Exhibit 10.1
LOAN AND SECURITY AGREEMENT
     THIS LOAN AND SECURITY AGREEMENT (this “Agreement”) dated as of the
Effective Date between SILICON VALLEY BANK, a California corporation (“Bank”),
and COVAD COMMUNICATIONS GROUP, INC., a Delaware corporation (“Group”) and COVAD
COMMUNICATIONS COMPANY, a California corporation (“Company”, together with
Group, individually a “Borrower” and collectively, “Borrowers”), provides the
terms on which Bank shall lend to Borrowers and Borrowers shall repay Bank. The
parties agree as follows:
     1 ACCOUNTING AND OTHER TERMS
     Accounting terms not defined in this Agreement shall be construed following
GAAP. Calculations and determinations must be made following GAAP. Capitalized
terms not otherwise defined in this Agreement shall have the meanings set forth
in Section 13. All other terms contained in this Agreement, unless otherwise
indicated, shall have the meaning provided by the Code to the extent such terms
are defined therein.
     2 LOAN AND TERMS OF PAYMENT
     2.1 Promise to Pay. Each Borrower hereby unconditionally promises to pay
Bank the outstanding principal amount of all Credit Extensions and accrued and
unpaid interest thereon as and when due in accordance with this Agreement.
     2.1.1 Revolving Advances.
          (a) Availability. Subject to the terms and conditions of this
Agreement, Bank shall make Advances not exceeding the Availability Amount minus
(1) the amount of all outstanding Letters of Credit (including drawn but
unreimbursed Letters of Credit), minus (2) the FX Reserve, and minus (3) the
outstanding amounts used for Cash Management Services. Amounts borrowed under
the Revolving Line may be repaid and, prior to the Revolving Line Maturity Date,
reborrowed, subject to the applicable terms and conditions precedent herein.
          (b) Termination; Repayment. The Revolving Line terminates on the
Revolving Line Maturity Date, when the principal amount of all Advances, the
unpaid interest thereon, and all other Obligations relating to the Revolving
Line shall be immediately due and payable.
     2.1.2 Letters of Credit Sublimit.
          (a) As part of the Revolving Line, Bank shall issue or have issued
Letters of Credit for Borrowers’ account. The face amount of outstanding Letters
of Credit (including drawn but unreimbursed Letters of Credit) may not exceed
the Availability Amount minus (1) the FX Reserve, and minus (2) the outstanding
principal balance of any Advances (including any amounts used for Cash
Management Services). Such aggregate amounts utilized hereunder shall at all
times reduce the amount otherwise available for Advances under the Revolving
Line. If, on the Revolving Maturity Date, there are any outstanding Letters of
Credit, then on such date Borrowers shall provide to Bank cash collateral in an
amount equal to 100% of the face amount of all such Letters of Credit plus all
interest, fees, and costs due or to become due in connection therewith (as
estimated by Bank in its good faith business judgment), to secure all of the
Obligations relating to said Letters of Credit. All Letters of Credit shall be
in form and substance acceptable to Bank in its sole discretion and shall be
subject to the terms and conditions of Bank’s standard Application and Letter of
Credit Agreement (the “Letter of Credit Application”). Each Borrower agrees to
execute any further documentation in connection with the Letters of Credit as
Bank may reasonably request. Each Borrower further agrees to be bound by the
regulations and interpretations of the issuer of any Letters of Credit
guarantied by Bank and opened for Borrowers’ account or by Bank’s
interpretations of any Letter of Credit issued by Bank for Borrowers’ account,
and each Borrower understands and agrees that Bank shall not be liable for any
error, negligence, or mistake, whether of omission or commission, in following
such Borrower’s instructions or those contained in the Letters of Credit or any
modifications, amendments, or supplements thereto.
          (b) The obligation of Borrowers to immediately reimburse Bank for
drawings made under Letters of Credit shall be absolute, unconditional, and
irrevocable, and shall be performed strictly in accordance with the terms of
this Agreement, such Letters of Credit, and the Letter of Credit Application.

 

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     2.1.3 Foreign Exchange Sublimit. As part of the Revolving Line, Borrowers
may enter into foreign exchange contracts with Bank under which Borrowers commit
to purchase from or sell to Bank a specific amount of Foreign Currency (each, a
“FX Forward Contract”) on a specified date (the "Settlement Date”). FX Forward
Contracts shall have a Settlement Date of at least one (1) FX Business Day after
the contract date and shall be subject to a reserve of ten percent (10%) of each
outstanding FX Forward Contract (the “FX Reserve”). The obligations of Borrowers
relating to this section may not exceed the Availability Amount minus (a) the
amount of all outstanding Letters of Credit (including drawn but unreimbursed
Letters of Credit) and minus (b) the outstanding principal balance of any
Advances (including any amounts used for Cash Management Services).
     2.1.4 Cash Management Services Sublimit. Borrowers may use the Revolving
Line for Bank’s cash management services which may include merchant services,
direct deposit of payroll, business credit card, and check cashing services
identified in Bank’s various cash management services agreements (collectively,
the “Cash Management Services”). Any amounts Bank pays on behalf of Borrowers or
any amounts that are not paid by Borrowers for any Cash Management Services will
be treated as Advances under the Revolving Line and will accrue interest at the
interest rate applicable to Advances. The obligations of Borrowers relating to
this section (the “Cash Management Services Sublimit”) may not exceed the
Availability Amount minus (a) the amount of all outstanding Letters of Credit
(including drawn but unreimbursed Letters of Credit), minus (b) the FX Reserve,
and minus (c) the outstanding principal balance of any Advances.
     2.2 General Provisions Relating to the Advances.
          Each Advance shall, at Borrowers’ option in accordance with the terms
of this Agreement, be either in the form of a Prime Rate Advance or a LIBOR
Advance. Borrowers shall pay interest accrued on the Advances at the rates and
in the manner set forth in Section 2.3(a).
     2.3 Payment of Interest on the Credit Extensions.
     (a) Computation of Interest. Interest on the Credit Extensions and all fees
payable hereunder shall be computed on the basis of a 360-day year and the
actual number of days elapsed in the period during which such interest accrues.
In computing interest on any Credit Extension, the date of the making of such
Credit Extension shall be included and the date of payment shall be excluded;
provided, however, that if any Credit Extension is repaid on the same day on
which it is made, such day shall be included in computing interest on such
Credit Extension. Each Advance shall bear interest on the outstanding principal
amount thereof from the date when made, continued or converted until paid in
full at a rate per annum equal to the Prime Rate plus the Prime Rate Margin or
the LIBOR Rate plus the LIBOR Rate Margin, as the case may be. On and after the
expiration of any Interest Period applicable to any LIBOR Advance outstanding on
the date of occurrence of an Event of Default or acceleration of the
Obligations, the Effective Amount of such LIBOR Advance shall, during the
continuance of such Event of Default or after acceleration, bear interest at a
rate per annum equal to the Prime Rate plus five percent (5.00%). Pursuant to
the terms hereof, interest on each Advance shall be paid in arrears on each
Interest Payment Date. Interest shall also be paid on the date of any prepayment
of any Advance pursuant to this Agreement for the portion of any Advance so
prepaid and upon payment (including prepayment) in full thereof. All accrued but
unpaid interest on the Advances shall be due and payable on the Revolving Line
Maturity Date.
     (b) Default Interest. Except as otherwise provided in Section 2.3(a), after
an Event of Default, Obligations shall bear interest five percent (5.00%) above
the rate effective immediately before the Event of Default (the “Default Rate”).
Payment or acceptance of the increased interest rate provided in this
Section 2.3(b) is not a permitted alternative to timely payment and shall not
constitute a waiver of any Event of Default or otherwise prejudice or limit any
rights or remedies of Bank.
     (c) Prime Rate Advances. Each change in the interest rate of the Prime Rate
Advances based on changes in the Prime Rate shall be effective on the effective
date of such change and to the extent of such change. Bank shall use its best
efforts to give Borrowers prompt notice of any such change in the Prime Rate;
provided, however, that any failure by Bank to provide Borrowers with notice
hereunder shall not affect Bank’s right to make changes in the interest rate of
the Prime Rate Advances based on changes in the Prime Rate.
     (d) LIBOR Advances. The interest rate applicable to each LIBOR Advance
shall be determined in accordance with Section 3.6(a) hereunder. Subject to
Sections 3.6 and 3.7, such rate shall apply during the entire

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Interest Period applicable to such LIBOR Advance, and interest calculated
thereon shall be payable on the Interest Payment Date applicable to such LIBOR
Advance.
     (e) Debit of Accounts. Bank may debit any of Borrowers’ deposit accounts,
including the Designated Deposit Account, for principal and interest payments
when due, or any other amounts Borrowers owe Bank, when due. Bank shall promptly
notify Borrowers after it debits Borrowers’ accounts. These debits shall not
constitute a set-off.
     2.4 Fees. Borrowers shall pay to Bank:
          (a) Commitment Fee. A fully earned, non-refundable commitment fee of
$500,000 on the Effective Date; and
          (b) Letter of Credit Fee. Bank’s customary fees and expenses for the
issuance or renewal of Letters of Credit, including, without limitation, a
Letter of Credit Fee of three quarters of one percent (0.75%) per annum of the
face amount of each Letter of Credit issued, upon the issuance, each anniversary
of the issuance, and the renewal of such Letter of Credit; and
          (c) Unused Revolving Line Facility Fee. A fee (the “Unused Revolving
Line Facility Fee”), payable monthly, in arrears, on a calendar year basis, in
an amount equal to one quarter of one percent (0.25%) per annum of the average
unused portion of the Revolving Line, as determined by Bank. Borrowers shall not
be entitled to any credit, rebate or repayment of any Unused Revolving Line
Facility Fee previously earned by Bank pursuant to this Section notwithstanding
any termination of the Agreement or the suspension or termination of Bank’s
obligation to make loans and advances hereunder; and
          (d) Late Payment Fee. A late payment fee equal to five percent (5.0%)
of any Credit Extension not paid when due; and
          (e) Bank Expenses. All Bank Expenses (including reasonable attorneys’
fees and expenses, plus expenses, for documentation and negotiation of this
Agreement) incurred through and after the Effective Date, when due.
     2.5 Overadvances. If, at any time, the Credit Extensions under
Sections 2.1.1, 2.1.2, 2.1.3 and 2.1.4 exceed the Availability Amount, Borrowers
shall immediately pay to Bank in cash such excess.
     3 CONDITIONS OF LOANS
     3.1 Conditions Precedent to Initial Credit Extension. Bank’s obligation to
make the initial Credit Extension is subject to the condition precedent that
Bank shall have received, in form and substance satisfactory to Bank, such
documents, and completion of such other matters, as Bank may reasonably deem
necessary or appropriate, including, without limitation:
          (a) Borrowers and Guarantors shall have delivered duly executed
original signatures to the Loan Documents to which they are a party;
          (b) Borrowers and Guarantors shall have delivered duly executed
original signatures to the Control Agreements;
          (c) Borrowers and Guarantors shall have delivered their Operating
Documents and a good standing certificate of (1) Group certified by the
Secretary of State of the States of Delaware and California, (2) Company
certified by the Secretary of State of the States of California, Texas and
Illinois, (3) Nextweb certified by the Secretary of State of the State of
California, (4) Dieca certified by the Secretary of State of the States of
Colorado, Virginia, Georgia, New Jersey, Kentucky and the District of Columbia,
and (5) Laser Link certified by the Secretary of State of the State of Delaware,
each as of a date no earlier than thirty (30) days prior to the Effective Date;

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          (d) Borrowers and Guarantors shall have delivered duly executed
original signatures to the completed Borrowing Resolutions;
          (e) Borrowers shall have delivered subordination or intercreditor
agreements in favor of Bank (in form satisfactory to Bank, the “Subordination
Agreements”), each duly executed by Earthlink, any officer, director and
shareholder with respect to any Indebtedness owing from such Borrower to such
Person;
          (f) Borrowers shall have delivered a payoff letter (or a termination
letter, if applicable) from Bank with respect to the Indebtedness owing from
Group to SBC pursuant to that certain Resale Agreement, dated as of November 12,
2001 (the “SBC Resale Agreement”), by and between SBC and Group and that certain
Credit Agreement dated as of November 12, 2001 (the “SBC Credit Agreement”) by
and between SBC and Group;
          (g) Borrowers shall have delivered evidence that (1) the Liens
securing Indebtedness owed by Group pursuant to the SBC Resale Agreement and the
SBC Credit Agreement will be terminated and (2) the documents and/or filings
evidencing the perfection of such Liens, including without limitation any
financing statements and/or control agreements, have or will, concurrently with
the initial Credit Extension, be terminated;
          (h) Bank shall have received certified copies, dated as of a recent
date, of financing statement searches, as Bank shall request, accompanied by
written evidence (including any UCC termination statements) that the Liens
indicated in any such financing statements either constitute Permitted Liens or
have been or, in connection with the initial Credit Extension, will be
terminated or released;
          (i) Borrowers and Guarantors shall have delivered the Perfection
Certificate(s) executed by each Borrower and each Guarantor;
          (j) Borrowers and Guarantors shall have delivered a landlord’s consent
for their chief executive office executed by CarrAmerica Realty Operating
Partnership, L.P. in favor of Bank;
          (k) Borrowers shall have delivered (1) a legal opinion of Borrowers’
counsel dated as of the Effective Date together with the duly executed original
signatures thereto and (2) a legal opinion of Borrowers’ FCC counsel dated as of
the Effective Date together with the duly executed original signatures thereto;
          (l) Borrowers shall have delivered (1) evidence that Earthlink has
invested at least $50,000,000 (the “Earthlink Proceeds”) in Group, through
Earthlink’s purchase of 6,134,969 shares of common stock for $10,000,0000 and
12% Senior Secured Convertible Notes due 2011 for $40,000,000, and (2) the fully
executed Purchase Agreement dated as of March 15, 2006 by and among Group,
Company and Earthlink, the Security Agreement, the Note and any other
“Transaction Document,” as defined in the Purchase Agreement (each as defined
therein, collectively with any other note, purchase agreement, security
agreement or document in connection with or relating to the Earthlink Phase II
Financing, the “Earthlink Documents”);
          (m) Borrowers shall have delivered fully executed copies of the
NextWeb acquisition documents and any other documents related thereto (the
“NextWeb Acquisition Documents”);
          (n) Borrowers shall have delivered (1) revised projections which
include reasonable assumptions regarding the SBC Resale Agreement and the SBC
Credit Agreement, the acquisition of NextWeb and the receipt of the Earthlink
Proceeds; and (2) annual financial projections for the fiscal years and 2006 and
2007 (on a quarterly basis) as approved by Group’s Board of Directors, together
with any related business forecasts used in the preparation of such annual
financial projections, each in form and substance reasonably acceptable to Bank;
          (o) Borrowers shall have delivered evidence satisfactory to Bank that
the insurance policies required by Section 6.5 hereof are in full force and
effect, together with appropriate evidence showing loss payable and/or
additional insured clauses or endorsements in favor of Bank;
          (p) Borrowers shall have had a diligence call (satisfactory to Bank)
with senior management at Earthlink with respect to the Earthlink Documents and
its terms and conditions therein;

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          (q) Stock certificates of all the outstanding stock of each of Group’s
Subsidiaries accompanied by stock powers executed in blank; provided however, if
the pledge of any of Group’s Subsidiaries organized outside the United States
causes material adverse tax results as reasonably determined by Group’s Board of
Directors, then such pledge shall be limited to 66% of the outstanding voting
stock of such Subsidiary,
          (r) Borrowers shall have paid the fees and Bank Expenses then due as
specified in Section 2.4 hereof; and
          (s) Borrowers shall have (1) filed with the applicable Governmental
Authorities all applications for Governmental Approvals necessary for the grant
of a security interest to Bank in all of Borrowers’ and Guarantors’ property,
including without limitation, the Governmental Approvals from Arizona, Colorado,
Louisiana, West Virginia, Delaware, Georgia, Indiana, New Jersey, New York,
Pennsylvania, Tennessee and the District of Columbia) and (2) provided to Bank
copies of all such filings.
     3.2 Conditions Precedent to all Credit Extensions. Bank’s obligations to
make each Credit Extension, including the initial Credit Extension, is subject
to the following:
          (a) except as otherwise provided in Section 3.4(a), timely receipt of
an executed Notice of Borrowing;
          (b) the representations and warranties in Section 5 shall be true in
all material respects on the date of the Notice of Borrowing and on the Funding
Date of each Credit Extension; provided, however, that such materiality
qualifier shall not be applicable to any representations and warranties that
already are qualified or modified by materiality in the text thereof; and
provided, further that those representations and warranties expressly referring
to a specific date shall be true, accurate and complete in all material respects
as of such date, and no Default or Event of Default shall have occurred and be
continuing or result from the Credit Extension. Each Credit Extension is
Borrowers’ representation and warranty on that date that the representations and
warranties in Section 5 remain true in all material respects; provided, however,
that such materiality qualifier shall not be applicable to any representations
and warranties that already are qualified or modified by materiality in the text
thereof; and provided, further that those representations and warranties
expressly referring to a specific date shall be true, accurate and complete in
all material respects as of such date; and
          (c) in Bank’s sole discretion, there has not been a Material Adverse
Change.
     3.3 Covenant to Deliver.
     Each Borrower agrees to deliver to Bank each item required to be delivered
to Bank under this Agreement as a condition to any Credit Extension. Each
Borrower expressly agrees that the extension of a Credit Extension prior to the
receipt by Bank of any such item shall not constitute a waiver by Bank of such
Borrower’s obligation to deliver such item, and any such extension in the
absence of a required item shall be in Bank’s sole discretion.
     3.4 Procedures for Borrowing.
     (a) Subject to the prior satisfaction of all other applicable conditions to
the making of an Advance set forth in this Agreement, each Advance shall be made
upon Borrowers’ irrevocable written notice delivered to Bank in the Notice of
Borrowing, each executed by a Responsible Officer of Borrowers or without
instructions if the Advances are necessary to meet Obligations which have become
due. Such Notice of Borrowing must be received by Bank prior to 11:00 a.m.
Pacific time, (1) at least three (3) Business Days prior to the requested
Funding Date, in the case of LIBOR Advances, and (2) at least one (1) Business
Day prior to the requested Funding Date, in the case of Prime Rate Advances,
specifying:
               (1) the amount of the Advance, which, if a LIBOR Advance is
requested, shall be in an aggregate minimum principal amount of $1,000,000 or in
any integral multiple of $1,000,000 in excess thereof;
               (2) the requested Funding Date;

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               (3) whether the Advance is to be comprised of LIBOR Advances or
Prime Rate Advances; and
               (4) the duration of the Interest Period applicable to any such
LIBOR Advances included in such notice; provided that if the Notice of Borrowing
shall fail to specify the duration of the Interest Period for any Advance
comprised of LIBOR Advances, such Interest Period shall be one (1) month.
     (b) The proceeds of all such Advances will then be made available to
Borrowers on the Funding Date by Bank by transfer to the Designated Deposit
Account and, subsequently, by wire transfer to such other account as Borrowers
may instruct in the Notice of Borrowing. No Advances shall be deemed made to
Borrowers, and no interest shall accrue on any such Advance, until the related
funds have been deposited in the Designated Deposit Account.
     3.5 Conversion and Continuation Elections.
     (a) So long as (1) no Event of Default or Default exists; (2) no Borrower
has sent any notice of termination of this Agreement; and (3) each Borrower
shall have complied with such customary procedures as Bank has established from
time to time for Borrowers’ requests for LIBOR Advances, Borrowers may, upon
irrevocable written notice to Bank:
               (1) elect to convert on any Business Day, Prime Rate Advances in
an amount equal to $1,000,000 or any integral multiple of $1,000,000 in excess
thereof into LIBOR Advances;
               (2) elect to continue on any Interest Payment Date any LIBOR
Advances maturing on such Interest Payment Date (or any part thereof in an
amount equal to $1,000,000 or any integral multiple of $1,000,000 in excess
thereof); provided, that if the aggregate amount of LIBOR Advances shall have
been reduced, by payment, prepayment, or conversion of part thereof, to be less
than $1,000,000, such LIBOR Advances shall automatically convert into Prime Rate
Advances, and on and after such date the right of Borrowers to continue such
Advances as, and convert such Advances into, LIBOR Advances shall terminate; or
               (3) elect to convert on any Interest Payment Date any LIBOR
Advances maturing on such Interest Payment Date (or any part thereof in an
amount equal to $1,000,000 or any integral multiple of $1,000,000 in excess
thereof) into Prime Rate Advances.
     (b) Borrowers shall deliver a Notice of Conversion/Continuation in
accordance with Section 10 to be received by Bank prior to 11:00 a.m. Pacific
time at least (1) three (3) Business Days in advance of the Conversion Date or
Continuation Date, if any Advances are to be converted into or continued as
LIBOR Advances; and (2) one (1) Business Day in advance of the Conversion Date,
if any Advances are to be converted into Prime Rate Advances, in each case
specifying the:
               (1) proposed Conversion Date or Continuation Date;
               (2) aggregate amount of the Advances to be converted or continued
which, if any Advances are to be converted into or continued as LIBOR Advances,
shall be in an aggregate minimum principal amount of $1,000,000 or in any
integral multiple of $1,000,000 in excess thereof;
               (3) nature of the proposed conversion or continuation; and
               (4) duration of the requested Interest Period.
     (c) If upon the expiration of any Interest Period applicable to any LIBOR
Advances, Borrowers shall have timely failed to select a new Interest Period to
be applicable to such LIBOR Advances, Borrowers shall be deemed to have elected
to convert such LIBOR Advances into Prime Rate Advances.
     (d) Any LIBOR Advances shall, at Bank’s option, convert into Prime Rate
Advances in the event that (1) an Event of Default or Default shall exist, or
(2) the aggregate principal amount of the Prime Rate Advances which have been
previously converted to LIBOR

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Advances, or the aggregate principal amount of existing LIBOR Advances
continued, as the case may be, at the beginning of an Interest Period shall at
any time during such Interest Period exceed the Revolving Line. Each Borrower
agrees to pay Bank, upon demand by Bank (or Bank may, at its option, charge the
Designated Deposit Account or any other account Borrowers maintain with Bank)
any amounts required to compensate Bank for any loss (including loss of
anticipated profits), cost, or expense incurred by Bank, as a result of the
conversion of LIBOR Advances to Prime Rate Advances pursuant to any of the
foregoing.
     (e) Notwithstanding anything to the contrary contained herein, Bank shall
not be required to purchase United States Dollar deposits in the London
interbank market or other applicable LIBOR market to fund any LIBOR Advances,
but the provisions hereof shall be deemed to apply as if Bank had purchased such
deposits to fund the LIBOR Advances.
     3.6 Special Provisions Governing LIBOR Advances.
     Notwithstanding any other provision of this Agreement to the contrary, the
following provisions shall govern with respect to LIBOR Advances as to the
matters covered:
     (a) Determination of Applicable Interest Rate. As soon as practicable on
each Interest Rate Determination Date, Bank shall determine (which determination
shall, absent manifest error in calculation, be final, conclusive and binding
upon all parties) the interest rate that shall apply to the LIBOR Advances for
which an interest rate is then being determined for the applicable Interest
Period and shall promptly give notice thereof (in writing or by telephone
confirmed in writing) to Borrowers.
     (b) Inability to Determine Applicable Interest Rate. In the event that Bank
shall have determined (which determination shall be final and conclusive and
binding upon all parties hereto), on any Interest Rate Determination Date with
respect to any LIBOR Advance, that by reason of circumstances affecting the
London interbank market adequate and fair means do not exist for ascertaining
the interest rate applicable to such Advance on the basis provided for in the
definition of LIBOR, Bank shall on such date give notice (by facsimile or by
telephone confirmed in writing) to Borrowers of such determination, whereupon
(1) no Advances may be made as, or converted to, LIBOR Advances until such time
as Bank notifies Borrowers that the circumstances giving rise to such notice no
longer exist, and (2) any Notice of Borrowing or Notice of
Conversion/Continuation given by Borrowers with respect to Advances in respect
of which such determination was made shall be deemed to be rescinded by
Borrowers.
     (c) Compensation for Breakage or Non-Commencement of Interest Periods.
Borrowers shall compensate Bank, upon written request by Bank (which request
shall set forth the manner and method of computing such compensation), for all
reasonable losses, expenses and liabilities, if any (including any interest paid
by Bank to lenders of funds borrowed by it to make or carry its LIBOR Advances
and any loss, expense or liability incurred by Bank in connection with the
liquidation or re-employment of such funds) such that Bank may incur: (1) if for
any reason (other than a default by Bank or due to any failure of Bank or
Assignee (as defined in Section 3.8) to fund LIBOR Advances due to
impracticability or illegality under Sections 3.7(d) and 3.7(e)) a borrowing or
a conversion to or continuation of any LIBOR Advance does not occur on a date
specified in a Notice of Borrowing or a Notice of Conversion/Continuation, as
the case may be, or (2) if any principal payment or any conversion of any of its
LIBOR Advances occurs on a date prior to the last day of an Interest Period
applicable to that Advance.
     (d) Assumptions Concerning Funding of LIBOR Advances. Calculation of all
amounts payable to Bank under this Section 3.6 and under Section 3.4 shall be
made as though Bank had actually funded each of its relevant LIBOR Advances
through the purchase of a Eurodollar deposit bearing interest at the rate
obtained pursuant to the definition of LIBOR Rate in an amount equal to the
amount of such LIBOR Advance and having a maturity comparable to the relevant
Interest Period; provided, however, that Bank may fund each of its LIBOR
Advances in any manner it sees fit and the foregoing assumptions shall be
utilized only for the purposes of calculating amounts payable under this
Section 3.6 and under Section 3.4.
     (e) LIBOR Advances After Default. After the occurrence and during the
continuance of an Event of Default, (1) no Borrower may elect to have an Advance
be made or continued as, or converted to, a LIBOR Advance after the expiration
of any Interest Period then in effect for such Advance and (2) subject to the
provisions of Section 3.6(c), any Notice of Conversion/Continuation given by
Borrowers with respect to a requested conversion/continuation that has not yet
occurred shall be deemed to be rescinded by Borrowers and be deemed a request to
convert or continue Advances referred to therein as Prime Rate Advances.

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     3.7 Additional Requirements/Provisions Regarding LIBOR Advances.
     (a) If for any reason (including voluntary or mandatory prepayment or
acceleration), Bank receives all or part of the principal amount of a LIBOR
Advance prior to the last day of the Interest Period for such Advance, Borrowers
shall immediately notify Borrowers’ account officer at Bank and, on demand by
Bank, pay Bank the amount (if any) by which (1) the additional interest which
would have been payable on the amount so received had it not been received until
the last day of such Interest Period exceeds (2) the interest which would have
been recoverable by Bank by placing the amount so received on deposit in the
certificate of deposit markets, the offshore currency markets, or United States
Treasury investment products, as the case may be, for a period starting on the
date on which it was so received and ending on the last day of such Interest
Period at the interest rate determined by Bank in its reasonable discretion.
Bank’s determination as to such amount shall be conclusive absent manifest
error.
     (b) Borrowers shall pay Bank, upon demand by Bank, from time to time such
amounts as Bank may determine to be necessary to compensate it for any costs
incurred by Bank that Bank determines are attributable to its making or
maintaining of any amount receivable by Bank hereunder in respect of any
Advances relating thereto (such increases in costs and reductions in amounts
receivable being herein called “Additional Costs”), in each case resulting from
any Regulatory Change which:
               (1) changes the basis of taxation of any amounts payable to Bank
under this Agreement in respect of any Advances (other than changes which affect
taxes measured by or imposed on the overall net income of Bank by the
jurisdiction in which Bank has its principal office);
               (2) imposes or modifies any reserve, special deposit or similar
requirements relating to any extensions of credit or other assets of, or any
deposits with, or other liabilities of Bank (including any Advances or any
deposits referred to in the definition of LIBOR); or
               (3) imposes any other condition affecting this Agreement (or any
of such extensions of credit or liabilities).
     Bank will notify Borrowers of any event occurring after the Effective Date
which will entitle Bank to compensation pursuant to this Section 3.7 as promptly
as practicable after it obtains knowledge thereof and determines to request such
compensation. Bank will furnish Borrowers with a statement setting forth the
basis and amount of each request by Bank for compensation under this
Section 3.7. Determinations and allocations by Bank for purposes of this
Section 3.7 of the effect of any Regulatory Change on its costs of maintaining
its obligations to make Advances, of making or maintaining Advances, or on
amounts receivable by it in respect of Advances, and of the additional amounts
required to compensate Bank in respect of any Additional Costs, shall be
conclusive absent manifest error.
     (c) If Bank shall determine that the adoption or implementation of any
applicable law, rule, regulation, or treaty regarding capital adequacy, or any
change therein, or any change in the interpretation or administration thereof by
any Governmental Authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or compliance by Bank (or its
applicable lending office) with any respect or directive regarding capital
adequacy (whether or not having the force of law) of any such authority, central
bank, or comparable agency, has or would have the effect of reducing the rate of
return on capital of Bank or any person or entity controlling Bank (a “Parent”)
as a consequence of its obligations hereunder to a level below that which Bank
(or its Parent) could have achieved but for such adoption, change, or compliance
(taking into consideration policies with respect to capital adequacy) by an
amount deemed by Bank to be material, then from time to time, within fifteen
(15) days after demand by Bank, Borrowers shall pay to Bank such additional
amount or amounts as will compensate Bank for such reduction. A statement of
Bank claiming compensation under this Section 3.7(c) and setting forth the
additional amount or amounts to be paid to it hereunder shall be conclusive
absent manifest error.
     (d) If, at any time, Bank, in its sole and absolute discretion, determines
that (1) the amount of LIBOR Advances for periods equal to the corresponding
Interest Periods are not available to Bank in the offshore currency interbank
markets, or (2) LIBOR does not accurately reflect the cost to Bank of lending
the LIBOR Advances, then Bank shall promptly give notice thereof to Borrowers.
Upon the giving of such notice, Bank’s obligation to make the LIBOR Advances
shall terminate; provided, however, Advances shall not terminate if Bank and
Borrowers agree in writing to a different interest rate applicable to LIBOR
Advances.

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     (e) If it shall become unlawful for Bank to continue to fund or maintain
any LIBOR Advances, or to perform its obligations hereunder, upon demand by
Bank, Borrowers shall prepay the Advances in full with accrued interest thereon
and all other amounts payable by Borrowers hereunder (including, without
limitation, any amount payable in connection with such prepayment pursuant to
Section 3.7(a)). Notwithstanding the foregoing, to the extent a determination by
Bank as described above relates to a LIBOR Advance then being requested by
Borrowers pursuant to a Notice of Borrowing or a Notice of
Conversion/Continuation, Borrowers shall have the option, subject to the
provisions of Section 3.6(c), to (1) rescind such Notice of Borrowing or Notice
of Conversion/Continuation by giving notice (by facsimile or by telephone
confirmed in writing) to Bank of such rescission on the date on which Bank gives
notice of its determination as described above, or (2) modify such Notice of
Borrowing or Notice of Conversion/Continuation to obtain a Prime Rate Advance or
to have outstanding Advances converted into or continued as Prime Rate Advances
by giving notice (by facsimile or by telephone confirmed in writing) to Bank of
such modification on the date on which Bank gives notice of its determination as
described above.
     3.8 Right to Syndicate.
     (a) Bank and any subsequent assignee (individually, an “Assignor”) may make
an assignment to any other Person (individually an “Assignee”; and collectively,
“Assignees”) of at any time or times, the Loan Documents, Obligations, loans and
any commitment or any portion thereof or interest therein, including such
Assignor’s rights, title, interests, remedies, powers or duties thereunder. Any
assignment by Assignor shall: (1) require the execution of an assignment
agreement (an “Assignment Agreement”) in form and substance reasonably
satisfactory to, and acknowledged by, such Assignor; (2) be conditioned on such
Assignee representing to such Assignor that such Assignee is purchasing the
applicable loans and commitments to be assigned to it for its own account, for
investment purposes and not with a view to the distribution thereof; (3) after
giving effect to any such partial assignment, such Assignee shall have
commitments in an amount at least equal to $5,000,000 and Assignor shall have
retained commitments in an amount at least equal to $5,000,000; and (4) include
a payment by Borrowers to such Assignor of an assignment fee of $3,500 for such
assignment. In the case of an assignment by an Assignor under this Section 3.8,
the Assignee shall have, to the extent of such assignment, the same rights,
benefits and obligations as such Assignor hereunder. Such Assignor shall be
relieved of its obligations hereunder with respect to its commitments or
assigned portion thereof from and after the date of such assignment. Each
Borrower hereby acknowledges and agrees that any assignment shall give rise to a
direct obligation of Borrowers to such Assignee and that such Assignee shall be
considered to be a “Bank.” In all instances, each Bank’s liability to make loans
hereunder shall be several and not joint and shall be limited to such Bank’s pro
rata share of the applicable commitment.
     (b) Each Borrower executing this Agreement shall assist any Assignor to
sell assignments under this Section 3.8 as reasonably required to enable such
Assignor to effect any such assignment or participation, including the execution
and delivery of any and all agreements, notes and other documents and
instruments as shall be requested and, if requested by such Assignor, the
preparation of informational materials for, and the participation of management
in meetings with, potential assignees or participants. Each Borrower executing
this Agreement shall certify the correctness, completeness and accuracy of all
descriptions of such Borrower and their respective affairs contained in any
selling materials provided by them and all other information provided by them
and included in such materials.
     (c) Any Assignor may furnish any information concerning Borrowers in the
possession of such Assignor from time to time to assignees (including
prospective assignees); provided that such Assignor shall obtain from assignees
confidentiality covenants substantially equivalent to those contained in
Section 12.8.
     4 CREATION OF SECURITY INTEREST
     4.1 Grant of Security Interest. Borrowers hereby grant Bank, to secure the
payment and performance in full of all of the Obligations, a continuing security
interest in, and pledges to Bank, the Collateral, wherever located, whether now
owned or hereafter acquired or arising, and all proceeds and products thereof.
Each Borrower represents, warrants, and covenants that the security interest
granted herein is and shall at all times continue to be a first priority
perfected security interest in the Collateral (subject only to Permitted Liens
that may have superior priority to Bank’s Lien under this Agreement). If any
Borrower shall acquire a commercial tort claim, Borrowers shall promptly notify
Bank in a writing signed by Borrowers of the general details thereof and grant
to Bank in such writing a security interest therein and in the proceeds thereof,
all upon the terms of this Agreement, with such writing to be in form and
substance reasonably satisfactory to Bank.

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     If this Agreement is terminated, Bank’s Lien in the Collateral shall
continue until the Obligations (other than inchoate indemnity obligations) are
repaid in full in cash. Upon payment in full in cash of the Obligations and at
such time as Bank’s obligation to make Credit Extensions has terminated, Bank
shall, at Borrowers’ sole cost and expense, release its Liens in the Collateral
and all rights therein shall revert to Borrowers.
     4.2 Authorization to File Financing Statements. Borrowers hereby authorize
Bank to file financing statements, without notice to Borrowers, with all
appropriate jurisdictions to perfect or protect Bank’s interest or rights
hereunder, including a notice that any disposition of the Collateral, by either
Borrower or any other Person, shall be deemed to violate the rights of Bank
under the Code.
     5 REPRESENTATIONS AND WARRANTIES
          Each Borrower represents and warrants as follows:
     5.1 Due Organization and Authorization. Each Borrower and each of Group’s
Subsidiaries are duly existing and in good standing in their respective
jurisdictions of formation and are qualified and licensed to do business and are
in good standing in any jurisdiction in which the conduct of their business or
their ownership of property requires that they be qualified except where the
failure to do so could not reasonably be expected to have a material adverse
effect on such Borrower’s business. In connection with this Agreement, each
Borrower and Guarantor has delivered to Bank completed certificates
substantially in the form attached hereto as Exhibit F each signed by each
Borrower and Guarantor, respectively, entitled “Perfection Certificate”. Each
Borrower represents and warrants to Bank that (a) such Borrower’s or Guarantor’s
exact legal name is that indicated on the Perfection Certificate and on the
signature page hereof; (b) such Borrower or Guarantor is an organization of the
type and is organized in the jurisdiction set forth in the Perfection
Certificate; (c) the Perfection Certificate accurately sets forth such
Borrower’s or Guarantor’s organizational identification number or accurately
states that such Borrower or Guarantor has none; (d) the Perfection Certificate
accurately sets forth such Borrower’s or Guarantor’s place of business, or, if
more than one, its chief executive office as well as such Borrower’s or
Guarantor’s mailing address (if different than its chief executive office); (e)
neither Borrower nor Guarantor (and each of its respective predecessors) has, in
the past five (5) years, changed its state of formation, organizational
structure or type, or any organizational number assigned by its jurisdiction;
and (f) all other information set forth on the Perfection Certificate pertaining
to Group and each of its Subsidiaries is accurate and complete. If neither
Borrower nor Guarantor is a Registered Organization but later becomes one, such
Borrower or Guarantor shall promptly notify Bank of such occurrence and provide
Bank with such Borrower’s or Guarantor’s organizational identification number.
     The execution, delivery and performance by Borrowers and Guarantors of the
Loan Documents have been duly authorized, and do not (1) conflict with any
Borrower’s or Guarantor’s organizational documents, (2) contravene, conflict
with, constitute a default under or violate any material Requirement of Law,
(3) contravene, conflict or violate any applicable order, writ, judgment,
injunction, decree, determination or award of any Governmental Authority by
which either Group or any its Subsidiaries or any of their property or assets
may be bound or affected, (4) require any action by, filing with or Governmental
Approval from any Governmental Authority (except such Governmental Approvals
which have already been obtained and are in full force and effect or are being
obtained pursuant to Section 6.1(c)) or (5) constitute an event of default under
any material agreement by which such Borrower or Guarantor is bound. Neither
Borrower nor Guarantor is in default under any agreement to which it is a party
or by which it is bound in which the default could reasonably be expected to
have a material adverse effect on any Borrower’s or Guarantor’s business.
     5.2 Collateral. Each Borrower and Guarantor has good title to, has rights
in, and the power to transfer each item of the Collateral upon which it purports
to grant a Lien hereunder, free and clear of any and all Liens except Permitted
Liens. Neither Borrower nor Guarantor has deposit accounts other than the
deposit accounts with Bank, the deposit accounts, if any, described in the
Perfection Certificate delivered to Bank in connection herewith, or of which
such Borrower or Guarantor has given Bank notice and taken such actions as are
necessary to give Bank a perfected security interest therein. The Accounts are
bona fide, existing obligations of the Account Debtors.
     The Collateral is not in the possession of any third party bailee (such as
a warehouse) except as otherwise provided in the Perfection Certificate. None of
the components of the Collateral shall be maintained at locations other than as
provided in the Perfection Certificate or as Borrowers have given Bank notice
pursuant to Section 7.2.

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In the event that any Borrower or any Guarantor, after the date hereof, intends
to store or otherwise deliver any portion of the Collateral to a bailee, then
such Borrower or Guarantor will first receive the written consent of Bank and
such bailee must execute and deliver a bailee agreement in form and substance
satisfactory to Bank in its sole discretion.
     All Inventory is in all material respects of good and marketable quality,
free from material defects.
     Each Borrower and Guarantor is the licensee or sole owner of its respective
intellectual property, except for non-exclusive licenses granted to its
customers in the ordinary course of business. Each of Borrowers’ and Guarantors’
patents are valid and enforceable, and no part of the intellectual property has
been judged invalid or unenforceable, in whole or in part, and to the best of
such Borrower’s and Guarantor’s knowledge, no claim has been made that any part
of the intellectual property violates the rights of any third party except to
the extent such claim could not reasonably be expected to have a material
adverse effect on such Borrower’s or Guarantor’s business. Except as noted on
the Disclosure Schedule, (a) the granting of a security interest in any
Borrower’s or Guarantor’s property is not prohibited by any Requirement of Law
of a Governmental Authority and (b) no Borrower or Guarantor is a party to, nor
is bound by, any material license or other agreement with respect to which such
Borrower or Guarantor is the licensee that prohibits or otherwise restricts such
Borrower or Guarantor from granting a security interest in such Borrower’s or
Guarantor’s interest in such license or agreement or any other property. Each
Borrower shall, and shall cause each Guarantor to provide written notice to Bank
within thirty (30) days of entering or becoming bound by any such license or
agreement which is reasonably likely to have a material impact on such
Borrower’s or Guarantor’s business or financial condition (other than
over-the-counter software that is commercially available to the public). Each
Borrower shall, and shall cause each Guarantor to, (1) take commercially
reasonable efforts to obtain the consent of, or waiver by, any person whose
consent or waiver is necessary for all such licenses or contract rights and
(2) use their best efforts to obtain the certificate, authorization, permit,
consent, approval, order, license, exemption from, or filing or registration or
qualification with, any Requirement of Law or Governmental Authority, in each
case, necessary for Bank to have a security interest in any Borrower’s or
Guarantor’s property that might otherwise be restricted or prohibited by any
Requirement of Law or Governmental Authority or by the terms of any such license
or agreement (such consent or authorization may include a licensor’s agreement
to a contingent assignment of the license to Bank if Bank determines that is
necessary in its good faith judgment), whether now existing or entered into in
the future.
     5.3 Accounts Receivable. For any Eligible Account in any Borrowing Base
Certificate, (a) all statements made and all unpaid balances appearing in all
invoices, instruments and other documents evidencing such Eligible Accounts are
and shall be true and correct and all such invoices, instruments and other
documents, and all of Borrowers’ Books are genuine and in all respects what they
purport to be and (b) all certificates, authorizations, permits, consents,
approvals, orders, licenses, exemptions from, or filings or registrations or
qualifications with, any Governmental Authority or to comply with any
Requirement of Law necessary for the Accounts and the other property to be
deemed “Collateral” have been obtained. The granting of a security interest to
Bank in the Eligible Accounts and all sales and other transactions underlying or
giving rise to each Eligible Account each shall comply in all material respects
with all applicable laws and governmental rules and regulations. No Borrower has
knowledge of any actual or imminent Insolvency Proceeding of any Account Debtor
whose accounts are an Eligible Account in any Borrowing Base Certificate. To the
best of Borrowers’ knowledge, all signatures and endorsements on all documents,
instruments, and agreements relating to all Eligible Accounts are genuine, and
all such documents, instruments and agreements are legally enforceable in
accordance with their terms.
     5.4 Litigation. Except as set forth on the Disclosure Schedule, there are
no actions or proceedings pending or, to the knowledge of the Responsible
Officers, threatened in writing by or against Group or any of its Subsidiaries
involving more than $1,000,000.
     5.5 No Material Deviation in Financial Statements. All consolidated
financial statements for Group and any of its Subsidiaries delivered to Bank
fairly present in all material respects Group’s consolidated financial condition
and Group’s consolidated results of operations. There has not been any material
deterioration in Group’s consolidated financial condition since the date of the
most recent financial statements submitted to Bank.
     5.6 Solvency. The fair salable value of Borrowers’ assets (including
goodwill minus disposition costs) exceeds the fair value of its liabilities. No
Borrower is left with unreasonably small capital after the transactions in this
Agreement; and each Borrower is able to pay its debts (including trade debts) as
they mature.

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     5.7 Regulatory Compliance. No Borrower is an “investment company” or a
company “controlled” by an “investment company” under the Investment Company
Act. No Borrower is engaged as one of its important activities in extending
credit for margin stock (under Regulations T and U of the Federal Reserve Board
of Governors). Each Borrower has complied in all material respects with the
Federal Fair Labor Standards Act. No Borrower has violated any laws, ordinances
or rules, the violation of which could reasonably be expected to have a material
adverse effect on its business. Neither Group’s nor any of its Subsidiaries’ is
a “holding company” or an “affiliate” of a “holding company” or a “subsidiary
company” of a “holding company” as each term is defined and used in the Public
Utility Holding Act of 2005. Neither Group’s nor any of its Subsidiaries’
properties or assets has been used by Group or any Subsidiary or, to the best of
Borrowers’ knowledge, by previous Persons, in disposing, producing, storing,
treating, or transporting any hazardous substance other than legally. Group and
each of its Subsidiaries have obtained all consents, approvals and
authorizations of, made all declarations or filings with, and given all notices
to, all Government Authorities that are necessary to continue its business as
currently conducted. Other than the Governmental Approvals which are being
obtained pursuant to Section 6.1(c), no certificate, authorization, permit,
consent, approval, order, license, exemption from, or filing or registration or
qualification with, any Governmental Authority or any Requirement of Law is or
will be required to authorize, or is otherwise required in connection with
(a) the execution, delivery and the payment and performance by Borrowers and the
Guarantors of the Loan Documents to which they are a party and (b) the creation
of the Liens described in and granted by Borrowers and the Guarantors pursuant
to the Loan Documents.
     5.8 Subsidiaries; Investments. Neither Borrowers nor Guarantors own any
stock, partnership interest or other equity securities except for Permitted
Investments.
     5.9 Tax Returns and Payments; Pension Contributions. Each Borrower and
Guarantor has timely filed all required tax returns and reports, and each
Borrower and Guarantor has timely paid all foreign, federal, state and local
taxes, assessments, deposits and contributions owed by such Borrower or
Guarantor where the failure to file or pay could reasonably be anticipated to
result in a Material Adverse Change. A Borrower or Guarantor may defer payment
of any contested taxes, provided that such Borrower or Guarantor (a) in good
faith contests its obligation to pay the taxes by appropriate proceedings
promptly and diligently instituted and conducted, (b) notifies Bank in writing
of the commencement of, and any material development in, the proceedings, and
(c) posts bonds or takes any other steps required to prevent the Governmental
Authority levying such contested taxes from obtaining a Lien upon any of the
Collateral that is other than a “Permitted Lien”. Neither Borrowers nor
Guarantors are aware of any claims or adjustments proposed for any of Borrowers’
or Guarantors’ prior tax years which could result in additional taxes becoming
due and payable by Borrowers or Guarantors. Each Borrower and Guarantor has paid
all amounts necessary to fund all present pension, profit sharing and deferred
compensation plans in accordance with their terms, and neither Borrowers nor
Guarantor have withdrawn from participation in, and has not permitted partial or
complete termination of, or permitted the occurrence of any other event with
respect to, any such plan which could reasonably be expected to result in any
liability of any Borrower or Guarantor, including any liability to the Pension
Benefit Guaranty Corporation or its successors or any other Governmental
Authority.
     5.10 Use of Proceeds. Borrowers shall use the proceeds of the Credit
Extensions solely as working capital, to pay off all of their Indebtedness owing
to SBC pursuant to the SBC Resale Agreement and the SBC Credit Agreement, to
enhance Group’s consolidated balance sheet, and to fund its general business
requirements.
     5.11 Designation of Indebtedness under this Agreement as Senior
Indebtedness.
     All principal of, interest (including all interest accruing after the
commencement of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding), and all
fees, costs, expenses and other amounts accrued or due under this Agreement
shall constitute “Designated Senior Indebtedness” under the terms of any
Subordinated Debt.
     5.12 Full Disclosure. No written representation, warranty or other
statement of any Borrower or Guarantor in any certificate or written statement
given to Bank, as of the date such representations, warranties, or other
statements were made, taken together with all such written certificates and
written statements given to Bank, contains any untrue statement of a material
fact or omits to state a material fact necessary to make the statements
contained in the certificates or statements not misleading (it being recognized
by Bank that the projections and forecasts provided by Borrowers and Guarantors
in good faith and based upon reasonable assumptions are not viewed as facts and
that actual results during the period or periods covered by such projections and
forecasts may differ from the projected or forecasted results).

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     6 AFFIRMATIVE COVENANTS
     Each Borrower shall do all of the following:
     6.1 Government Compliance.
          (a) Each Borrower shall, and shall cause each of Group’s Subsidiaries
to, maintain its legal existence and good standing in its jurisdiction of
formation and each jurisdiction in which the nature of its business requires
them to be so qualified, except where the failure to take such action would not
reasonably be expected to have a material adverse effect on Group’s and its
Subsidiaries’ business or operations, taken as a whole; provided, that (1) the
legal existence of any Subsidiary that is not a Guarantor may be terminated or
permitted to lapse, and any qualification of such Subsidiary to do business may
be terminated or permitted to lapse, if, in the good faith judgment of
Borrowers, such termination or lapse is in the best interests of Group and its
Subsidiaries, taken as a whole, and (2) no Borrower may permit its qualification
to do business in the jurisdiction of its chief executive office to terminate or
lapse; and provided, further, that this Section 6.2 shall not be construed to
prohibit any other transaction that is otherwise permitted in Section 7 of this
Agreement.
          (b) Each Borrower shall comply, and shall have each of Group’s
Subsidiaries comply, with all laws, ordinances and regulations to which it is
subject, noncompliance with which could have a material adverse effect on
Borrowers’ business.
          (c) Each Borrower shall use commercially reasonably efforts to obtain
all of the Governmental Approvals necessary for the grant of a security interest
to Bank in all of Borrowers’ and Guarantors’ property, including without
limitation, the Governmental Approvals from Arizona, Colorado, Louisiana, West
Virginia, Delaware, Georgia, Indiana, New Jersey, New York, Pennsylvania,
Tennessee and the District of Columbia). Borrowers shall promptly provide copies
of any such obtained Governmental Approvals to Bank.
     6.2 Financial Statements, Reports, Certificates.
          (a) Deliver to Bank: (1) as soon as available, but no later than five
(5) days after filing with the Securities Exchange Commission and in no event
later than ninety (90) days after the end of each fiscal year, Group’s 10K
reports; (2) as soon as available, but no later than five (5) days after filing
with the Securities Exchange Commission and in no event later than fifty
(50) days after the end of each fiscal quarter, Group’s 10Q and 8K reports;
(3) a Compliance Certificate together with delivery of the 10K and 10Q reports
and a Compliance Certificate within thirty (30) days after the end of each
month, (4) within forty-five (45) days after the end of each fiscal year, annual
financial projections for the following fiscal year (on a quarterly basis) as
approved by Group’s Board of Directors, together with any related business
forecasts used in the preparation of such annual financial projections; (5) a
prompt report of any legal actions pending or threatened against Group or any
Subsidiary that could result in damages or costs to Group or any Subsidiary of
$1,000,000 or more; and (6) budgets, sales projections, operating plans or other
financial information Bank reasonably requests.
     Group’s 10K, 10Q, and 8K reports required to be delivered pursuant to
Section 6.2(a) shall be deemed to have been delivered on the date on which Group
posts such report or provides a link thereto on Group’s or another website on
the Internet; provided, that Borrowers shall provide paper copies to Bank of the
Compliance Certificates required by Section 6.2(a).
          (b) Within thirty (30) after the last day of each month, Borrowers
will deliver to Bank a cash balance report, including account statements
detailing cash management types of investments held and maturity dates.
          (c) Within thirty (30) days after the last day of each month in which
Borrowers request an Advance, deliver to Bank a duly completed Borrowing Base
Certificate signed by a Responsible Officer of each Borrower, with aged listings
of accounts receivable and accounts payable (by invoice date).
     6.3 Inventory; Returns. Keep all Inventory in good and marketable
condition, free from material defects. Returns and allowances between a Borrower
and its Account Debtors shall follow Borrower’s customary

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practices as they exist at the Effective Date. Borrowers must promptly notify
Bank of all returns, recoveries, disputes and claims that involve more than One
Million Dollars ($1,000,000).
     6.4 Taxes; Pensions. Make, and cause each of its Subsidiaries to make,
timely payment of all foreign, federal, state, and local taxes or assessments
(other than taxes and assessments which a Borrower is contesting pursuant to the
terms of Section 5.9 hereof) and shall deliver to Bank, on demand, appropriate
certificates attesting to such payments, and pay all amounts necessary to fund
all present pension, profit sharing and deferred compensation plans in
accordance with their terms.
     6.5 Insurance. Keep its business and the Collateral insured for risks and
in amounts standard for companies in a Borrower’s industry and location and as
Bank may reasonably request. Insurance policies shall be in a form, with
companies, and in amounts that are satisfactory to Bank. All property policies
shall have a lender’s loss payable endorsement showing Bank as a loss payee and
waive subrogation against Bank, and all general liability policies shall show,
or have endorsements showing, Bank as an additional insured. All policies (or
the loss payable and additional insured endorsements) shall provide that the
insurer will endeavor to provide Bank at least twenty (20) days notice before
canceling, amending, or declining to renew its policy. At Bank’s request,
Borrowers shall make available copies of policies and Borrower’s payment
history. Proceeds payable under any policy shall, at Bank’s option, be payable
to Bank on account of the Obligations. Notwithstanding the foregoing, (a) so
long as no Event of Default has occurred and is continuing, Borrowers shall have
the option of applying the proceeds of any casualty policy up to $250,000, in
the aggregate, toward the replacement or repair of destroyed or damaged
property; provided that any such replaced or repaired property (1) shall be of
equal or like value as the replaced or repaired Collateral and (2) shall be
deemed Collateral in which Bank has been granted a first priority security
interest, and (b) after the occurrence and during the continuance of an Event of
Default, all proceeds payable under such casualty policy shall, at the option of
Bank, be payable to Bank on account of the Obligations. If a Borrower fails to
obtain insurance as required under this Section 6.5 or to pay any amount or
furnish any required proof of payment to third persons for maintenance of
insurance coverage, Bank may make all or part of such payment or obtain such
insurance policies required in this Section 6.5, and take any action under the
policies Bank deems prudent.
     6.6 Operating Accounts. Provide Bank five (5) days prior written notice
before establishing any Collateral Account at or with any bank or financial
institution other than Bank or its Affiliates. In addition, for each Collateral
Account that a Borrower at any time maintains, such Borrower shall cause the
applicable bank or financial institution (other than Bank) at or with which any
Collateral Account is maintained to execute and deliver a Control Agreement or
other appropriate instrument with respect to such Collateral Account to perfect
Bank’s Lien in such Collateral Account in accordance with the terms hereunder.
The provisions of the previous sentence shall not apply to deposit accounts
exclusively used for payroll, payroll taxes and other employee wage and benefit
payments to or for the benefit of Borrowers’ employees and identified to Bank by
Borrowers as such. Each Borrower shall move its primary operating accounts to
Bank no later than June 1, 2006.
     6.7 Financial Covenants.
          (a) Borrowers shall maintain, measured as of the last day of each
fiscal quarter during the following periods, on a consolidated basis with
respect to Group and its Subsidiaries, Tangible Net Worth of at least the
following:

          Period   Tangible Net Worth
Effective Date through March 31, 2006
  $ 40,000,000  
April 1, 2006 through June 30, 2006
  $ 35,000,000  
July 1, 2006 through September 30, 2006
  $ 20,000,000  
October 1, 2006 through December 31, 2006
  $ 10,000,000  
Thereafter
  $ 10,000,000  

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          (b) Borrowers shall maintain, measured as of the last day of each
month, on a consolidated basis with respect to Group and its Subsidiaries:
          Liquidity Coverage. A ratio of unrestricted cash and Cash Equivalents
plus short term and long term Investments (each determined according to GAAP)
plus 25% of Eligible Accounts to the outstanding Obligations hereunder of not
less than (1) 1.50:1.00 measured as of the last day of March, June, September
and December and (2) 1.25:1.00 measured as of the last day of any other month.
          (c) Capital expenditures (as determined according to GAAP) shall not
exceed (1) $25,000,000 for the fiscal year ending 2006 and (2) $30,000,000 for
the fiscal year ending 2007; provided however, Fully Funded Capital Expenditures
will be excluded from such calculations.
     6.8 Protection of Intellectual Property Rights. Each Borrower shall:
(a) protect, defend and maintain the validity and enforceability of its
intellectual property; (b) promptly advise Bank in writing of material
infringements of its intellectual property; and (c) not allow any intellectual
property material to such Borrower’s business to be abandoned, forfeited or
dedicated to the public without Bank’s written consent.
     6.9 Litigation Cooperation. From the date hereof and continuing through the
termination of this Agreement, make available to Bank, without expense to Bank,
each Borrower and its officers, employees and agents and such Borrower’s books
and records, to the extent that Bank may deem them reasonably necessary to
prosecute or defend any third-party suit or proceeding instituted by or against
Bank with respect to any Collateral or relating to such Borrower.
     6.10 Designated Senior Indebtedness. Borrowers shall designate all
principal of, interest (including all interest accruing after the commencement
of any bankruptcy or similar proceeding, whether or not a claim for
post-petition interest is allowable as a claim in any such proceeding), and all
fees, costs, expenses and other amounts accrued or due under this Agreement as
“Designated Senior Indebtedness”, or such similar term, in any existing
Subordinated Debt or future Subordinated Debt incurred by any Borrower after the
date hereof, if such Subordinated Debt contains such term or similar term and if
the effect of such designation is to grant to Bank the same or similar rights as
granted to Bank as a holder of “Designated Senior Indebtedness” under such
Subordinated Debt.
     6.11 Accounts Receivable.
     (a) Schedules and Documents Relating to Accounts. Borrowers shall deliver
to Bank transaction reports and upon Bank’s request, schedules of collections,
as provided in Section 6.2, on Bank’s standard forms; provided, however, that
such Borrowers’ failure to execute and deliver the same shall not affect or
limit Bank’s Lien and other rights in all of Borrowers’ Accounts, nor shall
Bank’s failure to advance or lend against a specific Account affect or limit
Bank’s Lien and other rights therein. If requested by Bank, Borrowers shall
furnish Bank with copies (or, at Bank’s request, originals) of all contracts,
orders, invoices, and other similar documents, and all shipping instructions,
delivery receipts, bills of lading, and other evidence of delivery, for any
goods the sale or disposition of which gave rise to such Accounts. In addition,
Borrowers shall deliver to Bank, on its request, the originals of all
instruments, chattel paper, security agreements, guarantees and other documents
and property evidencing or securing any Accounts, in the same form as received,
with all necessary indorsements, and copies of all credit memos.
     (b) Disputes. Borrowers shall promptly notify Bank of all disputes or
claims relating to Accounts that exceed $200,000. Borrowers may forgive
(completely or partially), compromise, or settle any Account for less than
payment in full, or agree to do any of the foregoing so long as (1) such
Borrower does so in good faith, in a commercially reasonable manner, in the
ordinary course of business, in arm’s-length transactions, and reports the same
to Bank in the regular reports provided to Bank; (2) no Default or Event of
Default has occurred and is continuing; and (3) after taking into account all
such discounts, settlements and forgiveness, the total outstanding Advances will
not exceed the Availability Amount minus (i) the amount of all outstanding
Letters of Credit (including drawn but unreimbursed Letters of Credit), minus
(ii) the FX Reserve, and minus (iii) the outstanding amounts used for Cash
Management Services.
     (c) Deposit Payments of Accounts. Each Borrower shall cause each Account
Debtor to deposit all payments and proceeds of an Account into a Collateral
Account subject to a Control Agreement in accordance with Section 6.6.

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     (d) Verification. Bank may, from time to time, verify directly with the
respective Account Debtors the validity, amount and other matters relating to
the Accounts, either in the name of Borrowers or Bank or such other name as Bank
may choose.
     (e) No Liability. Bank shall not be responsible or liable for any shortage
or discrepancy in, damage to, or loss or destruction of, any goods, the sale or
other disposition of which gives rise to an Account, or for any error, act,
omission, or delay of any kind occurring in the settlement, failure to settle,
collection or failure to collect any Account, or for settling any Account in
good faith for less than the full amount thereof, nor shall Bank be deemed to be
responsible for any of Borrowers’ obligations under any contract or agreement
giving rise to an Account. Nothing herein shall, however, relieve Bank from
liability for its own gross negligence or willful misconduct.
     6.12 Remittance of Proceeds. Deliver, in kind, all proceeds arising from
the disposition of any Equipment or other fixed assets to Bank in the original
form in which received by any Borrower not later than the following Business Day
after receipt by such Borrower, to be applied to the Obligations pursuant to the
terms of Section 9.4 hereof; provided that, if no Default or Event of Default
has occurred and is continuing, such Borrower shall not be obligated to remit to
Bank the proceeds of the sale of worn out or obsolete Equipment or other fixed
asset disposed of by such Borrower in good faith in an arm’s length transaction
if (a) the aggregate purchase price is $500,000 or less (for all such
transactions in any fiscal year) or (b) such proceeds are used to purchase
replacement Equipment or other fixed assets within 90 days of such sale. Each
Borrower agrees that it will not commingle proceeds of Equipment or other fixed
assets with any of such Borrower’s other funds or property, but will hold such
proceeds separate and apart from such other funds and property and in an express
trust for Bank. Nothing in this Section limits the restrictions on disposition
of Collateral set forth elsewhere in this Agreement.
     6.13 Access to Collateral; Books and Records. At reasonable times, on one
(1) Business Day’s notice (provided no notice is required if an Event of Default
has occurred and is continuing), Bank, or its agents, shall have the right to
inspect the Collateral and the right to audit and copy Borrowers’ Books. The
foregoing inspections and audits shall be at Borrowers’ expense, and the charge
therefor shall be $750 per person per day (or such higher amount as shall
represent Bank’s then-current standard charge for the same), plus reasonable
out-of-pocket expenses. Such inspections and audits shall not exceed two (2) per
year unless an Event of Default has occurred and is continuing. In the event
Borrowers and Bank schedule an audit more than ten (10) days in advance, and
such Borrower cancels or seeks to reschedules the audit with less than ten
(10) days written notice to Bank, then (without limiting any of Bank’s rights or
remedies), Borrowers shall pay Bank a fee of $1,000 plus any out-of- pocket
expenses incurred by Bank to compensate Bank for the anticipated costs and
expenses of the cancellation or rescheduling.
     6.14 Post Closing Items.
     (a) Within sixty (60) days of the Effective Date, Borrowers shall have
delivered a payoff letter from Bank with respect to the Indebtedness owing from
NextWeb to Bank pursuant to that certain Loan and Security Agreement, dated as
of June 29, 2005 (the “NextWeb Loan Agreement”), by and between NextWeb and
Bank;
     (b) Within sixty (60) days of the Effective Date, Borrowers shall have
delivered evidence that (1) the Liens securing Indebtedness owed by NextWeb
pursuant to the NextWeb Loan Agreement will be terminated and (2) the documents
and/or filings evidencing the perfection of such Liens, including without
limitation any financing statements and/or control agreements, have or will,
concurrently with the initial Credit Extension, be terminated;
     (c) Within thirty (30) days of the Effective Date, Borrowers shall have
delivered the Agreement for XGDSL Services between Earthlink and Company, which
shall be in a form satisfactory to Bank; and
     (d) Upon the expiration of the letters of credit issued by Wells Fargo
Bank, N.A. (but in no event later than April 30, 2007), Borrowers shall replace
such letters of credit with letters of credit issued by Bank.
     6.15 Canadian Accounts. Each Borrower shall, and shall cause each of
Group’s Subsidiaries to (a) permit only funds received from credit card payments
that are required to be deposited in accounts in Canada to be deposited at any
time in any such Canadian account, (b) not permit any average monthly balance of
such Canadian accounts to exceed $300,000 in the aggregate and (c) provide the
Bank a copy of each monthly account statement

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received in respect of each such Canadian accounts and all of the Canadian
accounts in the aggregate, on a monthly basis, no later than ten (10) Business
Days after receipt thereof.
     6.16 Additional Subsidiaries. Group shall, and shall cause each of its
Subsidiaries hereafter formed or acquired to execute and deliver to Bank, within
sixty (60) days of the formation or acquisition thereof, a joinder agreement in
form and substance satisfactory to Bank, causing such Subsidiary to become a
Borrower or Guarantor hereunder, and a party to each applicable Loan Document,
in each case as if such Subsidiary had been a Borrower or Guarantor, as
applicable, as of the Effective Date, together with appropriate Lien searches
requested by Bank indicating Bank’s first priority Lien (subject only to
Permitted Liens that may have superior priority to Bank’s Lien under this
Agreement) on such Subsidiary’s personal property and, in connection with such
deliveries, cause to be delivered to Bank (a) a favorable written opinion of
counsel satisfactory to Bank as to such matters relating thereto as Bank may
reasonably request, in form and substance reasonably satisfactory to Bank,
(b) any stock certificates or other certificates, accompanied by stock powers
duly executed in blank, with regard to the capital stock of such Subsidiary,
(c) such other agreements, instruments, approvals or other documents, including
Control Agreements, as Bank may request with respect thereto, and (d) certified
copies of the organizational documents, resolutions and incumbency certificate
of such Subsidiary; provided however, if such Subsidiary is organized outside
the United States and causing such Subsidiary to become a Borrower, grantor of
security interest or Guarantor causes material adverse tax results as reasonably
determined by Group’s Board of Directors, then (1) such Subsidiary is not
required to become a Borrower or Guarantor hereunder, and (2) such pledge shall
be limited to 66% of the outstanding voting stock of such Subsidiary.
     6.17 Further Assurances. Each Borrower shall execute any further
instruments and take further action as Bank reasonably requests to perfect or
continue Bank’s Lien in the Collateral or to effect the purposes of this
Agreement. Upon request by Bank, within five (5) days after the same are sent or
received, copies of all correspondence, reports, documents and other filings
with any Governmental Authority regarding compliance with or maintenance of
Governmental Approvals or Requirements of Law or that could reasonably be
expected to have a material effect on any of the Governmental Approvals or
otherwise on the operations of Group or any of its Subsidiaries.
     7 NEGATIVE COVENANTS
     No Borrower shall do any of the following without Bank’s prior written
consent:
     7.1 Dispositions. Convey, sell, lease, transfer or otherwise dispose of
(collectively “Transfer”), or permit any of its Subsidiaries to Transfer, all or
any part of its business or property, except for:
     (a) Transfers in the ordinary course of business for reasonably equivalent
consideration;
     (b) Transfers to any Borrower or to any Guarantor;
     (c) Transfers of property in connection with sale-leaseback transactions;
     (d) Transfers of property to the extent such property is exchanged for
credit against, or proceeds are promptly applied to, the purchase price of other
property used or useful in the business of Group or its Subsidiaries;
     (e) Transfers constituting non-exclusive licenses and similar arrangements
for the use of the property of Group or its Subsidiaries in the ordinary course
of business and other non-perpetual licenses that may be exclusive in some
respects other than territory (and/or that may be exclusive as to territory only
in discreet geographical areas outside of the United States), but that could not
result in a legal transfer of any Borrower’s title in the licensed property;
     (f) Transfers otherwise permitted by the Loan Documents, including
Permitted Liens;
     (g) sales or discounting of delinquent accounts in the ordinary course of
business;
     (h) Transfers associated with the making or disposition of a Permitted
Investment;

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     (i) Transfers in connection with a permitted acquisition of a portion of
the assets or rights acquired;
     (j) Transfers not otherwise permitted in this Section 7.1, provided, that
the aggregate book value of all such Transfers by Group and its Subsidiaries,
together, shall not exceed in any fiscal year, $5,000,000.
     7.2 Changes in Business; Change in Control; Jurisdiction of Formation.
     Engage in any material line of business other than those lines of business
conducted by Group and its Subsidiaries on the date hereof and any businesses
reasonably related, complementary or incidental thereto or reasonable extensions
thereof; permit or suffer any Change in Control. No Borrower will, without prior
written notice, change its jurisdiction of formation.
     7.3 Mergers or Acquisitions.
     Merge or consolidate, or permit any of its Subsidiaries to merge or
consolidate, with any Person other than with a Borrower or a Guarantor, or
acquire, or permit any of its Subsidiaries to acquire, all or substantially all
of the capital stock or property of a Person, except where no Event of Default
has occurred and is continuing or would result from such action during the term
of this Agreement, and (a) either a Borrower or Guarantor is the surviving
entity, (b) such merger or consolidation is a Transfer otherwise permitted
pursuant to Section 7.1 hereof or (c) the acquisition by Group of NextWeb
pursuant to the NextWeb Acquisition Documents, which shall be in form and
substance reasonably satisfactory to Bank.
     7.4 Indebtedness. Create, incur, assume, or be liable for any Indebtedness,
or permit any Subsidiary to do so, other than Permitted Indebtedness.
     7.5 Encumbrance. Create, incur, or allow any Lien on any of its property,
or assign or convey any right to receive income, including the sale of any
Accounts, or permit any of its Subsidiaries to do so, except for Permitted
Liens, permit any Collateral not to be subject to the first priority security
interest granted herein (subject only to Permitted Liens that may have superior
priority to Bank’s Lien under this Agreement), or enter into any agreement,
document, instrument or other arrangement (except with or in favor of Bank) with
any Person which directly or indirectly prohibits or has the effect of
prohibiting any Borrower or any Subsidiary from assigning, mortgaging, pledging,
granting a security interest in or upon, or encumbering any of such Borrower’s
or any Subsidiary’s intellectual property, except as is otherwise permitted in
Section 7.1 hereof and the definition of “Permitted Lien” herein.
     7.6 Maintenance of Collateral Accounts. Maintain any Collateral Account
except pursuant to the terms of Section 6.6 hereof.
     7.7 Distributions; Investments. (a) Directly or indirectly acquire or own
any Person, or make any Investment in any Person, other than Permitted
Investments, or permit any of its Subsidiaries to do so; or (b) pay any
dividends or make any distribution or payment or redeem, retire or purchase any
capital stock other than Permitted Distributions.
     7.8 Transactions with Affiliates. Directly or indirectly enter into or
permit to exist any material transaction with any Affiliate of any Borrower
except for (a) transactions that are in the ordinary course of such Borrower’s
business, upon fair and reasonable terms (when viewed in the context of any
series of transactions of which it may be a part, if applicable) that are no
less favorable to such Borrower than would be obtained in an arm’s length
transaction with a non-affiliated Person; or (b) transactions among Group and
its Subsidiaries and among Group’s Subsidiaries so long as no Event of Default
exists or could result therefrom.
     7.9 Amendments to Subordinated Debt, the Earthlink Documents and Indenture.
Change, amend or waive the terms of any Subordinated Debt, the Earthlink
Documents or the Indenture if the effect of such change, amendment or waiver is
to: (a) change the payment, redemption or prepayment provisions of the
Subordinated Debt or the Earthlink Documents or the Indenture other than extend
the dates therefor or to reduce the premiums payable in connection therewith;
(b) increase the interest rate or cash paid in respect of interest or other
compensation regarding the Subordinated Debt or any Indebtedness under the
Earthlink Documents or Indenture prior to the payment in full of the
Obligations; (c) prohibit the making of a payment in respect of the Obligations
which any Borrower or Guarantor is contractually obligated to make under the
this Agreement; (d) cause the

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Subordinated Debt or any Indebtedness under the Earthlink Documents or Indenture
to be assumed by, guaranteed by, co-made by, or otherwise become the obligation
of any Subsidiary of Group which is not a Borrower or Guarantor hereunder;
(e) shorten or eliminate existing cure periods or add any additional events of
default; (f) expand the definition of “Collateral” as defined in the Earthlink
Documents as existing on the date hereof; (g) grant any security or collateral
to secure payment of any Subordinated Debt or the Indenture; or (h) otherwise
change, amend or include terms and conditions, including financial covenants and
events of default, that are more onerous with respect to any Borrower or
Guarantor or adverse to the interests of Bank than the terms and conditions
contained in the Subordinated Debt, Earthlink Documents or Indenture as in
effect on the date hereof.
     7.10 Payments of Subordinated Debt or any Indebtedness under the Indenture
or the Earthlink Documents. Make or permit any payment, prepayment or redemption
of any Subordinated Debt or any Indebtedness under the Indenture or the
Earthlink Documents except (a) if no Default or Event of Default exists or would
result from such payment, scheduled interest payments permitted under the
subordination provisions (which includes any separate subordination or
intercreditor agreements) of such Subordinated Debt; (b) payments made with a
Borrower’s capital stock or other Subordinated Debt; or (c) if no Default or
Event of Default exists or would result from such payment, scheduled interest
payments under the Indenture and the Earthlink Documents, and repayment of
principal pursuant to a Phase II Notice (as set forth in Section 1(d)(1)(A) of
the Note dated as of March 29, 2006 by Borrowers in favor of Earthlink), in each
case, in accordance with the terms therein as they exist on the date hereof.
     7.11 Compliance. Become an “investment company” or a company controlled by
an “investment company”, under the Investment Company Act of 1940 or undertake
as one of its important activities extending credit to purchase or carry margin
stock (as defined in Regulation U of the Board of Governors of the Federal
Reserve System), or use the proceeds of any Credit Extension for that purpose;
fail to meet the minimum funding requirements of ERISA, permit a Reportable
Event or Prohibited Transaction, as defined in ERISA, to occur; fail to comply
with the Federal Fair Labor Standards Act or violate any other law or
regulation, if the violation could reasonably be expected to have a material
adverse effect on a Borrower’s business, or permit any of Group’s Subsidiaries
to do so; withdraw or permit any Subsidiary to withdraw from participation in,
permit partial or complete termination of, or permit the occurrence of any other
event with respect to, any present pension, profit sharing and deferred
compensation plan which could reasonably be expected to result in any liability
of any Borrower, including any liability to the Pension Benefit Guaranty
Corporation or its successors or any other Governmental Authority.
     8 EVENTS OF DEFAULT
     Any one of the following shall constitute an event of default (an “Event of
Default”) under this Agreement:
     8.1 Payment Default. A Borrower fails to (a) make any payment of principal
or interest on any Credit Extension on its due date, or (b) pay any other
Obligations within three (3) Business Days after such Obligations are due and
payable. During the cure period, the failure to cure the payment default is not
an Event of Default (but no Credit Extension will be made during the cure
period);
     8.2 Covenant Default.
     (a) (1) A Borrower fails or neglects to perform any obligation under
Section 6.2(b) or (c) and has failed to cure such default within five
(5) Business Days after the occurrence thereof or (2) a Borrower fails or
neglects to perform any obligation in Sections 6.1, 6.2(a), 6.6, 6.7, 6.10 or
violates any covenant in Section 7; or
     (b) A Borrower fails or neglects to perform, keep, or observe any other
material term, provision, condition, covenant or agreement contained in this
Agreement, any Loan Documents, and as to any default (other than those specified
in Section 8 below) under such other material term, provision, condition,
covenant or agreement that can be cured, has failed to cure the default within
ten (10) days after the occurrence thereof; provided, however, that if the
default cannot by its nature be cured within the ten (10) day period or cannot
after diligent attempts by Borrowers be cured within such ten (10) day period,
and such default is likely to be cured within a reasonable time, then Borrowers
shall have an additional period (which shall not in any case exceed thirty
(30) days) to attempt to cure such default, and within such reasonable time
period the failure to cure the default shall not be deemed an Event of Default
(but no Credit Extensions shall be made during such cure period). Grace periods
provided under

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this section shall not apply, among other things, to financial covenants or any
other covenants set forth in subsection (a) above;
     8.3 Material Adverse Change. A Material Adverse Change occurs;
     8.4 Attachment. (a) Any material portion of any Borrower’s assets is
attached, seized, levied on, or comes into possession of a trustee or receiver
and the attachment, seizure or levy is not removed in thirty (30) days; (b) any
Borrower is enjoined, restrained, or prevented by court order from conducting a
material part of its business; (c) a judgment or other claim in excess of
$500,000 becomes a Lien on any of such Borrower’s assets; or (d) excluding
Permitted Liens, a notice of lien, levy, or assessment is filed against any of
such Borrower’s assets by any government agency and not paid within ten
(10) days after such Borrower receives notice. These are not Events of Default
if stayed or if a bond is posted pending contest by such Borrower (but no Credit
Extensions shall be made during the cure period);
     8.5 Insolvency. (a) Any Borrower is unable to pay its debts (including
trade debts) as they become due or otherwise becomes insolvent; (b) any Borrower
begins an Insolvency Proceeding; or (c) an Insolvency Proceeding is begun
against any Borrower and not dismissed or stayed within thirty (30) days (but no
Credit Extensions shall be made while of any of the conditions described in
clause (a) exist and/or until any Insolvency Proceeding is dismissed);
     8.6 Other Agreements. (a) If any Borrower fails to (1) make any payment
that is due and payable with respect to any Material Indebtedness and such
failure continues after the applicable grace or notice period, if any, specified
in the agreement or instrument relating thereto and is not waived in accordance
with the terms therein, or (2) perform or observe any other condition or
covenant, or any other event shall occur or condition exist under any agreement
or instrument relating to any Material Indebtedness, and such failure continues
after the applicable grace or notice period, if any, specified in the agreement
or instrument relating thereto and the effect of such failure, event or
condition is to cause the holder or holders of such Material Indebtedness to
accelerate the maturity of such Material Indebtedness or cause the mandatory
repurchase of any Material Indebtedness or (b) a “Substantial Performance
Failure” occurs under the Earthlink Documents;
     8.7 Judgments. A judgment or judgments for the payment of money in an
amount, individually or in the aggregate, of at least Five Hundred Thousand
Dollars ($500,000) (not covered by independent third-party insurance) shall be
rendered against any Borrower and shall remain unsatisfied and unstayed for a
period of thirty (30) days after the entry thereof (provided that no Credit
Extensions will be made prior to the satisfaction or stay of such judgment);
     8.8 Misrepresentations. Any Borrower or any Person acting for such Borrower
makes any representation, warranty, or other statement now or later in this
Agreement, any Loan Document or in any writing delivered to Bank or to induce
Bank to enter this Agreement or any Loan Document, and such representation,
warranty, or other statement is incorrect in any material respect when made;
     8.9 Subordinated Debt. A default or breach occurs under any agreement
between any Borrower and any creditor of such Borrower that signed a
subordination, intercreditor, or other similar agreement with Bank, or any
creditor that has signed such an agreement with Bank breaches any terms of such
agreement;
     8.10 Guaranty. (a) Any guaranty of any Obligations terminates or ceases for
any reason to be in full force and effect; (b) any Guarantor does not perform
any obligation or covenant under any guaranty of the Obligations; (c) any
circumstance described in Sections 8.3, 8.4, 8.5, 8.7, or 8.8 occurs with
respect to any Guarantor, or (d) the liquidation, winding up, or termination of
existence of any Guarantor; or (e) (1) a material impairment in the perfection
or priority of Bank’s Lien in the collateral provided by Guarantor or in the
value of such collateral or (2) a material adverse change in the general
affairs, management, results of operation, condition (financial or otherwise) or
the prospect of repayment of the Obligations occurs with respect to any
Guarantor;
     8.11 Governmental Approvals. Any of the Governmental Approvals shall have
been (a) revoked, rescinded, suspended, modified in an adverse manner or not
renewed in the ordinary course for a full term or (b) subject to any decision by
a Governmental Authority that designates a hearing with respect to any
applications for renewal of any of the Governmental Approvals or that could
result in the Governmental Authority taking any of the actions described in
clause (a) above, and such decision or such revocation, rescission, suspension,
modification or

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nonrenewal (1) has, or could reasonably be expected to have, a Material Adverse
Change, or (2) adversely affects the legal qualifications of Group or any of its
Subsidiaries to hold any of the Governmental Approvals in any applicable
jurisdiction and such revocation, rescission, suspension, modification or
nonrenewal could reasonably be expected to affect the status of or legal
qualifications of Group or any of its Subsidiaries to hold any of the
Governmental Approvals in any other jurisdiction.
     9 BANK’S RIGHTS AND REMEDIES
     9.1 Rights and Remedies. While an Event of Default occurs and continues
Bank may, without notice or demand, do any or all of the following:
          (a) declare all Obligations immediately due and payable (but if an
Event of Default described in Section 8.5 occurs all Obligations are immediately
due and payable without any action by Bank);
          (b) stop advancing money or extending credit for Borrowers’ benefit
under this Agreement or under any other agreement between any Borrower and Bank;
          (c) demand that Borrowers (1) deposits cash with Bank in an amount
equal to the aggregate amount of any Letters of Credit remaining undrawn, as
collateral security for the repayment of any future drawings under such Letters
of Credit, and Borrowers shall forthwith deposit and pay such amounts, and
(2) pay in advance all Letter of Credit fees scheduled to be paid or payable
over the remaining term of any Letters of Credit;
          (d) terminate any FX Contracts;
          (e) settle or adjust disputes and claims directly with Account Debtors
for amounts on terms and in any order that Bank considers advisable, notify any
Person owing any Borrower money of Bank’s security interest in such funds, and
verify the amount of such account;
          (f) make any payments and do any acts it considers necessary or
reasonable to protect the Collateral and/or its security interest in the
Collateral. Borrowers shall assemble the Collateral if Bank requests and make it
available as Bank designates. Bank may enter premises where the Collateral is
located, take and maintain possession of any part of the Collateral, and pay,
purchase, contest, or compromise any Lien which appears to be prior or superior
to its security interest and pay all expenses incurred. Each Borrower grants
Bank a license to enter and occupy any of its premises, without charge, to
exercise any of Bank’s rights or remedies;
          (g) apply to the Obligations any (1) balances and deposits of any
Borrower it holds, or (2) any amount held by Bank owing to or for the credit or
the account of Borrowers;
          (h) ship, reclaim, recover, store, finish, maintain, repair, prepare
for sale, advertise for sale, and sell the Collateral. Bank is hereby granted a
non-exclusive, royalty-free license or other right to use, without charge,
Borrowers’ labels, patents, copyrights, mask works, rights of use of any name,
trade secrets, trade names, trademarks, service marks, and advertising matter,
or any similar property as it pertains to the Collateral, in completing
production of, advertising for sale, and selling any Collateral and, in
connection with Bank’s exercise of its rights under this Section, Borrowers’
rights under all licenses and all franchise agreements inure to Bank’s benefit;
          (i) place a “hold” on any account maintained with Bank and/or deliver
a notice of exclusive control, any entitlement order, or other directions or
instructions pursuant to any Control Agreement or similar agreements providing
control of any Collateral;
          (j) demand and receive possession of Borrowers’ Books; and
          (k) exercise all rights and remedies available to Bank under the Loan
Documents or at law or equity, including all remedies provided under the Code
(including disposal of the Collateral pursuant to the terms thereof).

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     9.2 Power of Attorney. Each Borrower hereby irrevocably appoints Bank as
its lawful attorney-in-fact, exercisable upon the occurrence and during the
continuance of an Event of Default, to: (a) endorse such Borrower’s name on any
checks or other forms of payment or security; (b) sign such Borrower’s name on
any invoice or bill of lading for any Account or drafts against Account Debtors;
(c) settle and adjust disputes and claims about the Accounts directly with
Account Debtors, for amounts and on terms Bank determines reasonable; (d) make,
settle, and adjust all claims under such Borrower’s insurance policies; (e) pay,
contest or settle any Lien, charge, encumbrance, security interest, and adverse
claim in or to the Collateral, or any judgment based thereon, or otherwise take
any action to terminate or discharge the same; and (f) transfer the Collateral
into the name of Bank or a third party as the Code permits. Each Borrower hereby
appoints Bank as its lawful attorney-in-fact to sign such Borrower’s name on any
documents necessary to perfect or continue the perfection of any security
interest regardless of whether an Event of Default has occurred until all
Obligations have been satisfied in full and Bank is under no further obligation
to make Credit Extensions hereunder. Bank’s foregoing appointment as Borrowers’
attorney in fact, and all of Bank’s rights and powers, coupled with an interest,
are irrevocable until all Obligations have been fully repaid and performed and
Bank’s obligation to provide Credit Extensions terminates.
     9.3 Protective Payments. If any Borrower fails to obtain the insurance
called for by Section 6.5 or fails to pay any premium thereon or fails to pay
any other amount which such Borrower is obligated to pay under this Agreement or
any other Loan Document, Bank may obtain such insurance or make such payment,
and all amounts so paid by Bank are Bank Expenses and immediately due and
payable, bearing interest at the then highest applicable rate, and secured by
the Collateral. Bank will make reasonable efforts to provide such Borrower with
notice of Bank obtaining such insurance at the time it is obtained or within a
reasonable time thereafter. No payments by Bank are deemed an agreement to make
similar payments in the future or Bank’s waiver of any Event of Default.
     9.4 Application of Payments and Proceeds. Unless an Event of Default has
occurred and is continuing, all payments received by Bank from Borrowers under
the Loan Documents will be applied in the following order: (a) first, to the
payment of any Bank Expenses, including without limitation, the reasonable
costs, expenses, liabilities, obligations and attorneys’ fees incurred by Bank
in the exercise of its rights under this Agreement, (b) second, to any
applicable fees and other charges, in such order as Bank shall determine in its
sole discretion, (c) third, to the interest due upon any of the Obligations; and
(d) finally, to the principal of the Obligations. Any surplus shall be paid to
any Borrower by credit to the Designated Deposit Account or other Persons
legally entitled thereto; Borrowers shall remain liable to Bank for any
deficiency. If an Event of Default has occurred and is continuing, Bank may
apply any funds in its possession, whether from Borrower account balances,
payments, proceeds realized as the result of any collection of Accounts or other
disposition of the Collateral, or otherwise, to the Obligations in such order as
Bank shall determine in its sole discretion. Any surplus shall be paid to any
Borrower by credit to the Designated Deposit Account or to other Persons legally
entitled thereto; Borrowers shall remain liable to Bank for any deficiency. If
Bank, in its good faith business judgment, directly or indirectly enters into a
deferred payment or other credit transaction with any purchaser at any sale of
Collateral, Bank shall have the option, exercisable at any time, of either
reducing the Obligations by the principal amount of the purchase price or
deferring the reduction of the Obligations until the actual receipt by Bank of
cash therefor.
     9.5 Bank’s Liability for Collateral. So long as Bank complies with
reasonable banking practices regarding the safekeeping of the Collateral in the
possession or under the control of Bank, Bank shall not be liable or responsible
for: (a) the safekeeping of the Collateral; (b) any loss or damage to the
Collateral; (c) any diminution in the value of the Collateral; or (d) any act or
default of any carrier, warehouseman, bailee, or other Person. Borrowers bear
all risk of loss, damage or destruction of the Collateral.
     9.6 No Waiver; Remedies Cumulative. Bank’s failure, at any time or times,
to require strict performance by Borrowers of any provision of this Agreement or
any other Loan Document shall not waive, affect, or diminish any right of Bank
thereafter to demand strict performance and compliance herewith or therewith. No
waiver hereunder shall be effective unless signed by Bank and then is only
effective for the specific instance and purpose for which it is given. Bank’s
rights and remedies under this Agreement and the other Loan Documents are
cumulative. Bank has all rights and remedies provided under the Code, by law, or
in equity. Bank’s exercise of one right or remedy is not an election, and Bank’s
waiver of any Event of Default is not a continuing waiver. Bank’s delay in
exercising any remedy is not a waiver, election, or acquiescence.
     9.7 Demand Waiver. Each Borrower waives demand, notice of default or
dishonor, notice of payment and nonpayment, notice of any default, nonpayment at
maturity, release, compromise, settlement,

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extension, or renewal of accounts, documents, instruments, chattel paper, and
guarantees held by Bank on which such Borrower is liable.
     10 NOTICES
     All notices, consents, requests, approvals, demands, or other communication
(collectively, “Communication”) by any party to this Agreement or any other Loan
Document must be in writing and shall be deemed to have been validly served,
given, or delivered: (a) upon the earlier of actual receipt and three
(3) Business Days after deposit in the U.S. mail, first class, registered or
certified mail return receipt requested, with proper postage prepaid; (b) upon
transmission, when sent by electronic mail or facsimile transmission; (c) one
(1) Business Day after deposit with a reputable overnight courier with all
charges prepaid; or (d) when delivered, if hand-delivered by messenger, all of
which shall be addressed to the party to be notified and sent to the address,
facsimile number, or email address indicated below. Bank or any Borrower may
change their address or facsimile number by giving the other party written
notice thereof in accordance with the terms of this Section 10.

     
If to Borrowers:
  Covad Communications Group, Inc. and
 
  Covad Communications Company
 
  110 Rio Robles
 
  San Jose, California 95134
 
  Attn: Chris Dunn
 
  Fax: (408) 952-7539
 
   
If to Bank:
  Silicon Valley Bank
 
  3003 Tasman Drive
 
  Santa Clara, California 95054
 
  Attn: Tom Smith
 
  Fax: (408) 654-1045

     11 CHOICE OF LAW, VENUE AND JURY TRIAL WAIVER
     California law governs the Loan Documents without regard to principles of
conflicts of law. Each Borrower and Bank each submit to the exclusive
jurisdiction of the State and Federal courts in Santa Clara County, California;
provided, however, that nothing in this Agreement shall be deemed to operate to
preclude Bank from bringing suit or taking other legal action in any other
jurisdiction to realize on the Collateral or any other security for the
Obligations, or to enforce a judgment or other court order in favor of Bank.
Each Borrower expressly submits and consents in advance to such jurisdiction in
any action or suit commenced in any such court, and each Borrower hereby waives
any objection that it may have based upon lack of personal jurisdiction,
improper venue, or forum non conveniens and hereby consents to the granting of
such legal or equitable relief as is deemed appropriate by such court. Each
Borrower hereby waives personal service of the summons, complaints, and other
process issued in such action or suit and agrees that service of such summons,
complaints, and other process may be made by registered or certified mail
addressed to Borrowers at the address set forth in Section 10 of this Agreement
and that service so made shall be deemed completed upon the earlier to occur of
such Borrower’s actual receipt thereof or three (3) days after deposit in the
U.S. mails, proper postage prepaid.
TO THE EXTENT PERMITTED BY APPLICABLE LAW, EACH BORROWER AND BANK EACH WAIVE
THEIR RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION ARISING OUT OF OR
BASED UPON THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR ANY CONTEMPLATED
TRANSACTION, INCLUDING CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER CLAIMS. THIS
WAIVER IS A MATERIAL INDUCEMENT FOR BOTH PARTIES TO ENTER INTO THIS AGREEMENT.
EACH PARTY HAS REVIEWED THIS WAIVER WITH ITS COUNSEL.
WITHOUT INTENDING IN ANY WAY TO LIMIT THE PARTIES’ AGREEMENT TO WAIVE THEIR
RESPECTIVE RIGHT TO A TRIAL BY JURY, if the above waiver of the right to a trial
by jury is not enforceable, the parties hereto agree that any and all disputes
or controversies of any nature between them arising at any time shall be decided
by a reference to a private judge, mutually selected by the parties (or, if they
cannot agree, by the Presiding Judge of the Santa Clara County, California
Superior Court) appointed in accordance with California Code of Civil Procedure
Section 638 (or pursuant to comparable provisions of federal law if the dispute
falls within

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the exclusive jurisdiction of the federal courts), sitting without a jury, in
Santa Clara County, California; and the parties hereby submit to the
jurisdiction of such court. The reference proceedings shall be conducted
pursuant to and in accordance with the provisions of California Code of Civil
Procedure §§ 638 through 645.1, inclusive. The private judge shall have the
power, among others, to grant provisional relief, including without limitation,
entering temporary restraining orders, issuing preliminary and permanent
injunctions and appointing receivers. All such proceedings shall be closed to
the public and confidential and all records relating thereto shall be
permanently sealed. If during the course of any dispute, a party desires to seek
provisional relief, but a judge has not been appointed at that point pursuant to
the judicial reference procedures, then such party may apply to the Santa Clara
County, California Superior Court for such relief. The proceeding before the
private judge shall be conducted in the same manner as it would be before a
court under the rules of evidence applicable to judicial proceedings. The
parties shall be entitled to discovery which shall be conducted in the same
manner as it would be before a court under the rules of discovery applicable to
judicial proceedings. The private judge shall oversee discovery and may enforce
all discovery rules and order applicable to judicial proceedings in the same
manner as a trial court judge. The parties agree that the selected or appointed
private judge shall have the power to decide all issues in the action or
proceeding, whether of fact of law, and shall report a statement of decision
thereon pursuant to the California Code of Civil Procedure § 644(a). Nothing in
this paragraph shall limit the right of any party at any time to exercise
self-help remedies, foreclosure against collateral, or obtain provisional
remedies. The private judge shall also determine all issues relating to the
applicability, interpretation and enforceability of this paragraph.
     12 GENERAL PROVISIONS
     12.1 Successors and Assigns. This Agreement binds and is for the benefit of
the successors and permitted assigns of each party. No Borrower may assign this
Agreement or any rights or obligations under it without Bank’s prior written
consent (which may be granted or withheld in Bank’s discretion). Bank has the
right, without the consent of or notice to Borrowers, to sell, transfer,
negotiate, or grant participation in all or any part of, or any interest in,
Bank’s obligations, rights, and benefits under this Agreement and the other Loan
Documents.
     12.2 Indemnification. Each Borrower agrees to indemnify, defend and hold
Bank and its directors, officers, employees, agents, attorneys, or any other
Person affiliated with or representing Bank harmless against: (a) all
obligations, demands, claims, and liabilities (collectively, “Claims”) asserted
by any other party in connection with the transactions contemplated by the Loan
Documents; and (b) all losses or Bank Expenses incurred, or paid by Bank from,
following, or arising from transactions among Bank and Borrowers (including
reasonable attorneys’ fees and expenses), except for Claims and/or losses
directly caused by Bank’s gross negligence or willful misconduct.
     12.3 Time of Essence. Time is of the essence for the performance of all
Obligations in this Agreement.
     12.4 Severability of Provisions. Each provision of this Agreement is
severable from every other provision in determining the enforceability of any
provision.
     12.5 Amendments in Writing; Integration. All amendments to this Agreement
must be in writing signed by Bank and Borrowers. This Agreement and the Loan
Documents represent the entire agreement about this subject matter and supersede
prior negotiations or agreements. All prior agreements, understandings,
representations, warranties, and negotiations between the parties about the
subject matter of this Agreement and the Loan Documents merge into this
Agreement and the Loan Documents.
     12.6 Counterparts. This Agreement may be executed in any number of
counterparts and by different parties on separate counterparts, each of which,
when executed and delivered, are an original, and all taken together, constitute
one Agreement.
     12.7 Survival. All covenants, representations and warranties made in this
Agreement continue in full force until this Agreement has terminated pursuant to
its terms and all Obligations (other than inchoate indemnity obligations and any
other obligations which, by their terms, are to survive the termination of this
Agreement) have been satisfied. The obligation of Borrowers in Section 12.2 to
indemnify Bank shall survive until the statute of limitations with respect to
such claim or cause of action shall have run.
     12.8 Confidentiality. In handling any confidential or non-public
information concerning Borrowers and its Subsidiaries, Bank will maintain the
confidentiality of such information, but disclosure of information may

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be made (a) to Bank’s Subsidiaries or Affiliates in connection with their
business with Borrowers, provided they are bound by this confidentiality
provision, (b) to prospective transferees or purchasers of any interest in the
Credit Extensions, provided they are bound by this confidentiality provision,
(c) as required by law, regulation, subpoena, or other order, (d) to Bank’s
regulators; (e) as required in connection with Bank’s examination or audit,
provided that any Person receiving confidential or non-public information is
bound by this confidentiality provision or similar regulations, and (f) as Bank
considers appropriate exercising remedies under this Agreement, provided that
any Person receiving confidential or non-public information is bound by this
confidentiality provision or similar regulations. Confidential information does
not include information that either: (1) is in the public domain or in Bank’s
possession when disclosed to Bank, or becomes part of the public domain after
disclosure to Bank; or (2) is disclosed to Bank by a third party, if Bank does
not know that the third party is prohibited from disclosing the information.
     12.9 Attorneys’ Fees, Costs and Expenses. In any action or proceeding
between any Borrower and Bank arising out of or relating to the Loan Documents,
the prevailing party shall be entitled to recover its reasonable attorneys’ fees
and other costs and expenses incurred, in addition to any other relief to which
it may be entitled.
     12.10 Co-Borrower Waivers.
     (a) Cross-Guaranty. Each Borrower hereby agrees that such Borrower is
jointly and severally liable for, and hereby absolutely and unconditionally
guarantees to Bank and its successors and assigns, the full and prompt payment
(whether at stated maturity, by acceleration or otherwise) and performance of,
all Obligations owed or hereafter owing to Bank by each other Borrower. Each
Borrower agrees that its guaranty obligation hereunder is a continuing guaranty
of payment and performance and not of collection, that its obligations under
this Agreement shall not be discharged until payment and performance, in full,
of the Obligations has occurred, and that its obligations under this
Section 12.10 shall be absolute and unconditional, irrespective of, and
unaffected by,
          (i) the genuineness, validity, regularity, enforceability or any
future amendment of, or change in, this Agreement, any other Loan Document or
any other agreement, document or instrument to which any Borrower is or may
become a party;
          (ii) the absence of any action to enforce this Agreement (including
this Section 12.10) or any other Loan Document or the waiver or consent by Bank
with respect to any of the provisions thereof;
          (iii) the existence, value or condition of, or failure to perfect its
Lien against, any security for the Obligations or any action, or the absence of
any action, by Bank in respect thereof (including the release of any such
security);
          (iv) the insolvency of any Borrower or any Guarantor; or
          (v) any other action or circumstances that might otherwise constitute
a legal or equitable discharge or defense of a surety or guarantor.
     Each Borrower shall be regarded, and shall be in the same position, as the
principal debtor with respect to the Obligations guaranteed hereunder.
     (b) Specific Waivers by Borrowers. Each Borrower expressly waives all
rights it may have now or in the future under any statute, or at common law, or
at law or in equity, or otherwise, to compel Bank to marshal assets or to
proceed in respect of the Obligations guaranteed hereunder against any other
Borrower or any Guarantor, any other party or against any security for the
payment and performance of the Obligations before proceeding against, or as a
condition to proceeding against, such Borrower. Without limiting the generality
of the foregoing, each Borrower expressly waives the benefit of California Civil
Code Section 2815 permitting the revocation of any guaranty as to future
transactions and the benefit of California Civil Code Sections 2787 through
2855, 2899 and 1432 with respect to certain suretyship defenses. It is agreed
among each Borrower and Bank that the foregoing waivers are of the essence of
the transaction contemplated by this Agreement and the other Loan Documents and
that, but for the provisions of this Section 12.10 and such waivers, Bank would
decline to enter into this Agreement.

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     (c) Benefit of Guaranty. Each Borrower agrees that the provisions of this
Section 12.10 are for the benefit of Bank and its successors, transferees,
endorsees and assigns, and nothing herein contained shall impair, as between any
other Borrower and Bank, the obligations of such other Borrower under the Loan
Documents.
     (d) Waiver of Subrogation, Etc. Notwithstanding anything to the contrary in
this Agreement or in any other Loan Document or until all obligations are paid
in full, each Borrower hereby expressly and irrevocably waives any and all
rights at law or in equity to subrogation, reimbursement, exoneration,
contribution, indemnification or set off and any and all defenses available to a
surety, guarantor or accommodation co-obligor. Each Borrower acknowledges and
agrees that this waiver is intended to benefit Bank and shall not limit or
otherwise affect such Borrower’s liability hereunder or the enforceability of
this Section 12.10, and that Bank and its successors and assigns are intended
third party beneficiaries of the waivers and agreements set forth in this
Section 12.10.
     13 DEFINITIONS
     13.1 Definitions. As used in this Agreement, the following terms have the
following meanings:
     “Account” is any “account” as defined in the Code with such additions to
such term as may hereafter be made, and includes, without limitation, all
accounts receivable and other sums owing to any Borrower.
     “Account Debtor” is any “account debtor” as defined in the Code with such
additions to such term as may hereafter be made.
     “Advance” or “Advances” means an advance (or advances) under the Revolving
Line.
     “Affiliate” of any Person is a Person that owns or controls directly or
indirectly the Person, any Person that controls or is controlled by or is under
common control with the Person, and each of that Person’s senior executive
officers, directors, partners and, for any Person that is a limited liability
company, that Person’s managers and members.
     “Agreement” is defined in the preamble hereof.
     “Availability Amount” is the lesser of (a) the Revolving Line or (b)
$25,000,000 plus the lesser of (1) $25,000,000 or (2) the Borrowing Base.
     “Bank” is defined in the preamble hereof.
     “Bank Expenses” are all audit fees and expenses, costs, and expenses
(including reasonable attorneys’ fees and expenses) for preparing, negotiating,
administering, defending and enforcing the Loan Documents (including, without
limitation, those incurred in connection with appeals or Insolvency Proceedings)
or otherwise incurred with respect to Borrowers.
     “Borrower” or “Borrowers” is defined in the preamble hereof, and shall,
upon satisfaction of the covenants set forth in Sections 6.14(a), (b) and 6.16,
include NextWeb.
     “Borrowers’ Books” are all Borrowers’ and Guarantors’ books and records
including ledgers, federal and state tax returns, records regarding Borrowers’
and Guarantors’ assets or liabilities, the Collateral, business operations or
financial condition, and all computer programs or storage or any equipment
containing such information.
     “Borrowing Base” is 80% of Eligible Accounts, as determined by Bank from
Borrowers’ most recent Borrowing Base Certificate; provided, however, that Bank
may decrease the foregoing percentages in its good faith business judgment based
on results of audits and/or inspections, events, conditions, contingencies, or
risks which, as determined by Bank, may adversely affect Collateral.
     “Borrowing Base Certificate” is that certain certificate in the form
attached hereto as Exhibit C.

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     “Borrowing Resolutions” are, with respect to any Person, those resolutions
adopted by such Person’s Board of Directors and delivered by such Person to Bank
approving the Loan Documents to which such Person is a party and the
transactions contemplated thereby, together with a certificate executed by its
secretary on behalf of such Person certifying that (a) such Person has the
authority to execute, deliver, and perform its obligations under each of the
Loan Documents to which it is a party, (b) that attached as Exhibit A to such
certificate is a true, correct, and complete copy of the resolutions then in
full force and effect authorizing and ratifying the execution, delivery, and
performance by such Person of the Loan Documents to which it is a party, (c) the
name(s) of the Person(s) authorized to execute the Loan Documents on behalf of
such Person, together with a sample of the true signature(s) of such Person(s),
and (d) that Bank may conclusively rely on such certificate unless and until
such Person shall have delivered to Bank a further certificate canceling or
amending such prior certificate.
     “Business Day” is any day other than a Saturday, Sunday or other day on
which banking institutions in the State of California are authorized or required
by law or other governmental action to close, except that if any determination
of a “Business Day” shall relate to a LIBOR Advance, the term “Business Day”
shall also mean a day on which dealings are carried on in the London interbank
market, and if any determination of a “Business Day” shall relate to an FX
Forward Contract, the term “Business Day” shall mean a day on which dealings are
carried on in the country of settlement of the foreign (i.e., non-Dollar)
currency.
     “Cash Equivalents” means (a) marketable direct obligations issued or
unconditionally guaranteed by the United States or any agency or any State
thereof having maturities of not more than one (1) year from the date of
acquisition; (b) commercial paper maturing no more than one (1) year after its
creation and having the highest rating from either Standard & Poor’s Ratings
Group or Moody’s Investors Service, Inc.; (c) Bank’s certificates of deposit
issued maturing no more than one (1) year after issue; and (d) money market
funds at least ninety-five percent (95%) of the assets of which constitute Cash
Equivalents of the kinds described in clauses (a) through (c) of this
definition.
     “Cash Management Services” is defined in Section 2.1.4.
     “Cash Management Services Sublimit” is defined in Section 2.1.4.
     “Change in Control” means any event, transaction, or occurrence as a result
of which (a) any “person” (as such term is defined in Sections 3(a)(9) and
13(d)(3) of the Securities Exchange Act of 1934, as an amended (the “Exchange
Act”)), other than a trustee or other fiduciary holding securities under an
employee benefit plan of Group, is or becomes a beneficial owner (within the
meaning Rule 13d-3 promulgated under the Exchange Act), directly or indirectly,
of securities of Group, representing fifty percent (50%) or more of the combined
voting power of Group’s then outstanding securities; or (b) during any period of
twelve consecutive calendar months, individuals who at the beginning of such
period constituted the Board of Directors of Group (together with any new
directors whose election by the Board of Directors of Group was approved by a
vote of at least two-thirds of the directors then still in office who either
were directions at the beginning of such period or whose election or nomination
for election was previously so approved) cease for any reason other than death
or disability to constitute a majority of the directors then in office.
     “Code” is the Uniform Commercial Code, as the same may, from time to time,
be enacted and in effect in the State of California; provided, that, to the
extent that the Code is used to define any term herein or in any Loan Document
and such term is defined differently in different Articles or Divisions of the
Code, the definition of such term contained in Article or Division 9 shall
govern; provided further, that in the event that, by reason of mandatory
provisions of law, any or all of the attachment, perfection, or priority of, or
remedies with respect to, Bank’s Lien on any Collateral is governed by the
Uniform Commercial Code in effect in a jurisdiction other than the State of
California, the term “Code” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes on the provisions
thereof relating to such attachment, perfection, priority, or remedies and for
purposes of definitions relating to such provisions.
     “Collateral” is any and all properties, rights and assets of Borrowers
described on Exhibit A.
     “Collateral Account” is any Deposit Account, Securities Account, or
Commodity Account.
     “Commodity Account” is any “commodity account” as defined in the Code with
such additions to such term as may hereafter be made.

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     “Communication” is defined in Section 10.
     “Compliance Certificate” is that certain certificate in the form attached
hereto as Exhibit D.
     “Consolidated Total Assets” means, at any date of determination, the total
consolidated assets of Group, except goodwill, trade names, copyrights,
trademarks, service marks, and other intangible items such as unamortized
Indebtedness discounts and expenses and research and development expenses except
pre-paid expenses.
     “Consolidated Total Liabilities” means, at any date of determination,
obligations that should, under GAAP, be classified as liabilities or
indebtedness under Group’s consolidated balance sheet, but excluding all other
Subordinated Debt received after the Effective Date.
     “Contingent Obligation” is, for any Person, any direct or indirect
liability, contingent or not, of that Person for (a) any indebtedness, lease,
dividend, letter of credit or other obligation of another such as an obligation
directly or indirectly guaranteed, endorsed, co-made, discounted or sold with
recourse by that Person, or for which that Person is directly or indirectly
liable; (b) any obligations for undrawn letters of credit for the account of
that Person; and (c) all obligations from any interest rate, currency or
commodity swap agreement, interest rate cap or collar agreement, or other
agreement or arrangement designated to protect a Person against fluctuation in
interest rates, currency exchange rates or commodity prices; but “Contingent
Obligation” does not include endorsements in the ordinary course of business.
The amount of a Contingent Obligation is the stated or determined amount of the
primary obligation for which the Contingent Obligation is made or, if not
determinable, the maximum reasonably anticipated liability for it determined by
the Person in good faith; but the amount may not exceed the maximum of the
obligations under any guarantee or other support arrangement.
     “Continuation Date” means any date on which Borrowers elect to continue a
LIBOR Advance into another Interest Period.
     “Control Agreement” is any control agreement entered into among the
depository institution at which Borrowers maintain a Deposit Account or the
securities intermediary or commodity intermediary at which Borrowers maintain a
Securities Account or a Commodity Account, Borrowers, and Bank pursuant to which
Bank obtains control (within the meaning of the Code) over such Deposit Account,
Securities Account, or Commodity Account.
     “Conversion Date” means any date on which Borrowers elect to convert a
Prime Rate Advance to a LIBOR Advance or a LIBOR Advance to a Prime Rate
Advance.
     “Credit Extension” is any Advance, Letter of Credit, FX Forward Contract,
amount utilized for Cash Management Services or any other extension of credit by
Bank for Borrowers’ benefit.
     “Default” means any event which with notice or passage of time or both,
would constitute an Event of Default.
     “Default Rate” is defined in Section 2.3(b).
     “Deferred Revenue” is all amounts received or invoiced in advance of
performance under contracts and not yet recognized as revenue.
     “Deposit Account” is any “deposit account” as defined in the Code with such
additions to such term as may hereafter be made.
     “Designated Deposit Account” is Borrowers’ deposit account, account number
3300511617, maintained with Bank.
     “Dieca” is Dieca Communications, Inc., a Virginia corporation.
     “Dollars,” “dollars” and “$” each mean lawful money of the United States.

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     “Earthlink” is Earthlink, Inc., a Delaware corporation.
     “Earthlink Documents” is defined in Section 3.1(l).
     “Earthlink Phase II Financing” shall mean the financing described in
Section 9.2 of the Agreement for XGDSL Services dated as of March 29, 2006 by
and between Company and Earthlink (as in effect on the date hereof), which shall
be substantially in the form as the Phase I Financing Agreements (as in effect
on the date hereof), as defined therein.
     “Earthlink Proceeds” is defined in Section 3.1(l).
     “Effective Amount” means with respect to any Advances on any date, the
aggregate outstanding principal amount thereof after giving effect to any
borrowing and prepayments or repayments thereof occurring on such date.
     “Effective Date” is the date Bank executes this Agreement and as indicated
on the signature page hereof.
     “Eligible Accounts” are Accounts which are invoiced and arise in the
ordinary course of Borrowers’ business that meet all Borrowers’ representations
and warranties in Section 5.3. Bank reserves the right at any time and from time
to time after the Effective Date, to adjust any of the criteria set forth below
and to establish new criteria in its good faith business judgment. Unless Bank
agrees otherwise in writing, Eligible Accounts shall not include:
     (a) Accounts that the Account Debtor has not paid within ninety (90) days
of invoice date;
     (b) Accounts owing from an Account Debtor, fifty percent (50%) or more of
whose Accounts have not been paid within ninety (90) days of invoice date;
     (c) Credit balances over ninety (90) days from invoice date;
     (d) Accounts owing from an Account Debtor, including Affiliates, to the
extent whose total obligations to Borrowers exceed twenty-five (25%) of all
Accounts, except for Accounts owing from Earthlink, for which such percentage is
40% for the amounts that exceed that percentage, unless Bank approves in
writing;
     (e) Accounts owing from an Account Debtor which does not have its principal
place of business in the United States unless supported by a letter of credit
from an issuer acceptable to Bank;
     (f) Accounts owing from an Account Debtor which is a federal, state or
local government entity or any department, agency, or instrumentality thereof
except for Accounts of the United States if such Borrower has assigned its
payment rights to Bank and the assignment has been acknowledged under the
Federal Assignment of Claims Act of 1940, as amended;
     (g) Accounts owing from an Account Debtor to the extent that such Borrower
is indebted or obligated in any manner to the Account Debtor (as creditor,
lessor, supplier or otherwise - sometimes called “contra” accounts, accounts
payable, customer deposits or credit accounts), with the exception of customary
credits, adjustments and/or discounts given to an Account Debtor by such
Borrower in the ordinary course of its business;
     (h) Accounts for demonstration or promotional equipment or evaluation
units, or in which goods are consigned, or sold on a “sale guaranteed”, “sale or
return”, “sale on approval”, “bill and hold”, or other terms if Account Debtor’s
payment may be conditional;
     (i) Accounts for which the Account Debtor is such Borrower’s Affiliate,
officer, employee, or agent;
     (j) Accounts in which the Account Debtor disputes liability or makes any
claim (but only up to the disputed or claimed amount), or if the Account Debtor
is subject to an Insolvency Proceeding, or becomes insolvent, or goes out of
business;

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     (k) Accounts owing from an Account Debtor with respect to which such
Borrower has received Deferred Revenue (but only to the extent of such Deferred
Revenue), provided however, no SBC Accounts may be excluded by this clause
(k) until June 13, 2006;
     (l) Accounts for which Bank in its good faith business judgment determines
collection to be doubtful; and
     (m) other Accounts Bank deems ineligible in the exercise of its good faith
business judgment.
     “Equipment” is all “equipment” as defined in the Code with such additions
to such term as may hereafter be made, and includes without limitation all
machinery, fixtures, goods, vehicles (including motor vehicles and trailers),
and any interest in any of the foregoing.
     “ERISA” is the Employment Retirement Income Security Act of 1974, and its
regulations.
     “Event of Default” is defined in Section 8.
     “Foreign Currency” means lawful money of a country other than the United
States.
     “Fully Funded Capital Expenditures” means capital expenditures to the
extent funded by a Borrower’s strategic investor (including, without limitation,
Earthlink) pursuant to documents and agreements delivered to Bank.
     “Funding Date” is any date on which a Credit Extension is made to or on
account of Borrowers which shall be a Business Day.
     “FX Business Day” is any day when (a) Bank’s Foreign Exchange Department is
conducting its normal business and (b) the Foreign Currency being purchased or
sold by any Borrower is available to Bank from the entity from which Bank shall
buy or sell such Foreign Currency.
     “FX Forward Contract” is defined in Section 2.1.3.
     “FX Reserve” is defined in Section 2.1.3.
     “GAAP” is generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other Person as may be approved by a significant segment of the accounting
profession, which are applicable to the circumstances as of the date of
determination.
     “General Intangibles” is all “general intangibles” as defined in the Code
in effect on the date hereof with such additions to such term as may hereafter
be made, and includes without limitation, all copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
trademarks, service marks and, to the extent permitted under applicable law, any
applications therefor, whether registered or not, any trade secret rights,
including any rights to unpatented inventions, payment intangibles, royalties,
contract rights, goodwill, franchise agreements, purchase orders, customer
lists, route lists, telephone numbers, domain names, claims, income and other
tax refunds, security and other deposits, options to purchase or sell real or
personal property, rights in all litigation presently or hereafter pending
(whether in contract, tort or otherwise), insurance policies (including without
limitation key man, property damage, and business interruption insurance),
payments of insurance and rights to payment of any kind.
     “Governmental Approval” is any consent, authorization, approval, order,
license, franchise, permit, certificate, accreditation, registration, filing or
notice, of, issued by, from or to, or other act by or in respect of, any
Governmental Authority.
     “Governmental Authority” is any nation or government, any state or other
political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,

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legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including without limitation, the National Association of
Insurance Commissioners, the Federal Communications Commission and any State
public utility commission or other State agency or department with primary
regulatory jurisdiction over common carrier telecommunications and pay telephone
services).
     “Guarantor” is any present or future guarantor of the Obligations,
including Dieca and Laser Link.
     “Guaranty” means any Secured Guaranty that that is executed by a Guarantor
in favor of Bank.
     “Indebtedness” is (a) indebtedness for borrowed money or the deferred price
of property or services, such as reimbursement and other obligations for surety
bonds and letters of credit, (b) obligations evidenced by notes, bonds,
debentures or similar instruments, (c) capital lease obligations, and
(d) Contingent Obligations.
     “Indenture” is that certain Indenture dated as of March 10, 2004, executed
by and between Group, as issuer, and The Bank of New York, as trustee, relating
to the 3% Convertible Senior Notes due 2024, as supplemented from time to time.
     “Insolvency Proceeding” is any proceeding by or against any Person under
the United States Bankruptcy Code, or any other bankruptcy or insolvency law,
including assignments for the benefit of creditors, compositions, extensions
generally with its creditors, or proceedings seeking reorganization,
arrangement, or other relief.
     “Interest Payment Date” means, with respect to any LIBOR Advance, the last
day of each Interest Period applicable to such LIBOR Advance and, with respect
to Prime Rate Advances, the first (1st) day of each month (or, if the first day
of the month does not fall on a Business Day, then on the first Business Day
following such date), and each date a Prime Rate Advance is converted into a
LIBOR Advance to the extent of the amount converted to a LIBOR Advance.
     “Interest Period” means, as to any LIBOR Advance, the period commencing on
the date of such LIBOR Advance, or on the conversion/continuation date on which
the LIBOR Advance is converted into or continued as a LIBOR Advance, and ending
on the date that is one (1), two (2) or three (3) months thereafter, in each
case as Borrowers may elect in the applicable Notice of Borrowing or Notice of
Conversion/Continuation; provided, however, that (a) no Interest Period with
respect to any LIBOR Advance shall end later than the Revolving Maturity Date,
(b) the last day of an Interest Period shall be determined in accordance with
the practices of the LIBOR interbank market as from time to time in effect,
(c) if any Interest Period would otherwise end on a day that is not a Business
Day, that Interest Period shall be extended to the following Business Day
unless, in the case of a LIBOR Advance, the result of such extension would be to
carry such Interest Period into another calendar month, in which event such
Interest Period shall end on the preceding Business Day, (d) any Interest Period
pertaining to a LIBOR Advance that begins on the last Business Day of a calendar
month (or on a day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period) shall end on the last
Business Day of the calendar month at the end of such Interest Period, and
(e) interest shall accrue from and include the first Business Day of an Interest
Period but exclude the last Business Day of such Interest Period.
     “Interest Rate Determination Date” means each date for calculating the
LIBOR for purposes of determining the interest rate in respect of an Interest
Period. The Interest Rate Determination Date shall be the second Business Day
prior to the first day of the related Interest Period for a LIBOR Advance.
     “Inventory” is all “inventory” as defined in the Code in effect on the date
hereof with such additions to such term as may hereafter be made, and includes
without limitation all merchandise, raw materials, parts, supplies, packing and
shipping materials, work in process and finished products, including without
limitation such inventory as is temporarily out of any Borrower’s custody or
possession or in transit and including any returned goods and any documents of
title representing any of the above.
     “Investment” is any beneficial ownership interest in any Person (including
stock, partnership interest or other securities), and any loan, advance or
capital contribution to any Person.
     “Laser Link” is Laser Link.Net, Inc., a Delaware corporation.

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     “Letter of Credit” means a standby letter of credit issued by Bank or
another institution based upon an application, guarantee, indemnity or similar
agreement on the part of Bank as set forth in Section 2.1.2.
     “Letter of Credit Application” is defined in Section 2.1.2(a).
     “LIBOR” means, for any Interest Rate Determination Date with respect to an
Interest Period for any Advance to be made, continued as or converted into a
LIBOR Advance, the rate of interest per annum determined by Bank to be the per
annum rate of interest at which deposits in United States Dollars are offered to
Bank in the London interbank market (rounded upward, if necessary, to the
nearest 1/100th of one percent (0.01%)) in which Bank customarily participates
at 11:00 a.m. (local time in such interbank market) two (2) Business Days prior
to the first day of such Interest Period for a period approximately equal to
such Interest Period and in an amount approximately equal to the amount of such
Advance.
     “LIBOR Advance” means an Advance that bears interest based at the LIBOR
Rate.
     “LIBOR Rate” means, for each Interest Period in respect of LIBOR Advances
comprising part of the same Advances, an interest rate per annum (rounded upward
to the nearest 1/16th of one percent (0.0625%)) equal to LIBOR for such Interest
Period divided by one (1) minus the Reserve Requirement for such Interest
Period.
     “LIBOR Rate Margin” is three percent (3.00%).
     “Lien” is a mortgage, lien, deed of trust, charge, pledge, security
interest or other encumbrance.
     “Loan Documents” are, collectively, this Agreement, the Perfection
Certificate, any subordination agreement, the Intercreditor Agreement, the
Control Agreements, any landlord consents, any note, or notes or Guaranties
executed any Guarantor, any negative pledge agreement, and any other present or
future agreement between any Borrower, any Guarantor and/or for the benefit of
Bank in connection with this Agreement, all as amended, restated, or otherwise
modified.
     “Material Adverse Change” is a material adverse change on the business,
operations, financial or other conditions of any Borrower that could reasonably
be expected to adversely impact the ability of any Borrower to repay the
Obligations or otherwise perform its Obligations under the Loan Documents.
     “Material Indebtedness” is any Indebtedness the principal amount of which
is equal to or greater than $1,000,000, and in any event, includes any
Indebtedness under the Indenture or the Earthlink Documents or owing to SBC, if
any.
     “Net Income” means, as calculated on a consolidated basis for Group and its
Subsidiaries for any period as at any date of determination, the net profit (or
loss), after provision for taxes, of Group and its Subsidiaries for such period
taken as a single accounting period.
     “NextWeb” is NextWeb, Inc, a California corporation.
     “NextWeb Acquisition Documents” is defined in Section 3.1(n).
     “NextWeb Loan Agreement” is defined in Section 6.14(a).
     “Notice of Borrowing” means a notice given by Borrowers to Bank in
accordance with Section 3.2(a), substantially in the form of Exhibit B, with
appropriate insertions.
     “Notice of Conversion/Continuation” means a notice given by Borrowers to
Bank in accordance with Section 3.5, substantially in the form of Exhibit E,
with appropriate insertions.
     “Obligations” are Borrowers’ obligation to pay when due any debts,
principal, interest, Bank Expenses and other amounts Borrowers owe Bank now or
later, whether under this Agreement, the Loan Documents, or otherwise,
including, without limitation, all obligations relating to letters of credit,
cash management services, and foreign

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exchange contracts, if any, and including interest accruing after Insolvency
Proceedings begin and debts, liabilities, or obligations of Borrowers assigned
to Bank, and the performance of Borrowers’ duties under the Loan Documents.
     “Operating Documents” are, for any Person, such Person’s formation
documents, as certified with the Secretary of State of such Person’s state of
formation on a date that is no earlier than thirty (30) days prior to the
Effective Date, and, (a) if such Person is a corporation, its bylaws in current
form, (b) if such Person is a limited liability company, its limited liability
company agreement (or similar agreement), and (c) if such Person is a
partnership, its partnership agreement (or similar agreement), each of the
foregoing with all current amendments or modifications thereto.
     “Perfection Certificate” is defined in Section 5.1.
     “Permitted Distributions” means:
     (a) distributions to Borrowers and Guarantors;
     (b) purchases of capital stock from former employees, consultants and
directors pursuant to repurchase agreements or other similar agreements in an
aggregate amount not to exceed $1,000,000 in any fiscal year provided that at
the time of such purchase no Default or Event of Default has occurred and is
continuing;
     (c) distributions or dividends consisting solely of a Borrower’s capital
stock;
     (d) purchases for value of any rights distributed in connection with any
stockholder rights plan;
     (e) purchases of capital stock pledged as collateral for loans to
employees;
     (f) purchases of capital stock in connection with the exercise of stock
options or stock appreciation rights by way of cashless exercise or in
connection with the satisfaction of withholding tax obligations;
     (g) purchases of fractional shares of capital stock arising out of stock
dividends, splits or combinations or business combinations; and
     (h) the settlement or performance of such Person’s obligations under any
equity derivative transaction, option contract or similar transaction or
combination of transactions.
     “Permitted Indebtedness” is:
     (a) Borrowers’ Indebtedness to Bank under this Agreement or any other Loan
Document;
     (b) (1) any Indebtedness that does not exceed $250,000 in principal amount
existing on the Effective Date, and (2) any Indebtedness in excess of $250,000
in principal amount existing on the Effective Date and shown on the Perfection
Certificate;
     (c) Subordinated Debt;
     (d) unsecured Indebtedness to trade creditors and with respect to surety
bonds and similar obligations incurred in the ordinary course of business;
     (e) guaranties of Permitted Indebtedness to the extent such Indebtedness is
deemed an Investment;
     (f) Indebtedness incurred as a result of endorsing negotiable instruments
received in the ordinary course of business;
     (g) Indebtedness consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements designated to
protect a Person against fluctuations in interest rates, currency exchange
rates, or commodity prices;

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     (h) Indebtedness among (1) any Borrower and any other Borrower, (2) any
Guarantor and any other Guarantor, or (iii) any Guarantor and any Borrower or
vice versa;
     (i) capitalized leases and purchase money Indebtedness not to exceed
$15,000,000 in the aggregate in any fiscal year secured by Permitted Liens;
     (j) Indebtedness under the Earthlink Documents not to exceed in the
aggregate principal amount of $40,000,000 plus any “Additional Notes” (as
defined in the Earthlink Documents) issued by Borrowers in lieu of any scheduled
cash interest payments; provided that the Lien under the Earthlink Documents
shall be subject to an Intercreditor Agreement, which shall be on terms
satisfactory to Bank;
     (k) Indebtedness under the Indenture not to exceed in the aggregate
principal amount of $125,000,000 minus any amounts converted into common stock
of Group;
     (l) Indebtedness to another Borrower or Guarantor;
     (m) refinanced Permitted Indebtedness, provided that the amount of such
Indebtedness is not increased except by an amount equal to a reasonable premium
or other reasonable amount paid in connection with such refinancing and by an
amount equal to any existing, but unutilized, commitment thereunder;
     (n) other Indebtedness, if, on the date of incurring any Indebtedness
pursuant to this clause (n), the outstanding aggregate amount of all
Indebtedness incurred pursuant to this clause (l) does not exceed $1,000,000;
     (o) Indebtedness owing to Earthlink under the Earthlink Phase II Financing
not to exceed in aggregate principal amount $35,000,000 plus the amount of any
additional notes issued by Borrowers in lieu of any scheduled cash interest
payments; provided that (1) the Lien under such documents shall be subject to
the Intercreditor Agreement referenced in clause (j) above, (2) the interest
rate shall be 12% (payment in kind at Borrower’s option), and (3) such
Indebtedness shall have a five (5) year maturity; and
     (p) any guarantees of any real property operating lease obligations or any
personal property operating lease obligations of a Borrower or Guarantor.
     “Permitted Investments” are:
     (a) Investments existing on the Effective Date;
     (b) (1) marketable direct obligations issued or unconditionally guaranteed
by the United States or its agencies or any State maturing within 1 year from
its acquisition, (2) commercial paper maturing no more than 2 years after its
creation and having the highest rating from either Standard & Poor’s Corporation
or Moody’s Investors Service, Inc., and (3) Bank’s certificates of deposit
maturing no more than 2 years after issue;
     (c) Investments approved by the Borrowers’ Board of Directors or otherwise
pursuant to a Board-approved investment policy;
     (d) Investments in or to any Borrower or any Guarantors;
     (e) Investments consisting of Collateral Accounts in the name of any
Borrower or any Guarantor so long as Bank has a first priority, perfected
security interest in such Collateral Accounts;
     (f) Investments consisting of extensions of credit to any Borrower’s or
Guarantor’s customers in the nature of accounts receivable, prepaid royalties or
notes receivable arising from the sale or lease of goods, provision of services
or licensing activities of such Borrower;
     (g) Investments received in satisfaction or partial satisfaction of
obligations owed by financially troubled obligors;

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     (h) Investments acquired in exchange for any other Investments in
connection with or as a result of a bankruptcy, workout, reorganization or
recapitalization;
     (i) Permitted Indebtedness;
     (j) Investments acquired as a result of a foreclosure with respect to any
secured Investment;
     (k) Investments consisting of interest rate, currency, or commodity swap
agreements, interest rate cap or collar agreements or arrangements designated to
protect a Person against fluctuations in interest rates, currency exchange
rates, or commodity prices;
     (l) Investments consisting of loans and advances to employees in an
aggregate amount not to exceed $500,000; and
     (m) other Investments, if, on the date of incurring any Investments
pursuant to this clause (m), the outstanding aggregate amount of all Investments
incurred pursuant to this clause (m) does not exceed $1,000,000.
     “Permitted Liens” are:
     (a) (1) Liens securing Permitted Indebtedness described under clause (b) of
the definition of “Permitted Indebtedness” or (2) Liens arising under this
Agreement or other Loan Documents;
     (b) Liens for taxes, fees, assessments or other government charges or
levies, either not delinquent or being contested in good faith and for which a
Borrower maintains adequate reserves on its Books, if they have no priority over
any of Bank’s Liens;
     (c) Liens (including with respect to capital leases) (1) on property
(including accessions, additions, parts, replacements, fixtures, improvements
and attachments thereto, and the proceeds thereof) acquired or held by a
Borrower or Group’s Subsidiaries incurred for financing such property (including
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof), or (2) existing on property (and
accessions, additions, parts, replacements, fixtures, improvements and
attachments thereto, and the proceeds thereof) when acquired, if the Lien is
confined to such property (including accessions, additions, parts, replacements,
fixtures, improvements and attachments thereto, and the proceeds thereof);
     (d) Liens incurred in the extension, renewal or refinancing of the
Indebtedness secured by Liens described in (a) through (c), but any extension,
renewal or replacement Lien must be limited to the property encumbered by the
existing Lien and the principal amount of the indebtedness it secures may not
increase;
     (e) leases or subleases of real property granted in the ordinary course of
business, and leases, subleases, non-exclusive licenses or sublicenses of
property (other than real property or intellectual property) granted in the
ordinary course of a Borrower’s business, if the leases, subleases, licenses and
sublicenses do not prohibit granting Bank a security interest;
     (f) non-exclusive license of intellectual property granted to third parties
in the ordinary course of business, and licenses of intellectual property that
could not result in a legal transfer of title of the licensed property that may
be exclusive in respects other than territory and that may be exclusive as to
territory only as to discreet geographical areas outside of the United States;
     (g) leases or subleases granted in the ordinary course of a Borrower’s
business, including in connection with such Borrower’s leased premises or leased
property;
     (h) Liens in favor of custom and revenue authorities arising as a matter of
law to secure the payment of custom duties in connection with the importation of
goods;
     (i) Liens on insurance proceeds securing the payment of financed insurance
premiums;

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     (j) customary Liens granted in favor of a trustee to secure fees and other
amounts owing to such trustee under an indenture or other similar agreement;
     (k) Liens on assets acquired in mergers and acquisitions not prohibited by
Section 7 of this Agreement;
     (l) Liens consisting of pledges of cash, cash equivalents or government
securities to secure swap or foreign exchange contracts or letters of credit;
     (m) Liens arising from judgments, decrees or attachments in circumstances
not constituting an Event of Default under Sections 8.4 or 8.7;
     (n) Liens in favor of other financial institutions arising in connection
with a Borrower’s deposit or securities accounts held at such institutions;
     (o) carriers’, warehousemen’s, mechanics’, materialmen’s, repairmen’s or
other like Liens arising in the ordinary course of business which are not
overdue for a period of more than thirty (30) days or which are being contested
in good faith and by appropriate proceeding if adequate reserves with respect
thereto are maintained on the books of the applicable Person;
     (p) pledges or deposits in the ordinary course of business in connection
with workers’ compensation, unemployment insurance and compliance with other
social security requirements applicable to a Borrower;
     (q) deposits to secure the performance of bids, trade contracts (other than
for borrowed money), contracts for the purchase of property, leases, statutory
obligations, surety and appeal bonds, performance bonds and other obligations of
a like nature, in each case, incurred in the ordinary course of business and not
representing an obligation for borrowed money;
     (r) Liens securing Permitted Indebtedness described under clauses (j) and
(o) of the definition of “Permitted Indebtedness” provided that such Lien
attaches only to the “Collateral” as defined under the Earthlink Documents as
they exist on the date hereof and any Earthlink Documents relating to any
“Earthlink Phase II Financing”; and
     (s) Liens not otherwise permitted, provided that (1) such Liens secure only
the Permitted Indebtedness set forth in clause (m) of the definition thereof and
(2) such Liens are subordinate in priority to Bank’s Lien hereunder.
     “Person” is any individual, sole proprietorship, partnership, limited
liability company, joint venture, company, trust, unincorporated organization,
association, corporation, institution, public benefit corporation, firm, joint
stock company, estate, entity or government agency.
     “Prime Rate” is Bank’s most recently announced “prime rate,” even if it is
not Bank’s lowest rate.
     “Prime Rate Advance” means an Advance that bears interest based at the
Prime Rate.
     “Prime Rate Margin” is one quarter of one percent (0.25%).
     “Registered Organization” is any “registered organization” as defined in
the Code with such additions to such term as may hereafter be made.
     “Requirement of Law” is as to any Person, the Certificate of Incorporation
and by laws or other organizational or governing documents of such Person, and
any law, treaty, rule or regulation or determination of an arbitrator or a court
or other Governmental Authority (including without limitation, any U.S.
telecommunications regulatory matters specifically related to the Communications
Act of 1934, as amended, including amendments made by the Telecommunications Act
of 1996, 47 U.S.C. § 151, et seq. (the “Communications Act”), and the rules,
regulations, and orders of the Federal Communications Commission thereunder (the
“FCC Rules”); court decisions interpreting and applying the Communications Act
and the FCC Rules (the “Federal Court Opinions”); (the

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Communications Act, the FCC Rules, and the Federal Court Opinions being
hereinafter collectively referred to as “Federal Telecommunications Law”); and
State statutes regulating common carrier telecommunications and pay telephone
services and the rules, orders, and regulations of each State public utility
commission or other State agency or department with primary regulatory
jurisdiction over common carrier telecommunications and pay telephone services
(“PUC”), and court decisions interpreting and applying such State statutes,
rules, orders, and regulations, in the fifty states of the United States and the
District of Columbia), in each case applicable to or binding upon such Person or
any of its property or to which such Person or any of its property is subject.
     “Regulatory Change” means, with respect to Bank, any change on or after the
date of this Agreement in United States federal, state, or foreign laws or
regulations, including Regulation D, or the adoption or making on or after such
date of any interpretations, directives, or requests applying to a class of
lenders including Bank, of or under any United States federal or state, or any
foreign laws or regulations (whether or not having the force of law) by any
court or Governmental Authority or monetary authority charged with the
interpretation or administration thereof.
     “Reserve Requirement” means, for any Interest Period, the average maximum
rate at which reserves (including any marginal, supplemental, or emergency
reserves) are required to be maintained during such Interest Period under
Regulation D against “Eurocurrency liabilities” (as such term is used in
Regulation D) by member banks of the Federal Reserve System. Without limiting
the effect of the foregoing, the Reserve Requirement shall reflect any other
reserves required to be maintained by Bank by reason of any Regulatory Change
against (a) any category of liabilities which includes deposits by reference to
which the LIBOR Rate is to be determined as provided in the definition of LIBOR
or (b) any category of extensions of credit or other assets which include
Advances.
     “Responsible Officer” is any of the Chief Executive Officer, President,
Chief Financial Officer and Controller of a Borrower.
     “Revolving Line” is an Advance or Advances in an aggregate amount of up to
$50,000,000 outstanding at any time.
     “Revolving Line Maturity Date” is the earliest of (a) April 13, 2008 or
(b) the occurrence of an Event of Default.
     “SBC” is SBC Communications Inc., a Delaware corporation.
     “SBC Credit Agreement” is defined in Section 3.1(f).
     “SBC Resale Agreement” is defined in Section 3.1(f).
     “Securities Account” is any “securities account” as defined in the Code
with such additions to such term as may hereafter be made.
     “Settlement Date” is defined in Section 2.1.3.
     “Subordinated Debt” is (a) Indebtedness incurred by a Borrower subordinated
to Borrowers’ Indebtedness owed to Bank and which is reflected in a written
agreement in a manner and form reasonably acceptable to Bank and approved by
Bank in writing and (b) to the extent the terms of subordination do not change
adversely to Bank, refinancings, refundings, renewals, amendments or extensions
of any of the foregoing.
     “Subsidiary” means, with respect to any Person, any Person of which more
than 50% of the voting stock or other equity interests is owned or controlled,
directly or indirectly, by such Person or one or more Affiliates of such Person.
     “Tangible Net Worth” is, on any date, the Consolidated Total Assets of
Group and its Subsidiaries minus (a) any amounts attributable to reserves not
already deducted from assets, minus (b) the Consolidated Total Liabilities less
the existing $125,000,000 under the Indenture, plus (a) 50% of quarterly
positive Net Income earned after the Effective Date plus (b) 50% of equity or
Subordinated Debt received after the Effective Date.
     “Transfer” is defined in Section 7.1.
     “Unused Revolving Line Facility Fee” is defined in Section 2.4(c).
[Signature page follows.]

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     IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the Effective Date.
BORROWERS:
COVAD COMMUNICATIONS GROUP, INC.

     
By
/s/ Chris Dunn  
 
    Name: Chris Dunn Title: SVP and CFO

     
 
  COVAD COMMUNICATIONS COMPANY
 
   
By
/s/ Chris Dunn  
 
    Name: Chris Dunn Title: SVP and CFO
 
  BANK:

     
 
  SILICON VALLEY BANK
 
 
By
/s/ Tom Smith
 
  Name: Tom Smith Title: Senior Relationship Manager Effective Date: April 13,
2006

[Signature Page to Loan and Security Agreement]

 

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EXHIBIT A
The Collateral consists of all of Borrowers’ right, title and interest in and to
the following personal property:
     All goods, Accounts (including health-care receivables), Equipment,
Inventory, contract rights or rights to payment of money, leases, license
agreements, franchise agreements, General Intangibles (except as provided
below), commercial tort claims, documents, instruments (including any promissory
notes), chattel paper (whether tangible or electronic), cash, deposit accounts,
fixtures, letters of credit rights (whether or not the letter of credit is
evidenced by a writing), securities, and all other investment property,
supporting obligations, and financial assets, whether now owned or hereafter
acquired, wherever located; and
     all Borrowers’ Books relating to the foregoing, and any and all claims,
rights and interests in any of the above and all substitutions for, additions,
attachments, accessories, accessions and improvements to and replacements,
products, proceeds and insurance proceeds of any or all of the foregoing.
     Notwithstanding the foregoing, the Collateral does not include any of the
following whether now owned or hereafter acquired: (a) any copyright rights,
copyright applications, copyright registrations and like protections in each
work of authorship and derivative work, whether published or unpublished, any
patents, patent applications and like protections, including improvements,
divisions, continuations, renewals, reissues, extensions, and
continuations-in-part of the same, trademarks, service marks and, to the extent
permitted under applicable law, any applications therefor, whether registered or
not, and the goodwill of the business of such Borrower connected with and
symbolized thereby, know-how, operating manuals, trade secret rights, rights to
unpatented inventions, and any claims for damage by way of any past, present, or
future infringement of any of the foregoing; provided, however, the Collateral
shall include all Accounts, license and royalty fees and other revenues,
proceeds, or income arising out of or relating to any of the foregoing; (b) any
property to the extent that such grant of a security interest (1) is prohibited
by any Requirement of Law of a Arizona, Colorado, Louisiana, West Virginia,
Delaware, Georgia, Indiana, New Jersey, New York, Pennsylvania, Tennessee or
District of Columbia Governmental Authority, or (2) constitutes a breach or
default under or results in the termination of any contract, lease, license,
agreement, instrument, real property lease agreement under which a Borrower is a
lessee or other document evidencing or giving rise to such property, except, in
each case, to the extent that such Requirement of Law or term in such contract,
lease, license, agreement, instrument or other document providing for such
prohibition, breach, default or termination is ineffective under Section 9-406,
9-407, 9-408 or 9-409 of the Code (or any successor provision or provisions) of
any relevant jurisdiction or any other applicable law (including the Bankruptcy
Code) or principles of equity; provided, however, that such security interest
shall attach immediately at such time as such Requirement of Law is not
effective or applicable, or such prohibition, breach, default or termination is
no longer applicable, consent is obtained or is waived, and to the extent
severable, shall attach immediately to any portion of the Collateral that does
not result in such consequences; (c)(1) any equipment acquired with the
$50,000,000 proceeds (the “Earthlink Proceeds”) from Earthlink, Inc. pursuant to
the Purchase Agreement dated as of March 15, 2006 by and among Borrowers and
Earthlink, Inc. (the “Pledged Equipment”), (2) any additions and accessions to
the Pledged Equipment acquired with the Earthlink Proceeds, (3) any software
and/or intellectual property (including that embedded in or integrated with the
Pledged Equipment) acquired with the Earthlink Proceeds, (4) all documents
covering all or any part of the Pledged Equipment, and (5) all proceeds of
clauses (c)(1) through (c)(4), including, cash proceeds and noncash proceeds of
all or any part of the Pledged Equipment; and (d)(1) any equipment acquired with
the $43,600,000 proceeds (the “Phase II Earthlink Proceeds”) from Earthlink,
Inc. pursuant to a purchase agreement by and among Borrowers and Earthlink, Inc.
(the “Phase II Pledged Equipment”), (2) any additions and accessions to the
Phase II Pledged Equipment acquired with the Phase II Earthlink Proceeds,
(3) any software and/or intellectual property (including that embedded in or
integrated with the Phase II Pledged Equipment) acquired with the Phase II
Earthlink Proceeds, (4) all documents covering all or any part of the Phase II
Pledged Equipment, and (5) all proceeds of clauses (d)(1) through (d)(4),
including, cash proceeds and noncash proceeds of all or any part of the Phase II
Pledged Equipment.
     Pursuant to the terms of a certain negative pledge arrangement with Bank,
each Borrower has agreed not to encumber any of its copyright rights, copyright
applications, copyright registrations and like protections in each work of
authorship and derivative work, whether published or unpublished, any patents,
patent applications and like protections, including improvements, divisions,
continuations, renewals, reissues, extensions, and continuations-in-

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part of the same, trademarks, service marks and, to the extent permitted under
applicable law, any applications therefor, whether registered or not, and the
goodwill of the business of such Borrower connected with and symbolized thereby,
know-how, operating manuals, trade secret rights, rights to unpatented
inventions, and any claims for damage by way of any past, present, or future
infringement of any of the foregoing, without Bank’s prior written consent.

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