Covad Announces Fully Funded Business Plan With SBC Agreements Valued at $150 Million.

Business Editors

SANTA CLARA, Calif.--(BUSINESS WIRE)--Nov. 13, 2001

Covad Communications (OTCBB:COVD), the leading national broadband services provider utilizing DSL (Digital Subscriber Line) technology, today announced the signing of a loan agreement and the restructuring of its resale and marketing agreement with SBC Communications Inc. (NYSE:SBC). The agreements, valued at $150 million, are expected to provide a cash infusion to Covad and, by adding to Covad's existing available cash, will provide the funding Covad expects it will need to finance growth to cash flow positive operations targeted by the second half of 2003.

This new agreement will not increase SBC ownership in Covad, which is currently at approximately five percent. The agreement allows SBC to offer a more diverse portfolio of DSL products to customers inside and outside SBC's traditional 13-state region.

The new agreements include four elements:

-- A one-time $75 million prepayment, secured by Covad assets, that SBC can use
toward the purchase of Covad services during the next 10 years. The agreement
does not limit the amount of services that SBC can purchase.

-- A $50 million four-year loan secured by Covad assets. Interest payments will
be deferred for two years.

-- Payment to Covad of a $10 million restructuring fee in exchange for Covad
eliminating SBC's revenue commitments under the original resale and marketing
agreement.

-- The elimination of a $15 million co-op-marketing fee, which was required in
the previous resale and marketing agreement, owed by Covad to SBC.

The payments under the agreements are subject to customary closing conditions and are also conditioned on the bankruptcy court's approval and the consummation of Covad Communications Group's plan of reorganization. The funding would occur on the same day that the reorganization plan becomes effective, which is expected by January 2002.

"This infusion of capital will be one of the final steps in our plan toward financial stability for Covad," said Charles E. Hoffman, Covad CEO and president. "It provides us with the financial freedom and cash cushion that we anticipate will get us to profitability without further dilution. It also strengthens our alliance with SBC, allowing us to reap the economic benefits now while continuing to meet SBC's in-region and out-of-region broadband needs going forward."

The $150 million agreements replace the $600 million in six-year graduated payments for services from the previous resale and marketing agreement that was announced with SBC in September 2000.

"We benefit by receiving the prepayment when the cash is needed and not waiting until the previous graduated payment plan pays out," said Hoffman. "The change in the resale and marketing agreement does not change both companies' commitment to provide the best broadband services to businesses and consumers in the nation."

Adding SBC's payments to Covad's cash on hand will put Covad in an even stronger financial position. Covad recently announced that due to several cost reduction initiatives implemented during the first nine months of this year, the company projects that it has enough cash to get it into the third quarter of 2002, even without the SBC funding package. Covad's third quarter cash usage averages less than $25 million a month, resulting in a cash balance at the end of the third quarter 2001 of approximately $460 million. Covad expects to continue to reduce its monthly cash usage. The third quarter amount includes the cash reserved for the anticipated settlement of claims in the parent company's pre-negotiated bankruptcy proceeding that would eliminate $1.4 billion in bond financing.

Covad has previously stated that, as of June 30, 2001, it was pre-overhead recurring cash flow positive (before corporate overhead allocation) in 28 out of its 50 regional markets in the U.S. Covad expects to be pre-overhead recurring cash flow positive in 40 markets by the end of the year, or 80 percent of its markets.

"The business model for Covad works region by region," said Hoffman. "When this transaction is completed, we will have the cash that we believe will get the company to cash flow positive by the latter half of 2003. We are doing this by adding both small business and residential subscribers to our network and providing new services such as TeleSoho DSL to complement our basic DSL services. Additionally, we will continue our efforts to drive costs down and efficiency up from our line-shared and self-install service for residential customers. Our parent company's pre-negotiated bankruptcy is on track, and we plan to emerge free of $1.4 billion in debt by January 2002. We expect our continuing efforts will result in a successful, ongoing business."

Covad's fully funded business plan announcement is commented on by some of Covad's leading Internet Service Provider partners.

Harry M. Taxin, President & CEO, MegaPath Networks said, "This is an exciting announcement for the future of the DSL industry in general, and for our partnership with Covad. Many of MegaPath's potential customers have been waiting for a clear signal that the financial troubles of the upstream carriers are resolved. We foresee strong growth in the small/medium business and distributed enterprise marketplaces for this extremely cost-effective technology, and Covad's demonstrated leadership and reliability to deliver DSL circuits will fuel that growth. We should have a clear runway ahead of us."

"EarthLink applauds Covad on this significant achievement. This clearly shows there is great strength in our industry," said Mike Lunsford, executive vice president of strategic brand marketing for Earthlink. "We are proud of our partnership with Covad and together we are dedicated to making our customers' broadband experience the best of the best."

TeleSoho(SM) DSL is Covad's recently introduced service designed for small businesses, businesses with remote locations and corporate teleworkers. It combines the high download speeds and multiple PC support often required for businesses with the lower cost, convenience and fast installation of a line-shared DSL connection with a self-install kit.

About Covad Communications

Covad is the leading national broadband service provider of high-speed Internet and network access utilizing Digital Subscriber Line (DSL) technology. It offers DSL, IP and dial-up services through Internet Service Providers, telecommunications carriers, enterprises, affinity groups and PC OEMs to small and medium-sized businesses and home users. Covad services are currently available across the United States in 94 of the top Metropolitan Statistical Areas (MSAs). Covad's network currently covers more than 40 million homes and business and reaches approximately 40 to 45 percent of all US homes and businesses. Corporate headquarters is located at 4250 Burton Drive, Santa Clara, CA 95054. Telephone: 1-888-GO-COVAD. Web Site: www.covad.com.

Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995:

The statements contained in this press release that are not historical facts are "forward-looking statements," including statements concerning Covad's anticipated reduction of costs, expected reductions in cash usage, ability to continue as a going concern, ability to emerge from bankruptcy proceedings, ability to complete the transactions with SBC Communications that are described in this release, sufficiency of Covad's cash on hand, additional capital requirements, ability to secure additional financing, ability to become cash flow positive and achieve profitability and the statements made by the president and CEO and the assumptions underlying such statements. Such risks and assumptions include, but are not limited to, Covad's ability to emerge from bankruptcy proceedings in a timely manner, to raise additional capital and address its financial issues, to continue as a going concern, to continue to service and support its customers, to successfully market its services to current and new customers, to manage the consolidation of sales to a fewer number of wholesale customers, to successfully migrate end users, Covad's ability to generate customer demand, to achieve acceptable pricing, to respond to competition, to develop and maintain strategic relationships, to manage growth, to receive timely payment from customers, to access regions and negotiate suitable interconnection agreements, all in a timely manner, at reasonable costs and on satisfactory terms and conditions, as well as regulatory, legislative, and judicial developments and the absence of an adverse result in litigation against Covad. All forward-looking statements are expressly qualified in their entirety by the "Risk Factors" and other cautionary statements included in Covad's SEC Annual Report on Form 10-K for the year ended December 31, 2000 and in Covad's SEC Quarterly Report on Form 10-Q for the quarter ended June 30, 2001.