According to the Company’s FORM 10-Q for the quarterly period ended June 30, 2006, several stockholders have filed complaints in the United States District Court for the Southern District of New York, on behalf of themselves and purported classes of stockholders, against the Company and several former and current officers and directors in addition to some of the underwriters who handled the Company’s stock offerings. These lawsuits are so-called IPO allocation cases, challenging practices allegedly used by certain underwriters of public equity offerings during the late 1990s and 2000. On April 19, 2002, the plaintiffs amended their complaint and removed the Company as a defendant. Certain directors and officers are still named in the complaint. The plaintiffs claim that the Company and others failed to disclose the arrangements that some of these underwriters purportedly made with certain investors. The plaintiffs and the issuer defendants have reached a tentative agreement to settle the matter, and the Company believes the tentative settlement will not have a material adverse effect on its condensed consolidated financial position or results of operations. That settlement, however, has not been finalized.

The complaint charges defendants with violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 for issuing a Registration Statement and
Prospectus (the"Prospectus") that contained materially false and misleading
information and failed to disclose material information. The Prospectus was
issued in connection with Covad's initial public offering of 7.8 million shares
of common stock at $18.00 per share that was completed on or about January 22, 1999. The complaint alleges that the Prospectus was false and misleading because it failed to disclose (i) the Underwriter Defendants' agreement with certain investors to provide them with significant amounts of restricted Covad shares in the IPO in exchange for exorbitant and undisclosed commissions; and (ii) the agreement between the Underwriter Defendants and certain of its customers whereby the Underwriter Defendants would allocate shares in the IPO to those customers in exchange for the customers' agreement to purchase Covad shares in the after-market at pre- determined prices.

On November 24, 2009, the Court issued a Final Order and Judgment that, among other things, ordered, pursuant to this Court's October 5, 2009 Opinion and Order, attorneys' fees in the amount of one-third (33-1/3%) of the Settlement amount, net of $46,941,556.96 of litigation expenses, $27,500,000 of anticipated Administration fees, and a total of $1,303,593.05 in PSLRA reimbursements awarded to specific plaintiffs, were awarded to Plaintiffs' Counsel.