues on the fund prior to distribution as well as 6,495,844 shares of Covad common stock subject to certain terms and conditions. The stock is to be issued exempt from the registration requirements pursuant to §3(a) (10) of the Securities Act of 1933 and/or §1145 of the United States Bankruptcy Code. Based on Lead Plaintiffs' estimate of the number of securities entitled to participate in the Settlement, the current price of Covad stock, and the anticipated number of claims to be submitted by Class members the average distribution per security would be approximately $0.27 before deduction of court-approved fees and expenses.

If the Settlement is approved by the District Court, counsel for the Plaintiffs will apply to the District Court for attorneys' fees of 25% of the settlement proceeds plus reimbursement of out-of-pocket expenses not to exceed $300,000 to be paid from the settlement proceeds. The four Lead Plaintiffs may also seek reimbursement for the time expended and expense incurred by each of them in serving as Lead Plaintiff. If sought, the amounts will not exceed $5,000 for each. If the amount requested by counsel is approved by the District Court, the average cost per security would be $0.07.

The original complaint charges Covad and certain of its officers and directors with violations of the Securities Exchange Act of 1934. The complaint alleges that defendants misrepresented the revenues that Covad was deriving from its newly acquired BlueStar business, which, together with defendants' false representations that Covad would post Q3 2000 EPS of $(1.18) and revenues of $74.7 million, operated to artificially inflate the price of Covad stock to a Class Period high of $20.93 on September 11, 2000. This upsurge in Covad's stock caused by defendants' alleged false and misleading statements enabled Covad to complete a $500 million bond offering and the $140 million stock-for-stock acquisition of BlueStar. On October 17, 2000, 15 business days after the acquisition of BlueStar was completed and just 18 business days after Covad raised $500 million in a debt offering, Covad revealed that it was in fact suffering a huge decline in revenues, was not posting smaller negative EPS growth, and contrary to defendants' repeated assurances, Covad was forced to reveal the problems it had been experiencing during the Class Period in attempting to grow its business. This announcement caused its stock price to drop to as low as $3.50 (or over $5 per share) on record volume of 70 million shares on October 18, 2000, causing hundreds of millions of dollars in damages to members of the Class.