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UNITED STATES SECURITIES AND
    EXCHANGE COMMISSIONWashington, DC
    20549
  Form 10-K
  þ

ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
    OF THE SECURITIES EXCHANGE ACT OF 1934For the Fiscal Year Ended
    December 31, 2007   Commission file number
    001-32588
  Covad Communications Group,
    Inc.
  Incorporated in Delaware

I.R.S. Employer Identification No.:
    77-0461529   110 Rio
    Robles, San Jose, California 95134(408) 952-6400
  Securities registered pursuant to Section 12(b) of the
    Act:
    None
  Securities registered pursuant to Section 12(g) of the
    Act:
    Common Stock, par value $0.001 per share
    Stock Purchase Rights Pursuant To Rights Agreement
  o þ
  o þ
  þ o
  Regulation S-K Form 10-K Form 10-K. o
  Rule 12b-2
  Large Accelerated
    Filer o

Accelerated
    Filer þ

Non-accelerated
    Filer o
    (Do not check if a smaller reporting company)

Smaller Reporting
    Company o   Rule 12b-2 o þ
    þ o




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##### 





COVAD
    COMMUNICATIONS GROUP, INC.
    For the Fiscal Year Ended December 31, 2007
  TABLE OF
    CONTENTS
   
 PagePART IITEM 1.


Business


1ITEM 1A.


Risk Factors


15ITEM 1B.


Unresolved Staff Comments


28ITEM 2.


Properties


28ITEM 3.


Legal Proceedings


28ITEM 4.


Submission of Matters to a Vote of Security
    Holders


31PART IIITEM 5.


Market for Registrants Common Equity,
    Related Stockholder Matters and Issuer Purchases of Equity
    Securities


31ITEM 6.


Selected Financial Data


32ITEM 7.


Managements Discussion and Analysis of
    Financial Condition and Results of Operations


33ITEM 7A.


Quantitative and Qualitative Disclosures About
    Market Risk


55ITEM 8.


Financial Statements and Supplementary Data


56ITEM 9.


Changes in and Disagreements with Accountants on
    Accounting and Financial Disclosure


100ITEM 9A.


Controls and Procedures


100ITEM 9B.


Other Information


101PART IIIITEM 10.


Directors, Executive Officers and Corporate
    Governance


101ITEM 11.


Executive Compensation


104ITEM 12.


Security Ownership of Certain Beneficial Owners
    and Management and Related Stockholder Matters


124ITEM 13.


Certain Relationships and Related Transactions,
    and Director Independence


126ITEM 14.


Principal Accounting Fees and Services


128PART IVITEM 15.


Exhibits, Financial Statement Schedules


129SIGNATURES


133EXHIBIT 21.1EXHIBIT 23.1EXHIBIT 31.1EXHIBIT 31.2EXHIBIT 32.1EXHIBIT 32.2




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PART I  ITEM 1.
    Business  The following discussion contains forward-looking statements,
    including statements regarding our growth rates, cash needs, the
    adequacy of our cash reserves, relationships with customers and
    vendors, market opportunities, legislative and regulatory
    proceedings, operating and capital expenditures, expense
    reductions and operating results. Each of these statements
    involves risks and uncertainties. As a result, actual results
    could differ materially from those anticipated in the
    forward-looking statements as a result of certain factors
    including, but not limited to, those discussed in Part I,
    Item 1A.  Risk Factors and elsewhere
    in this Report.
  We disclaim any obligation to update information contained in
    any forward-looking statement. See Part II,
    Item 7.  Managements Discussion and
    Analysis of Financial Condition and Results of
    Operations  Forward-Looking Statements.
  (All
    dollar and share amounts are presented in thousands, except per
    share amounts)
  Overview
         1




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
    direct sales of bundled services, which includes VoIP and data
    communications services, to small and medium-sized businesses;
    higher-bandwidth services, like our T-1 and Bonded T-1 services;
    fixed wireless broadband services; and
    LPVA service.          Form 10-K
  Industry
    Background
     2




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Our
    Service Offerings
    Risk Factors  We
    may experience decreasing margins on the sale of our services,
    which may impair our ability to achieve profitability or
    positive cash flow for a discussion of some of the risks
    associated with our ability to sustain current price levels in
    the future.
  TeleSpeed
    TeleSoho
     3




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TeleXtend
    TeleSurfer
      Fixed
    Broadband Wireless
    Voice
    over Internet Protocol for Businesses
   4




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Line
    Powered Voice Access
      Asynchronous
    Transfer Mode, or ATM, Network Services
    Broadband
    Internet Access Service
    Value-Added
    Services
    Email and Web Hosting 
  Security Services 
 5




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Installation Services 
  Sales and
    Marketing
  Wholesale
        Direct
         6




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Network
    Architecture and Technology
    Consistent and Scalable Performance
  Intelligent End-to-End Network Management
  Flexibility
  Network Operations Centers
  Nationwide Broadband Access and Internet
    Connectivity
  Private Metropolitan Network
  Central Office Spaces
  Telephone Lines
  Fixed Wireless Connections
 7




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DSL Modems, Telecommunications Equipment and
    On-Site
    Connection on-site
  Competition
    
    RBOCs (Verizon, Qwest and AT&T);
    cable television companies providing broadband and VoIP, such as
    Comcast Corporation, Cox Communications, Time Warner, Inc. and
    Charter Communications;
    competitive telecommunications companies, such as MegaPath and
    XO Communications;
    interexchange carriers including Sprint and Level 3
    Communications;
    VoIP service providers, such as M5 Networks, PingTone and
    cBeyond;
    telephone equipment providers offering VoIP services, such as
    Nortel, Avaya, Cisco and Lucent;
    Internet service providers, such as EarthLink and Speakeasy.net;
    online service providers, including companies such as AOL, a
    subsidiary of Time Warner, Inc., Google and MSN, a subsidiary of
    Microsoft Corp.; and
    wireless and satellite service providers such as AT&T,
    Sprint, Verizon Wireless,
    T-Mobile,
    StarBand Communications Inc., DirecTV, EchoStar Communications
    Corporation, Globalstar, Lockheed, NextLink (a subsidiary of XO
    Holdings), StarBand Communications and Teledesic.  Interconnection
    Agreements with the Regional Bell Operating Companies
      
    prices we pay to lease access, both for stand-alone and
    line-shared lines;
    special conditioning on certain of these lines to enable the
    transmission of digital signals; 8




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
    prices and terms of central office space for our equipment;
    prices we pay and access we have to data transport facilities
    connecting our facilities in different central offices and
    network points of presence;
    interfaces that we can use to place orders, report network
    problems and monitor responses to our requests;
    dispute resolution processes we use to resolve
    disagreements; and
    terms of the interconnection agreement, its transferability to
    successors, its liability limits and other general aspects of
    the relationships.      Government
    Regulation
  Overview 
  Recent Developments 
  
    If certain criteria are met, ILECs can stop providing new
    transport services between the telephone companies central
    offices at regulated rates, which are usually lower than
    commercially available rates. These criteria are based on the
    number of business lines served by the connected central offices
    and the number of alternative providers collocated in the
    central offices. We currently purchase interoffice transport
    from the ILECs in order to carry traffic over our network. Since
    March 11, 2005, we have been accruing the 15% price
    increase for these impacted circuits. Since March 11, 2006,
    we have been accruing the difference between commercially
    available and Unbundled Network Element, or UNE, rates billed.
    By the end of 2007, most of the affected circuits have been
    disconnected or converted to commercially available rates or
    discounted term plan rates. As a result of these actions we do
    not expect our data transport costs to significantly increase in
    2008. 9




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
    In addition, ILECs are no longer required to provide new
    high-capacity unbundled DS-1 and DS-3 lines at regulated rates
    in locations where certain criteria are met. These criteria are
    based on the number of business lines served by the central
    office and the number of alternative providers collocated in the
    central office. We use DS-1 lines to provide business-grade
    services to our end-users. As a result of the lower rates
    facilitated by various term plans, we do not expect that the
    affected circuits will increase our high-capacity costs in 2008.
    ILECs are no longer required to provide new dark fiber lines at
    regulated rates. In certain areas, we purchase dark fiber to
    transport data traffic within our network. Currently we purchase
    our dark fiber from non-ILEC providers. However, if we are
    unable to purchase dark fiber from non-ILEC providers in the
    future, we expect this change will increase our cost to purchase
    dark fiber lines. At this time we cannot reliably quantify the
    aggregate amount of these increases, if any.
    Competitive telecommunications carriers, including our
    resellers, can no longer purchase voice services from the ILECs
    under an arrangement known as the Unbundled Network Element
    Platform, or UNE-P, for new customers at regulated rates. The
    existence of UNE-P had allowed us to bundle our data services
    with the voice services of competitive telecommunications
    providers through line-splitting arrangements. We currently
    bundle services in this manner only with competitive
    telecommunications providers that have agreements with the ILECs
    to allow them continued access to UNE-P or similar resold
    services. As discussed above, we have deployed an alternative
    method of delivering residential voice services with our LPVA
    service, which enables our strategic reseller, EarthLink, to
    offer local and long distance voice services to its customers
    (bundled with our data services) in competition with the local
    telephone companies.      
    Our line-shared customers as of October 2, 2003 were
    grandfathered indefinitely at current rates, terms and
    conditions. Line-shared customers provided approximately
    $53,245, $68,758 and $68,755, or 11.0%, 14.5% and 15.5%, of our
    revenues for 2007, 2006 and 2005, respectively.
    For line-shared customers acquired from October 3, 2003 to
    October 2, 2004, the FCC-mandated maximum price for the
    high-frequency portion of the telephone line was 25% of the cost
    of a separate telephone line during the first year, 50% of the
    cost of a separate telephone line from October 3, 2004 to
    October 2, 2005, and 75% of the cost of a separate
    telephone line from October 3, 2005 to October 2,
    2006. After October 2, 2006, we were required to transition
    these customers to new arrangements, which could include
    continued provision of services pursuant to commercial
    agreements.
    As of October 3, 2004, we could no longer acquire new
    line-shared customers at regulated rates under Section 251
    of the Telecommunications Act of 1996.   10




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11




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Federal and State VoIP Regulation
        Other Federal Regulation 
 12




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Other State Regulation 
    Local Government Regulation 
 13




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Risk
    Factors  Our services are subject to government
    regulation, and changes in current or future laws or regulations
    could adversely affect our business Risk Factors 
    Charges for network elements are generally outside of our
    control because they are proposed by the ILECs and are subject
    to costly regulatory approval processes.
  Significant
    Customers
    
    AT&T accounted for 12.3%, 14.3% and 16.3% of our total net
    revenues for 2007, 2006 and 2005, respectively; and
    EarthLink accounted for 11.3%, 11.1% and 14.6% of our total net
    revenues for 2007, 2006 and 2005, respectively.  Intellectual
    Property
       14




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Employees
    Available
    Information
  www.covad.com Form 10-K, Form 10-Q, Form 8-K, 1-800-SEC-0330. www.sec.gov.
  ITEM 1A.
    Risk
    Factors  (All
    dollar and share amounts are presented in thousands, except per
    share amounts)
  Investing in and holding Covad Communications Group, Inc.
    (we, our, the Company,
    Covad) common stock involve a degree of risk. Many
    factors, including those described below and set forth elsewhere
    in this report and in other documents we file with the
    Securities and Exchange Commission, or SEC, could cause actual
    results to differ materially from the results contemplated by
    the forward-looking statements contained in this report. If any
    of these risks materialize, our business, financial condition
    and results of operations could be adversely affected. These
    risks are not the only ones we face. Additional risks that we
    currently do not know about or that we currently believe to be
    immaterial may also impair our business.
  Because
    the acquisition by Platinum Equity has not yet closed, we cannot
    be sure that the transactions contemplated by the Merger
    Agreement will be consummated, which could have a negative
    effect on our financial performance and stock
    price.
   15




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Form 8-K,
      
    the price of our common stock would likely decrease since our
    current market price reflects a market assumption that the
    Merger will be completed;
    we may experience difficulties in attracting customers and
    resellers due to changed perceptions about our competitive
    position, our management, or other aspects of our business;
    we may not be able to find another buyer willing to pay an
    equivalent or higher price per share, in an alternative
    acquisition transaction, than the price provided in the Merger
    Agreement;
    we would remain liable for significant costs related to the
    acquisition, such as legal, accounting and investment banking
    fees;
    activities relating to the acquisition and related uncertainties
    may lead to a loss of revenue and market position that we may
    not be able to regain;
    we may not be able to retain key employees or attract new
    employees in areas of growth or need;
    we may not be able to maintain effective internal control over
    financial reporting due to employee departures; and
    we may not be able to raise the capital necessary to fund our
    operations and outstanding liabilities.    We
    regularly evaluate the strategic value of our business
    operations and, where appropriate, invest further in certain
    business operations, and reduce investment in or divest other
    business operations.
  wind-up
 16




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Our
    services are subject to government regulation, and changes in
    current or future laws or regulations and the methods of
    enforcing the law and regulations could adversely affect our
    business.
            Charges
    for network elements are generally outside of our control
    because they are proposed by the ILECs and are subject to costly
    regulatory approval processes.
     17




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Our
    business will be adversely affected if our interconnection
    agreements are not renewed or if they are modified on
    unfavorable terms.
        We
    depend on a limited number of customers for the preponderance of
    our revenues, and we are highly dependent on sales through our
    resellers.
      The
    markets in which we operate are highly competitive, and we may
    not be able to compete effectively, especially against
    established industry competitors with significantly greater
    financial resources.
   18




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
    develop and adopt new or emerging technologies;
    respond to changes in customer requirements more quickly;
    devote greater resources to the development, promotion and sale
    of their products and services;
    form new alliances and rapidly acquire significant market share;
    undertake more extensive marketing campaigns;
    adopt more aggressive pricing policies; and
    devote substantially more resources to developing new services.      video-on-demand,
  New
    competitors in the market for VoIP services and improvements in
    the quality of VoIP service provided by competitors over the
    public Internet could increase competition for our VoIP
    services.
     19




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Failure
    to complete development, upgrades, testing and introduction of
    new services, including VoIP services, could affect our ability
    to compete in the industry.
    We may
    need to raise additional capital under difficult financial
    market conditions, and our substantial leverage may negatively
    affect our operating results.
        
    increasing our vulnerability to general adverse economic and
    industry conditions;
    requiring the allocation of a portion of our expected cash flow
    from operations to service our indebtedness, thereby reducing
    the amount of our expected cash flow available for other
    purposes, including working capital and capital expenditures;
    limiting our flexibility in planning for, or reacting to,
    changes in our business and the industry in which we
    compete; and
    placing us at a possible competitive disadvantage relative to
    less leveraged competitors and competitors that have better
    access to capital resources.  In
    order to become cash flow positive and to achieve profitability,
    we must add end-users and sell additional services to our
    existing end-users while minimizing the cost to upgrade and
    expand our network infrastructure.
   20




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
    acquire new end-users;
    efficiently deploy LPVA services under our agreement with
    EarthLink;
    enter into and maintain agreements with the RBOCs or obtain
    favorable regulatory rulings that provide us with access to
    unbundled network elements on terms and conditions that allow us
    to profitably sell our consumer services;
    enhance, improve and increase sales of our VoIP services;
    upgrade our network to improve reliability and remain
    competitive;
    efficiently expand fixed wireless broadband services;
    expand our direct sales capability and infrastructure in a
    cost-effective manner; and
    continue to implement and improve our management information
    systems, including our client ordering, provisioning, dispatch,
    trouble ticketing, customer billing, accounts receivable,
    payable tracking, collection, fixed assets, transaction-based
    taxes and other management information systems.    Our
    end-user disconnection rate reduces our revenue and end-user
    growth.
  We experience high disconnection or churn
    rates.
  
    move to a new location;
    are moved off our network when one of our customers acquires, or
    is acquired by, a competitor with network facilities;
    disconnect because of better offers in the market; or
    disconnect because they do not like our service or the service
    provided by our resellers.    We may
    experience decreasing margins on the sale of our services, which
    may impair our ability to achieve profitability or positive cash
    flow.
   21




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If we
    detect material weaknesses in our internal controls over
    financial reporting under the requirements of the Sarbanes-Oxley
    Act, our business, reputation and stock price could be adversely
    affected.
      Some
    of our resellers are facing financial difficulties, which makes
    it more difficult to predict our revenues.
    The
    existence of our direct business poses challenges and may cause
    our resellers to place fewer orders with us or may cause us to
    lose resellers.
    
    recruit, hire and train additional direct sales teams;
    reduce our cost of acquiring new customers;
    improve our VoIP provisioning, network management and monitoring
    and billing systems;
    manage expanding and increasingly diverse distribution channels;
    effectively manage additional vendors; and
    continue to enhance our network and improve our VoIP services.    The
    communications industry is undergoing rapid technological
    changes and new technologies may be superior to the technology
    we use.
   22




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
    third parties, including some of our competitors and potential
    competitors, to develop and provide us with access to new
    communications and networking technology;
    our ability to anticipate or adapt to new technology on a timely
    basis; and
    our ability to adapt to new products and technologies that may
    be superior to, or may not be compatible with, our products and
    technologies.    A
    system failure could delay or interrupt service to our
    customers, which could reduce demand for our
    services.
    IP-based
  Our
    use of fixed broadband wireless technology presents several
    challenges.
     23




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A
    breach of network security could delay or interrupt service to
    our customers, which could reduce demand for our
    services.
    Our
    success depends on our retention of certain key personnel, our
    ability to hire additional key personnel and the maintenance of
    good labor relations.
      We
    depend on a limited number of third parties for equipment
    supply, software utilities, service and installation and if we
    are unable to obtain these items from these third parties we may
    not be able to deliver our services as required.
    
    DSLAMs;
    CPE, including modems, routers, bridges and other devices;
    network routing and switching hardware;
    customer support;
    installation services;
    customized software design and maintenance;
    network management software;
    systems management software;
    database management software;
    collocation space;
    software used in our products;
    hosting, email and IP provisioning services; 24




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
    softswitches, used to provide VoIP services; and
    Internet connectivity and Internet protocol services.      
    the possibility that some of our vendors will leave the DSL
    equipment business or will stop supporting equipment that we
    already have installed;
    the absence of guaranteed capacity;
    the possibility that vendors may become insolvent;
    the possibility that vendors will stop supporting software or
    equipment that we use or will no longer offer supplemental or
    replacement parts; and
    reduced control over delivery schedules, quality assurance,
    production yields and costs.    We use
    third-party vendors offshore for tasks that were previously done
    by our employees.
        We
    have made and may make acquisitions of complementary
    technologies or businesses in the future, which may disrupt our
    business and be dilutive to our existing
    stockholders.
   25




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We
    must pay federal, state and local taxes and other surcharges on
    our services, the applicability and levels of which are
    uncertain.
      We are
    a party to litigation and adverse results of such litigation
    matters could negatively impact our financial condition and
    results of operations.
  Legal
    Proceedings.
 26




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Our
    intellectual property protection may be inadequate to protect
    our proprietary rights.
        Third
    parties may claim we infringe their intellectual property
    rights.
    
    be time-consuming, costly and result in litigation;
    divert managements time and attention from developing our
    business;
    require us to pay monetary damages or enter into royalty and
    licensing agreements that we would not normally find acceptable;
    require us to stop selling or to redesign certain of our
    products; or
    require us to satisfy indemnification obligations to our
    customers.    The
    price of our common stock may continue to fluctuate
    significantly.
    
    a termination of our Merger Agreement with Platinum Equity, in
    which event the price of our common stock would likely decrease
    since our current market price reflects a market assumption that
    the merger will be completed;
    state and federal regulatory and legislative actions;
    general economic conditions and the condition of the
    telecommunications industry; 27




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
    our ability to maintain existing customers and add new customers
    and recognize revenue from distressed customers;
    our ability to execute our operational plan and reach
    profitability and cash flow positive from operations;
    our ability to maintain sufficient liquidity to fund our
    operations;
    adverse litigation results;
    announcements of new products, services or pricing by our
    competitors or the emergence of new competing technologies;
    our failure to meet the expectations of investors or of analysts;
    the adoption of new, or changes in existing, accounting rules,
    guidelines and practices, which may materially impact our
    financial statements and may materially alter the expectations
    of securities analysts or investors;
    the level of demand for broadband Internet access services and
    VoIP telephony services;
    departures of key personnel; and
    effective internal controls over financial reporting.    ITEM 1B.
    Unresolved
    Staff Comments    ITEM 2.
    Properties      ITEM 3.
    Legal
    Proceedings   28




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29




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30




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ITEM 4.
    Submission
    of Matters to a Vote of Security Holders   PART II  ITEM 5.
    Market
    for Registrants Common Equity, Related Stockholder Matters
    and Issuer Purchases of Equity Securities  (Share
    amounts are presented in thousands)
  Market
    Price Information and Dividend Policy for Our Common
    Stock
    High


LowFiscal Year Ended December 31, 2006First Quarter

$
2.13


$
0.87Second Quarter

$
2.59


$
1.75Third Quarter

$
2.05


$
1.35Fourth Quarter

$
1.53


$
1.08Fiscal Year Ended December 31, 2007First Quarter

$
1.47


$
1.10Second Quarter

$
1.24


$
0.85Third Quarter

$
0.91


$
0.66Fourth Quarter

$
0.95


$
0.62      31




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ITEM 6.
    Selected
    Financial Data  Managements Discussion and Analysis of Financial
    Condition and Results of Operations Financial Statements and
    Supplementary Data Form 10-K.
  For the Year Ended December 31,2007


2006


2005


2004


2003(All dollar and share amounts are presented in thousands,except per share amounts)Consolidated Statement of Operations Data:Revenues, net

$
484,207


$
474,304


$
443,179


$
429,197


$
388,851Cost of sales (exclusive of depreciation and amortization)


346,876



328,474



311,139



266,172



288,122Benefit from federal excise tax adjustment






(19,455
)










Selling, general and administrative


110,958



127,129



158,552



146,241



140,081Depreciation and amortization


51,269



44,825



67,241



77,410



73,884Provision for post-employment benefits


1,652



1,597



3,640



1,409



1,235Litigation-related expenses


7,338















Loss from operations


(34,362
)


(8,517
)


(97,964
)


(60,000
)


(114,570
)Interest expense


11,480



9,562



5,005



4,927



5,526Gain on sale of equity securities










28,844







Gain on deconsolidation of subsidiary










53,963







Net loss

$
(42,967
)

$
(13,949
)

$
(15,722
)

$
(60,761
)

$
(112,302
)Basic and diluted per share amounts:Net loss

$
(0.14
)

$
(0.05
)

$
(0.06
)

$
(0.24
)

$
(0.50
)Weighted-average common shares used in computing basic and
    diluted per share amounts


297,489



290,262



265,240



249,187



224,950   As of December 31,2007


2006


2005


2004


2003Consolidated Balance Sheet Data:Cash, cash equivalents and short-term investments

$
65,956


$
62,072


$
96,501


$
150,996


$
114,345Property and equipment, net

$
71,353


$
87,586


$
71,663


$
78,707


$
94,279Total assets

$
272,729


$
313,308


$
300,581


$
385,225


$
334,711Long-term obligations, including capital leases

$
174,486


$
168,801


$
125,206


$
125,734


$
50,000Total stockholders equity (deficit)

$
(36,270
)

$
2,354


$
(20,169
)

$
(8,635
)

$
(5,553
)   As of and for the Year Ended December 31,2007


2006


2005


2004


2003Other Operating and Financial Data:Collocation facilities


2,049



2,048



2,052



2,052



1,819Homes and businesses passed (approximately)


57,000,000



57,000,000



57,000,000



50,000,000



46,000,000Lines in service


487,000



519,000



567,200



533,200



517,000Capital expenditures for property and equipment

$
28,798


$
46,964


$
42,397


$
38,743


$
44,142Capital expenditures for collocation fees and purchases of other
    intangibles assets

$
1,015


$
3,236


$
3,582


$
7,900


$
14,889  32




---



##### Table of Contents



ITEM 7.
    Managements
    Discussion and Analysis of Financial Condition and Results of
    Operations  (All
    dollar and share amounts are presented in thousands, except per
    share amounts)
  The following discussion of Covad Communications Group, Inc.
    (we, our, the Company,
    Covad) financial condition and results of operations
    should be read in conjunction with the consolidated financial
    statements and the related notes thereto included elsewhere in
    this Annual Report on
    Form 10-K.
    This discussion contains forward-looking statements, the
    accuracy of which involves risks and uncertainties. Our actual
    results could differ materially from those anticipated in the
    forward-looking statements for many reasons including, but not
    limited to, those discussed in Part I,
    Item 1A.  Risk Factors and elsewhere
    in this Annual Report on
    Form 10-K.
    We disclaim any obligation to update information contained in
    any forward-looking statement. See  Forward-Looking
    Statements.
  Overview
  Our
    Business
           33




---



##### Table of Contents



Regulatory
    Environment
  Business  Government
    Regulation,
  Recent
    Event
      Form 10-K
  Our
    Opportunities and Challenges
    
    T-1 access;
    business asymmetric DSL, or ADSL;
    line-powered voice access service, or LPVA;
    VoIP; and
    Fixed wireless broadband access.   34




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##### Table of Contents



Efficient use of cash
  Efficiently deliver broadband Internet access
    services
  Respond to Changes in Telecommunications
    Regulations
  Enter and maintain acceptable line-sharing terms with the
    RBOCs
  Expand and diversify our sources of revenue
  New market opportunities e-mail,
 35




---



##### Table of Contents



Critical
    Accounting Policies and Estimates
    
    We recognize revenues when persuasive evidence of our
    arrangement with the customer exists, service has been provided
    to the customer, the price to the customer is fixed or
    determinable and collectibility of the sales price is reasonably
    assured. We recognize up-front fees associated with service
    activation over the expected term of the customer relationship,
    which is presently estimated to be twenty-four to forty-eight
    months using the straight-line method. We include revenue from
    sales of CPE and other activation fees for installation and
    set-up as
    up-front fees because neither is considered a separate unit of
    accounting. Similarly, we treat the incremental direct costs of
    service activation, which consist principally of CPE, service
    activation fees paid to other telecommunications companies and
    sales commissions, as deferred charges in amounts no greater
    than the aggregate up-front fees that are deferred, and such
    incremental direct costs are amortized to expense using the
    straight-line method over a range of twenty-four to forty-eight
    months.
    We perform ongoing credit evaluations of our customers
    financial condition and maintain an allowance for estimated
    credit losses. In addition, we have billing disputes with some
    of our customers. These disputes arise in the ordinary course of
    business in the telecommunications industry and we believe that
    their impact on our accounts receivable and revenues can be
    reasonably estimated based on historical experience. In
    addition, certain customer revenues are subject to refund if the
    end-user terminates service within thirty days of service
    activation. Accordingly, we maintain allowances, through charges
    to revenues, based on our estimate of the ultimate resolution of
    these disputes and future service cancellations, and our
    reported revenue in any period could be different than what is
    reported if we employed different assumptions in estimating the
    outcomes of these items.
    We state our inventories at the lower of cost or market,
    determined using the
    first-in,
    first-out method. In assessing the ultimate recoverability
    of inventories, we are required to make estimates regarding
    future customer demand.
    We record property and equipment and intangible assets at cost,
    subject to adjustments for impairment. We depreciate or amortize
    property and equipment and intangible assets using the
    straight-line method over their estimated useful lives. When
    assessing the recoverability of our property and equipment and
    intangible assets during an impairment test, we must make
    assumptions regarding estimated future cash flows and other
    factors to determine the fair value of the respective assets
    which could result in us recording impairment charges relating
    to our property and equipment and intangible assets.
    We record goodwill when the consideration paid for an
    acquisition exceeds the fair value of net tangible and
    intangible assets acquired. We measure and test goodwill for
    impairment on an annual basis or more frequently if we believe
    indicators of impairment exists. The performance of the test
    involves a two-step 36




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##### Table of Contents



process. The first step compares the fair value of the reporting
    unit to its carrying amount, including goodwill. The fair value
    of the reporting unit is determined by generally accepted
    valuation methods, such as income and market approaches, if
    quoted market prices are not available. A potential impairment
    exists if the fair value of the reporting unit is lower than its
    carrying amount. The second step of the process is only
    performed if a potential impairment exists, and it involves
    determining the difference between the fair values of the
    reporting units net assets, other than goodwill, to the
    fair value of the reporting unit. If the difference is less than
    the net book value of goodwill, an impairment exists and is
    recorded.  
    We are a party to a variety of legal proceedings, as either
    plaintiff or defendant, and are engaged in other disputes that
    arise in the ordinary course of business. We are required to
    assess the likelihood of any adverse judgments or outcomes to
    these matters, as well as potential ranges of probable losses
    for certain of these matters. The determination of the
    liabilities to be recognized, if any, for loss contingencies is
    made after analysis of each individual situation based on the
    facts and circumstances. We also have billing disputes with our
    telecommunication vendors that arise in the ordinary course of
    business. These disputes are primarily driven by the timing of
    implementation and interpretation of complex rate structures and
    the related agreements with these vendors in various states in
    which we operate. Upon receiving an actual credit or a firm
    commitment to issue the credit by the vendor, we record the
    recovery through an adjustment to cost of sales and the related
    liability. Estimated recoveries are recorded if there is a legal
    basis, otherwise such amounts are recorded when the actual
    credit or a firm commitment to issue a credit is received from
    the vendor. However, it is reasonably possible that the
    liabilities reflected in our consolidated balance sheets for
    loss contingencies and business disputes could change in the
    near term due to new facts and circumstances, the effects of
    which could be material to our consolidated financial position,
    results of operations or cash flows.
    We perform on-going research and analysis of the applicability
    of transaction-based taxes to sales of our products and services
    and purchases of telecommunications circuits from various
    carriers. This research and analysis may include discussions
    with authorities of jurisdictions in which we do business and
    transaction-based tax experts to determine the extent of our
    transaction-based tax liabilities. In addition, we continue to
    analyze the probable applicability of employment-related taxes
    for certain stock-based compensation provided to employees in
    prior periods. It is reasonably possible that our estimates of
    our transaction-based and employment-related tax liabilities
    could change in the near term, the effects of which could be
    material to our consolidated financial position and results of
    operations.
    We make market development funds, or MDF, available to certain
    customers for the reimbursement of
    co-branded
    advertising expenses and other purposes. To the extent that MDF
    is used by our customers for
    co-branded
    advertising, and the customers provide us with third-party
    evidence of such co-branded advertising and we can reasonably
    estimate the fair value of our portion of the advertising, such
    amounts are charged to advertising expense as incurred. Other
    MDF activities are recorded as reductions of revenues as
    incurred. Amounts payable to customers relating to rebates and
    customer incentives are recorded as reductions of revenues based
    on our estimate of sales incentives that will ultimately be
    claimed by customers.
    We record post-employment benefits which primarily consist of
    our severance plans. These plans are primarily designed to
    provide severance benefits to our eligible employees whose
    employment is terminated in connection with reductions in our
    workforce. We do not accrue for this employee benefit, other
    than for individuals that have been notified of termination,
    because we cannot reasonably determine the probability or the
    amount of such payments.
    We account for income taxes using the liability method, under
    which deferred tax assets and liabilities are determined based
    on differences between the financial reporting and tax bases of
    our assets and liabilities. We record a valuation allowance on
    our deferred tax assets to arrive at an amount that is more
    likely than not to be realized. In the future, should we
    determine that we are able to realize all or part of our
    deferred tax assets, which presently are fully reserved, an
    adjustment to our deferred tax assets would increase income in
    the period in which the determination was made. 37




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##### Table of Contents




    Effective January 1, 2006, we adopted the provisions of
    Financial Accounting Standards Board, or FASB, Statement of
    Financial Accounting Standards, or SFAS, No. 123 (revised
    2004), Share-Based Payment, or
    SFAS 123R. Accordingly, we account for stock-based awards
    exchanged for employee services based on the fair value of the
    award. We measure the stock-based compensation cost at the
    grant-date and recognize such cost over the employee requisite
    service period. Prior to January 1, 2006, we accounted for
    stock-based compensation under the recognition and measurement
    provisions of Accounting Principles Board Opinion No. 25,
    or APB 25, and related Interpretations, and provided the
    required pro-forma disclosures prescribed by
    SFAS No. 123, Accounting for Stock-Based
    Compensation,as amended by SFAS No. 148,
    Accounting for Stock-Based Compensation 
    Transition and Disclosures.In accordance with APB 25,
    we did not recognize compensation cost for awards that had an
    exercise price equal to, or greater than, the market value of
    the underlying common stock on the date of grant. We elected to
    adopt the modified prospective transition method as provided by
    SFAS 123R. Under this transition method, compensation cost
    recognized in our consolidated statement of operations includes
    (i) compensation cost for all shared-based payments granted
    prior to, but not yet vested as of December 31, 2005, based
    on the grant-date fair value estimated in accordance with the
    original provisions of SFAS 123, and (ii) compensation cost
    for all share-based payments granted subsequent to
    December 31, 2005, based on the grant-date fair value
    estimated in accordance with the provisions of SFAS 123R.
    The results for prior periods have not been restated. We
    currently do not recognize and do not expect to recognize in the
    near future, any tax benefit related to employee stock-based
    compensation cost as a result of the full valuation allowance on
    our net deferred tax assets and because of our net operating
    loss carryforwards. We capitalize stock-based compensation as
    part of the cost of our network when we perform major build or
    enhancement projects. We estimate the fair value of stock
    options using a Black-Scholes valuation model, consistent with
    the provisions of SFAS 123R, SECs Staff Accounting
    Bulletin No. 107, or SAB 107, and our prior
    period pro-forma disclosures of net earnings, including
    stock-based compensation (determined under a fair value method
    as prescribed by SFAS 123). We determine the expected life
    of the options using historical data for options exercised,
    cancelled after vesting and outstanding. We determine the
    expected stock price volatility assumption using historical
    volatility of our common stock over a period equal to the
    expected life of the option. These assumptions are consistent
    with our estimates prior the adoption of SFAS 123R. We
    determine the forfeiture rate using historical pre-vesting
    cancellation data for all options issued after 2001. Prior to
    the adoption of SFAS 123R, we accounted for forfeitures
    upon occurrence. Assumptions such as expected term, expected
    volatility and expect forfeiture rates, require significant
    judgment. Changes in those assumptions could materially impact
    reported results in future periods.  Recent
    Accounting Pronouncements
  Business Combinations
  Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an Amendment of FASB
    Statement No. 115.
 38




---



##### Table of Contents



Fair Value Measurements.
  Business
    Segment Information
       39




---



##### Table of Contents



Results
    of Operations for 2007, 2006 and 2005
  Revenues,
    net
         40




---



##### Table of Contents



Segment
    Revenues and Significant Customers
    Year Ended December 31,2007


2006


2005Wholesale

$
305,891


$
315,321


$
314,205Percent of net revenues


63.2
%


66.5
%


70.9
%Direct

$
178,316


$
158,983


$
128,974Percent of net revenues


36.8
%


33.5
%


29.1
%            41




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##### Table of Contents



Revenue Recognition,
    Wholesaler
    Financial Difficulties
      Operating
    Expenses
      Year Ended December 31,2007

2006

2005Amount


518,569



482,821


$
541,143Percent of net revenues


107.1
%


101.8
%


122.1
%   Cost of
    sales (exclusive of depreciation and amortization)
   42




---



##### Table of Contents



Year Ended December 31,2007

2006

2005Amount

$
346,876


$
328,474


$
311,139Percent of net revenues


71.6
%


69.3
%


70.2
%        43




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##### Table of Contents



Year Ended December 31,2007


2006


2005Wholesale Segment

$
191,337


$
186,142


$
193,721Direct Segment


104,717



94,484



81,521Corporate Operations


50,822



47,848



35,897Total

$
346,876


$
328,474


$
311,139      44




---



##### Table of Contents



Benefit
    from Federal Excise Tax Adjustment
   Accounting for
    Contingencies
  2006-50 2006-50
  Selling,
    General and Administrative Expenses
      Year Ended December 31,2007


2006


2005Amount

$
110,958


$
127,129


$
158,552Percent of net revenues


22.9
%


26.8
%


35.8
%    45




---



##### Table of Contents



Year Ended December 31,2007


2006


2005Wholesale Segment

$
7,724


$
7,742


$
8,353Direct Segment


26,987



36,183



49,938Corporate Operations


76,247



83,204



100,261Total

$
110,958


$
127,129


$
158,552      46




---



##### Table of Contents



Stock-Based
    Compensation
  Stock-Based Compensation,
    Provision
    for Bad Debts
    Depreciation
    and Amortization
        Provision
    for Post-Employment Benefits
   47




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##### Table of Contents



Provision
    for Arbitration Award
    Other
    Income (Expense)
  Net
    Interest Expense
    Gain on
    Deconsolidation of Subsidiary
  Other Restructuring
    Activities
  Gain on
    Sale of Equity Securities
    Income
    Taxes
    Business Acquisitions, Asset Acquisitions and Equity
    Investments,
 48




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##### Table of Contents



Restructuring and Post-Employment Benefits,
  Business Acquisitions, Asset
    Acquisitions and Equity Investments,
      Accounting for Uncertainty in Income Taxes. Accounting for Income
    Taxes.
  Related
    Party Transactions
     49




---



##### Table of Contents



Form 8-K
    Liquidity,
    Capital Resources and Contractual Cash Obligations
      Year Ended December 31,2007


2006


2005Net cash provided by (used in):Operating activities

$
18,072


$
(24,654
)

$
(40,732
)Investing activities


(19,488
)


(71,825
)


4,611Financing activities


1,453



58,467



2,906Total

$
37


$
(38,012
)

$
(33,215
)   Operating
    Activities
   50




---



##### Table of Contents



Investing
    Activities
        Financing
    Activities
     51




---



##### Table of Contents



Long-Term Debt and
    Credit Arrangements,
    Liquidity
           52




---



##### Table of Contents




    possible redemption of our 3% convertible senior debentures in
    March 2009;
    our continuing ability to obtain access to ILEC facilities,
    including telephone lines, remote terminals, interoffice
    transport and high-capacity circuits, all at reasonable prices;
    rates at which resellers and end-users purchase and pay for our
    services and the pricing of such services;
    financial condition of our customers;
    levels of marketing required to acquire and retain customers and
    to attain a competitive position in the marketplace;
    rates at which we invest in engineering, equipment, development
    and intellectual property with respect to existing and future
    technology;
    operational costs that we incur to install, maintain and repair
    end-user lines and our network as a whole;
    pending and any future litigation;
    existing and future technology, including any expansion of fixed
    wireless services;
    unanticipated opportunities; and
    network development schedules and associated costs 53




---



##### Table of Contents



Contractual
    Cash Obligations
    2008


2009


2010


2011


2012


Thereafter


Total3% convertible senior debentures

$



$
125,000


$



$



$



$



$
125,00012% senior secured convertible note














47,461











47,461Bank loan


6,100























6,100Interest on notes payable


12,200



6,477



5,695



1,187











25,559Capital leases


901



869



252



3











2,025Office leases


5,115



3,688



2,366



672



101







11,942Other operating leases


1,604



790



469



203



45



13



3,124Purchase obligations (network costs)


150



360



360



360











1,230$
26,070


$
137,184


$
9,142


$
49,886


$
146


$
13


$
222,441           Forward-Looking
    Statements
  Form 10-K
  
    impact of federal, state and local telecommunications
    regulations, decisions and related litigation, and our ability
    to obtain ILEC network elements and facilities at reasonable
    rates;
    continuing deployment of LPVA and our ability to bundle our data
    services with the voice services of EarthLink and other
    alternative voice providers; 54




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##### Table of Contents




    timing of our cash flows;
    extent to which customers purchase our services;
    relationships with our strategic partners and other potential
    third parties;
    pricing for our services in the future;
    plans regarding new financing arrangements;
    our ability to increase our revenues and the margins we generate
    on our service offerings;
    plans to make strategic investments and acquisitions and the
    effect of such investments and acquisitions;
    estimates and expectations of future operating results,
    including improvements in cash flow from operating activities
    due to increases in revenue and cost containment measures, as
    offset by products sales and marketing expense;
    plans to increase sales of value-added services, like VoIP and
    fixed wireless;
    anticipated capital expenditures;
    plans to enter into business arrangements with broadband-related
    service providers;
    feasibility of alternative access solutions, like fixed wireless;
    effects of litigation currently pending; and
    other statements contained in this Report on
    Form 10-K
    regarding matters that are not historical facts    Form 10-K Form 10-K.
  ITEM 7A.
    Quantitative
    and Qualitative Disclosures About Market Risk  (All
    dollar amounts are presented in thousands)
      Carrying Value


Interest RateCash and cash equivalents

$
46,316



2.45
%Short-term investments in debt securities


19,640



1.37
%Restricted cash and cash equivalents


5,667



0.39
%$
71,623  55




---



##### 



ITEM 8.
    Financial
    Statements and Supplementary Data  FINANCIAL
    STATEMENTS
  INDEX
  Form 10-K:
  Financial Statements.
   
 PageReport of PricewaterhouseCoopers LLP, Independent
    Registered Public Accounting Firm


57Consolidated Balance Sheets


58Consolidated Statements of Operations


59Consolidated Statements of Stockholders
    Equity (Deficit)


60Consolidated Statements of Cash Flows


61Notes to Consolidated Financial Statements


62   56




---



##### Table of Contents



Report of
    Independent Registered Public Accounting Firm



To the Board of Directors and Stockholders of

Covad Communications Group, Inc.



In our opinion, the consolidated financial statements listed in
    the accompanying index, present fairly, in all material
    respects, the financial position of Covad Communications Group,
    Inc. and its subsidiaries at December 31, 2007 and
    December 31, 2006, and the results of its operations and
    its cash flows for each of the three years in the period ended
    December 31, 2007 in conformity with accounting principles
    generally accepted in the United States of America. Also, in our
    opinion, the Company maintained, in all material respects,
    effective internal control over financial reporting as of
    December 31, 2007, based on criteria established in
    Internal Control  Integrated Frameworkissued
    by the Committee of Sponsoring Organizations of the Treadway
    Commission (COSO). The Companys management is responsible
    for these financial statements, for maintaining effective
    internal control over financial reporting and for its assessment
    of the effectiveness of internal control over financial
    reporting, included in Item 9A, Managements Report on
    Internal Control over Financial Reporting. Our responsibility is
    to express opinions on these financial statements and on the
    Companys internal control over financial reporting based
    on our integrated audits. We conducted our audits in accordance
    with the standards of the Public Company Accounting Oversight
    Board (United States). Those standards require that we plan and
    perform the audits to obtain reasonable assurance about whether
    the financial statements are free of material misstatement and
    whether effective internal control over financial reporting was
    maintained in all material respects. Our audits of the financial
    statements included examining, on a test basis, evidence
    supporting the amounts and disclosures in the financial
    statements, assessing the accounting principles used and
    significant estimates made by management, and evaluating the
    overall financial statement presentation. Our audit of internal
    control over financial reporting included obtaining an
    understanding of internal control over financial reporting,
    assessing the risk that a material weakness exists, and testing
    and evaluating the design and operating effectiveness of
    internal control based on the assessed risk. Our audits also
    included performing such other procedures as we considered
    necessary in the circumstances. We believe that our audits
    provide a reasonable basis for our opinions.



As discussed in Note 13 in Notes to Consolidated Financial
    Statements, the Company changed the manner in which it accounts
    for stock-based compensation in 2006.



As discussed in Note 1 in Notes to Consolidated Financial
    Statements, the Companys ability to continue to meet its
    obligations and to achieve its intended business objectives is
    dependent upon, among other things, refinancing the 3%
    convertible senior debentures (the debentures) or
    raising additional capital in order to meet certain obligations
    which are callable by the holders in March 2009 related to the
    debentures. There can be no assurance that sufficient debt or
    equity financing will be available at all or, if available, that
    such financing will be at terms and conditions acceptable to the
    Company. Should the Company fail to refinance the debt or raise
    additional capital, it may not be able to achieve its longer
    term business objectives and may face other serious adverse
    consequences.



A companys internal control over financial reporting is a
    process designed to provide reasonable assurance regarding the
    reliability of financial reporting and the preparation of
    financial statements for external purposes in accordance with
    generally accepted accounting principles. A companys
    internal control over financial reporting includes those
    policies and procedures that (i) pertain to the maintenance
    of records that, in reasonable detail, accurately and fairly
    reflect the transactions and dispositions of the assets of the
    company; (ii) provide reasonable assurance that
    transactions are recorded as necessary to permit preparation of
    financial statements in accordance with generally accepted
    accounting principles, and that receipts and expenditures of the
    company are being made only in accordance with authorizations of
    management and directors of the company; and (iii) provide
    reasonable assurance regarding prevention or timely detection of
    unauthorized acquisition, use, or disposition of the
    companys assets that could have a material effect on the
    financial statements.



Because of its inherent limitations, internal control over
    financial reporting may not prevent or detect misstatements.
    Also, projections of any evaluation of effectiveness to future
    periods are subject to the risk that controls may become
    inadequate because of changes in conditions, or that the degree
    of compliance with the policies or procedures may deteriorate.



/s/  PricewaterhouseCoopers
    LLP



San Jose, California

February 26, 2008

57




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
 CONSOLIDATED
    BALANCE SHEETS  December 31,2007


2006(All dollar and share amounts are presented in thousands,
    except par value)ASSETSCurrent assets:Cash and cash equivalents

$
46,316


$
46,279Short-term investments in debt securities


19,640



15,793Restricted cash and cash equivalents


5,667



19,578Accounts receivable, net


30,186



31,151Unbilled revenues


1,907



2,567Inventories


2,754



3,602Prepaid expenses and other current assets


3,146



4,979Total current assets


109,616



123,949Property and equipment, net


71,353



87,586Collocation fees and other intangible assets, net


14,499



22,768Goodwill


50,002



50,002Deferred costs of service activation


23,580



24,268Deferred debt issuance costs, net


2,209



3,823Other long-term assets


1,470



912Total assets

$
272,729


$
313,308LIABILITIES AND STOCKHOLDERS EQUITY (DEFICIT)Current liabilities:Accounts payable

$
29,049


$
34,189Accrued compensation


9,928



14,539Accrued collocation and network service fees


16,020



15,594Accrued transaction-based taxes


7,190



7,754Collateralized and other customer deposits


4,007



5,585Unearned revenues


6,169



6,528Loan payable to bank


6,100



6,100Other accrued liabilities


19,131



11,381Total current liabilities


97,594



101,670Long-term debt


172,461



167,240Unearned revenues


35,753



39,506Other long-term liabilities


3,191



2,538Total liabilities


308,999



310,954Commitments and contingencies (Notes 7, 8, 9 and 10)Stockholders equity (deficit):Preferred stock, $0.001 par value; 5,000 shares
    authorized; no shares issued and outstanding at
    December 31, 2007 and 2006






Common stock, $0.001 par value; 590,000 shares
    authorized; 299,102 shares issued and outstanding at
    December 31, 2007 (296,877 shares issued and
    outstanding at December 31, 2006)


299



297Common stock  Class B, $0.001 par value;
    10,000 shares authorized; no shares issued and outstanding
    at December 31, 2007 and 2006






Additional paid-in capital


1,738,468



1,734,124Accumulated other comprehensive income






3Accumulated deficit


(1,775,037
)


(1,732,070
)Total stockholders equity (deficit)


(36,270
)


2,354Total liabilities and stockholders equity (deficit)

$
272,729


$
313,308    58




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF OPERATIONS  Year Ended December 31,2007


2006


2005(All dollar and share amounts arepresented in thousands, exceptper share amounts)Revenues, net

$
484,207


$
474,304


$
443,179Operating expenses:Cost of sales (exclusive of depreciation and amortization)


346,876



328,474



311,139Benefit from federal excise tax adjustment






(19,455
)


Selling, general and administrative


110,958



127,129



158,552Provision for bad debts, net


476



251



571Depreciation and amortization of property and equipment


41,985



34,876



49,813Amortization of collocation fees and other intangible assets


9,284



9,949



17,428Provision for post-employment benefits


1,652



1,597



3,640Provision for arbitration award


7,338







Total operating expenses


518,569



482,821



541,143Loss from operations


(34,362
)


(8,517
)


(97,964
)Other income (expense):Interest income


2,790



3,938



4,142Gain on sale of equity securities










28,844Gain on deconsolidation of subsidiary










53,963Interest expense


(11,480
)


(9,562
)


(5,005
)Miscellaneous income, net


85



192



298Other income (expense), net


(8,605
)


(5,432
)


82,242Net loss

$
(42,967
)

$
(13,949
)

$
(15,722
)Basic and diluted net loss per share

$
(0.14
)

$
(0.05
)

$
(0.06
)Weighted-average number of common shares outstanding used in
    computing basic and diluted per share amounts


297,489



290,262



265,240    59




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF STOCKHOLDERS EQUITY (DEFICIT)  AccumulatedOther





TotalAdditional


Deferred


Comprehensive





StockholdersPreferred Stock


Common Stock


Paid-In


Stock-Based


Income


Accumulated


EquityShares


Amount


Shares


Amount


Capital


Compensation


(Loss)


Deficit


(Deficit)(All dollar and share amounts are presented in thousands)Balances at December 31, 2004





$




263,681


$
264


$
1,695,424


$
(939
)

$
(985
)

$
(1,702,399
)

$
(8,635
)Net loss






























(15,722
)


(15,722
)Unrealized gains on available-for-sale securities


























26







26Foreign currency translation adjustment


























962







962Comprehensive loss


































(14,734
)Issuance of common stock for ESPP










3,898



3



3,384















3,387Issuance of common stock upon exercise of options










774



1



620















621Amortization (reversal) of stock-based compensation


















(1,742
)


934











(808
)Balances at December 31, 2005










268,353



268



1,697,686



(5
)


3



(1,718,121
)


(20,169
)Net loss






























(13,949
)


(13,949
)Comprehensive loss


































(13,949
)Issuance of common stock for ESPP










3,048



3



2,761















2,764Issuance of common stock upon exercise of options










3,275



3



3,741















3,744Issuance of common stock for business acquisition










15,361



16



16,298















16,314Issuance of common stock to EarthLink related to purchase
    agreements










6,135



6



9,594















9,600Issuance of common stock as a result of business acquisition
    expenses










705



1



749















750Stock-based compensation


















3,295



5











3,300Balances at December 31, 2006










296,877



297



1,734,124







3



(1,732,070
)


2,354Net loss






























(42,967
)


(42,967
)Unrealized losses on available-for-sale securities


























(3
)






(3
)Comprehensive loss


































(42,970
)Issuance of common stock for ESPP










2,229



2



1,659















1,661Issuance of common stock upon exercise of options










255







166















166Proceeds from stockholder legal settlement, net


















629















629Settlement as a result of previous business acquisition










(259
)






(300
)














(300
)Stock-based compensation


















2,190















2,190Balances at December 31, 2007





$




299,102


$
299


$
1,738,468


$



$



$
(1,775,037
)

$
(36,270
)    60




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
 CONSOLIDATED
    STATEMENTS OF CASH FLOWS  Year Ended December 31,2007


2006


2005(All dollar amounts arepresented in thousands)Operating Activities:Net loss

$
(42,967
)

$
(13,949
)

$
(15,722
)Adjustments to reconcile net loss to net cash provided by (used
    in) operating activities:Provision for bad debts


476



251



571Benefit from federal excise tax adjustment






(19,455
)


Depreciation and amortization


51,269



44,825



67,241Loss on disposition of property and equipment


138



2



53Stock-based compensation expense (reversal)


2,190



3,300



(808
)Amortization of deferred customer incentives


506



759



1,419Amortization of deferred debt issuance costs


1,614



1,680



1,008Other non-cash items


(300
)






Accretion of interest on investments, net


(386
)


(199
)


(408
)Gain on sale of equity securities










(28,844
)Gain on deconsolidation of subsidiary










(53,963
)Net changes in operating assets and liabilities, net of assets
    acquired and liabilities assumed in purchase acquisition:Accounts receivable


489



(2,830
)


1,396Unbilled revenues


660



759



499Inventories


848



1,644



(616
)Prepaid expenses and other current assets


1,836



(2,097
)


1,364Deferred costs of service activation


688



1,188



4,696Other long-term assets


(1,077
)






Accounts payable


(2,277
)


9,754



2,576Collateralized and other customer deposits


(1,578
)


(11,019
)


(2,208
)Redemption of collateralized customer deposit






(33,538
)


Other current liabilities


10,055



(1,067
)


(13,306
)Unearned revenues


(4,112
)


(4,662
)


(5,680
)Net cash provided by (used in) operating activities


18,072



(24,654
)


(40,732
)Investing Activities:Restricted cash and cash equivalents, net


13,911



(14,075
)


(2,970
)Purchase of short-term investments in debt securities


(34,214
)


(27,284
)


(43,835
)Maturities of short-term investments in debt securities


30,750



23,900



65,548Proceeds from the sale of equity securities










29,807Purchase of property and equipment


(28,798
)


(46,964
)


(42,397
)Proceeds from sale of property and equipment


42



60



141Payment of collocation fees and purchase of other intangible
    assets


(1,015
)


(3,236
)


(3,582
)Payment in connection with business acquisition, net of cash
    acquired






(3,187
)


Payment in connection with assets purchase (Note 6)


(177
)


(1,183
)


Decrease in other long-term assets


13



144



1,899Net cash provided by (used in) investing activities


(19,488
)


(71,825
)


4,611Financing Activities:Proceeds from the issuance of senior unsecured convertible
    debentures, net of issuance costs






38,457



Proceeds from utilization of credit facility


24,400



18,300



Principal payments on credit facility


(24,400
)


(12,200
)


Principal payments of long-term debt






(1,031
)


Principal payments under capital lease obligations


(1,003
)


(517
)


(1,102
)Payment of issuance cost related to credit facility






(651
)


Proceeds from stockholder legal settlement, net of expenses


629







Proceeds from the issuance of common stock, net of issuance costs


1,827



16,109



4,008Net cash provided by financing activities


1,453



58,467



2,906Net increase (decrease) in cash and cash equivalents


37



(38,012
)


(33,215
)Cash and cash equivalents at beginning of year


46,279



84,291



117,506Cash and cash equivalents at end of year


46,316


$
46,279


$
84,291Supplemental Disclosures of Cash Flow Information:Cash paid during the year for interest

$
4,203


$
4,038


$
3,831Supplemental Schedule of Non-Cash Investing and Financing
    Activities:Interest obligation settled with the issuance of additional
    convertible long-term notes

$
5,221


$
2,240


$
Equipment purchased through capital leases

$
1,467


$
1,139


$
573Common stock issued for acquisition of business

$



$
16,314


$
Common stock issued as a result of business acquisition expenses

$



$
750


$
    61




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL STATEMENTS
 (All
    dollar and share amounts are presented in thousands, except per
    share amounts)
  1.
    Nature of
    Operations and Summary of Significant Accounting
    Policies  Organization,
    Business, Basis of Presentation, and Pending Merger
    Agreement
  Organization
    and Business
      Long-Term Debt and Credit Arrangements,
     62




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Basis of
    Presentation
    Pending
    Merger Agreement
      Form 10-K
  Summary
    of Significant Accounting Policies
  Use of
    Estimates
   63




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Cash
    Equivalents and Short-Term Investments
      December 31, 2007Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueCommercial paper

$
11,646


$



$
(1
)

$
11,645Corporate debentures/bonds


7,994



1







7,995Total available-for-sale securities

$
19,640


$
1


$
(1
)

$
19,640   December 31, 2006Gross


GrossAmortized


Unrealized


UnrealizedCost


Gains


Losses


Fair ValueCommercial paper

$
6,380


$



$



$
6,380Corporate debentures/bonds


9,412



2



(1
)


9,413Total available-for-sale securities

$
15,792


$
2


$
(1
)

$
15,793       Year EndedDecember 31,2007

2006

2005Total gains

$



$



$
28,844   Restricted
    Cash and Cash Equivalents
  Long-Term Debt.
 64




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Concentrations
    of Credit Risk, Significant Customers and Key
    Suppliers
    Revenue Recognition,
    Related
    Parties
           65




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Form 8-K
  Inventories
  first-in,
  Property
    and Equipment
    Leasehold improvements

5 years or the term of the lease, whichever is shorterComputer equipment

2 to 5 yearsComputer software

2 to 5 yearsFurniture and fixtures

2 to 5 yearsNetwork and communication equipment

2 to 5 years       Collocation
    Fees and Other Intangible Assets
   66




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        2008

$
7,5252009

$
4,5662010

$
1,6652011

$
6462012

$
97   Changes
    in Accounting Estimates
        Benefit from federal excise tax adjustment  2006-50 2006-50
 67




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Impairment
    of Long-lived Assets
      Advertising
    Costs
      Legal
    Costs
    Income
    Taxes
    Fair
    Values of Financial Instruments
    Cash, Cash Equivalents, Short-Term Investments and Restricted
    Cash and Cash Equivalents 
  Borrowings
 68




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Foreign
    Currency
    Net Loss
    per Share
          Year Ended December 31,2007


2006


2005Weighted-average shares of common stock outstanding


297,489



290,262



265,261Less weighted-average shares of common stock subject to
    repurchase










21Weighted-average common shares used in computing basic and
    dilutive net loss per share amounts


297,489



290,262



265,240    69




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Year Ended December 31,2007


2006


2005Stock options


22,351



23,082



24,973Warrants


6,503



6,514



6,514Common shares issuable under the assumed conversion of
    convertible debentures and notes


64,897



62,089



39,380   Comprehensive
    Loss
    Year Ended December 31,2007


2006


2005Net loss

$
(42,967
)

$
(13,949
)

$
(15,722
)Unrealized gains (losses) on available-for-sale securities


(3
)






29,832Realized gains on equity securities previously included in
    unrealized gains (losses)










(29,806
)Foreign currency translation adjustment










962Comprehensive loss

$
(42,970
)

$
(13,949
)

$
(14,734
)   Goodwill
      Business Acquisitions, Asset Acquisition and Equity
    Investments.
   70




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    2007


2006Balance at the beginning of the year

$
50,002


$
36,626Addition as result of business acquisition






13,376Balance at the end of the year

$
50,002


$
50,002   Collateralized
    and Other Customer Deposits
  10-year
    Post-Employment
    Benefits
    Recent
    Accounting Pronouncements
  Business Combinations
 71




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Noncontrolling Interests in Consolidated Financial
    Statements, an amendment of ARB No. 51
  The Fair Value Option for Financial Assets and
    Financial Liabilities  Including an Amendment of FASB
    Statement No. 115.
  Fair Value Measurements.
  Risks and
    Uncertainties
    
    changes in government policy, regulation and enforcement or
    adverse judicial or administrative interpretations and rulings
    or legislative action including, but not limited to, changes
    that affect the continued availability of the unbundled network
    elements of the local exchange carriers networks and the
    costs associated therewith;
    the Companys dependence on the availability and
    functionality of the networks of the incumbent local exchange
    carriers;
    ability to generate cash flows or obtain adequate financing;
    recoverability of Companys assets;
    events that may trigger change in control provisions; 72




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
   
    increased price competition in local and long distance services,
    including bundled services, and overall competition within the
    telecommunications industry; and
    adverse determinations in certain litigation matters.    2.
    Revenue
    Recognition    set-up
     73




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      December 31,2007


2006Gross accounts receivable

$
33,190


$
34,123Allowance for service credits


(2,787
)


(2,729
)Allowance for bad debts


(217
)


(243
)Accounts receivable, net

$
30,186


$
31,151     December 31,2007


2006


2005Allowance for service credits:Balance at beginning of period

$
2,729


$
2,838


$
1,405Provision


4,537



4,536



9,333Write-offs


(4,479
)


(4,645
)


(7,330
)Recoveries










(570
)Balance at end of period

$
2,787


$
2,729


$
2,838   December 31,2007


2006


2005Allowance for bad debts:Balance at beginning of period

$
243


$
486


$
161Provision


453



173



800Write-offs


(461
)


(416
)


(329
)Recoveries


(18
)






(146
)Balance at end of period

$
217


$
243


$
486   Significant
    Customers
     74




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Wholesaler
    Financial Difficulties
      3.
    Restructuring
    and Post-Employment Benefits  Reduction
    in Force
    Other
    Restructuring Activities
   75




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      4.
    Property
    and Equipment    December 31,2007


2006Leasehold improvements

$
11,155


$
10,952Computer equipment


52,575



51,066Computer software


65,126



60,789Furniture and fixtures


16,698



16,866Network and communication equipment


447,018



442,914592,572



582,587Less accumulated depreciation and amortization


(521,219
)


(495,001
)Property and equipment, net

$
71,353


$
87,586   5.
    Collocation
    Fees and Other Intangibles Assets    December 31,2007


2006Collocation fees

$
101,368


$
100,458Customer lists


19,346



19,241120,714



119,699Less accumulated amortization:Collocation fees


(92,540
)


(87,104
)Customer lists


(13,675
)


(9,827
)Collocation fees and other intangibles assets, net

$
14,499


$
22,768  76




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  6.
    Business
    Acquisition, Asset Acquisitions and Equity Investments  Acquisition
    of DataFlos Assets
        Acquisition
    of NextWeb
         77




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Total purchase cost:Cash

$
3,683Value of common shares issued


16,31419,997Acquisition costs


327Total purchase cost

$
20,324Purchase price allocation:Tangible assets acquired

$
4,918Liabilities assumed


(5,662
)Intangible assets acquired:Customer relationships


7,630Non-compete covenant


40Goodwill


13,398Total purchase consideration

$
20,324           Unconsolidated
    Investments in Affiliates
  ACCA
    Networks Co., Ltd.
   78




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    paid-up
  Certive
    Corporation
    7.
    Long-Term
    Debt and Credit Arrangements  12%
    Senior Secured Convertible Notes
     79




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Form S-3
      3%
    Convertible Senior Debentures
    Line
    of Credit
   80




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      8.
    Capital
    Leases    9.
    Operating
    Leases, Commitments and Purchase Obligations  Operating
    Leases
    Gross Lease


Less Sublease


Net LeasePayments


Payments


PaymentsYear ending December 31,2008

$
6,719


$
853


$
5,8662009


4,478



621



3,8572010


2,835



449



2,3862011


875







8752012


146







146Thereafter


13







13Total

$
15,066


$
1,923


$
13,143   Commitments
   81




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Purchase
    Obligations
      10.
    Contingencies  Litigation
       82




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
               83




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
              Other
    Contingencies
   84




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Indemnification
    Agreements
      11.
    Stockholders
    Equity  Common
    Stock
   85




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Outstanding options


22,351Options available for grant


6,662Employee stock purchase plan


3,760Convertible debentures


64,897Outstanding warrants


6,503Total


104,173   Stockholder
    Protection Rights Plan
      Warrants
     86




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        12.
    Income
    Taxes      Year Ended December 31,2007


2006


2005Federal benefit at statutory rate

$
(15,039
)

$
(4,882
)

$
(5,503
)State benefit, net of federal benefit


(2,148
)


(697
)


(786
)Net operating losses with no current benefits


15,375



4,143



5,931Deferred variable stock-based compensation


457



1,000



(364
)Transaction costs


893Other


462



436



722Income tax expense (benefit)

$



$



$
     December 31,2007


2006Deferred tax assets:Net operating loss carryforwards

$
404,514


$
392,458Capital loss carryforwards


6,581



11,700Deferred and unearned revenue


8,846



11,205Unconsolidated investments in affiliates


2,030



2,030Depreciation and amortization


32,954



33,365Other


5,372



2,555Total deferred tax assets


460,297



453,313Deferred tax liabilities


(1,916
)


(3,420
)Net deferred tax assets


458,381



449,893Valuation allowance


(458,381
)


(449,893
)Net deferred taxes

$



$
  87




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                   88




---



##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Accounting
    for Income Taxes.
      Unrecognized tax benefits balance at January 1, 2007

$
273,000Increase in tax positions for prior years


Decreases in tax positions for prior years


Increases in tax positions for current year


Settlements


Lapse in statues of limitations


Gross unrecognized tax benefits at December 31, 2007

$
273,000     13.
    Stock-Based
    Compensation  Impact
    of adopting SFAS 123R
  Accounting for
    Stock-Based Compensation, Accounting for Stock-Based
    Compensation  Transition and Disclosures.
   89




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
        Valuation
    Assumptions
  Share-Based Payment
   90




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock Options


Employee Stock Purchase Plan2007


2006


2005


2007


2006


2005Stock OptionsExpected life of options in years


3.5



3.4



4.0



0.5



0.5



0.5Volatility


63.67
%


83.06
%


91.07
%


56.45
%


68.76
%


91.07
%Risk-free interest rate


4.28
%


4.78
%


4.34
%


4.54
%


5.00
%


4.35
%Expected dividend yield


0.00
%


0.00
%


0.00
%


0.00
%


0.00
%


0.00
%   Equity
    Incentive Programs
    2003
    Employee Stock Purchase Plan
          Stock
    Option Plans
   91




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
                 92




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
      Number of Shares of


Option Price per


Weighted-AverageCommon Stock


Share


Exercise PriceBalance as of December 31, 2006


23,082


$
0.350 - $149.79


$
4.31Granted


4,432


$
0.670 - $ 1.360


$
1.12Exercised


(255
)

$
0.350 - $ 1.280


$
0.65Cancelled, expired and forfeited


(4,908
)

$
0.360 - $63.333


$
8.07Balance as of December 31, 2007


22,351


$
0.350 - $149.79


$
2.90     Options Outstanding


Options ExercisableWeighted-











Weighted-Average











AverageRemaining











RemainingRange of

Number


Contractual


Weighted-


Aggregate


Number


Contractual


Weighted-


AggregateExercise

of


Term


Average


Intrinsic


of


Term


Average


IntrinsicPrices

Shares


(in years)


Exercise Price


Value


Shares


(in years)


Exercise Price


Value$0.35 - $  0.78


820






$
0.59







657






$
0.57$0.80 - $  0.84


2,397







0.84







2,354







0.84$0.86 - $  1.17


1,633







1.00







877







1.06$1.18 - $  1.19


2,510







1.19







537







1.19$1.20 - $  1.28


4,007







1.26







3,053







1.27$1.29 - $  1.52


1,718







1.39







1,052







1.39$1.54 - $  1.54


2,349







1.54







2,348







1.54$1.56 - $  2.52


2,235







2.04







1,562







2.06$2.56 - $  3.31


1,107







2.59







1,107







2.59$3.34 - $149.79


3,575







10.93







3,575







10.93$0.35 - $149.79


22,351



4.38


$
2.89


$
270



17,122



3.63


$
3.39


$
237      93




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Stock OptionsWeighted-AverageGrant-DateNumber of Shares


Fair ValueNon-vested at December 31, 2006


4,868


$
0.91Awards granted


4,432



0.61Awards vested


(1,513
)


1.12Awards cancelled, expired and forfeited


(2,558
)


0.51Non-vested at December 31, 2007


5,229


$
0.84   Prior
    to adopting SFAS 123R
    2005Basic:Net loss, as reported

$
(15,722
)Stock-based employee compensation expense (reversal) included in
    the determination of net loss, as reported


(808
)Stock-based employee compensation expense that would have been
    included in the determination of net loss if the fair value
    method had been applied to all awards


(19,767
)Net loss, pro-forma

$
(36,297
)Weighted-average number of common shares outstanding used in the
    computations of basic and diluted loss per share


265,240Basic and diluted net loss per common share:As reported

$
(0.06
)Pro forma

$
(0.14
)   Defined
    Contribution Plan
      14.
    Business
    Segments   94




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
         95




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
    Total


Corporate


ConsolidatedWholesale


Direct


Segments


Operations


TotalAs of and for the year ended December 31, 2007:Revenue, net

$
305,891


$
178,316


$
484,207


$



$
484,207Cost of sales (exclusive of depreciation and amortization)


191,337



104,717



296,054



50,822



346,876Selling, general and administrative


7,724



26,987



34,711



76,247



110,958Provision for bad debts














476



476Depreciation and amortization














41,985



41,985Amortization of intangible assets














9,284



9,284Provision for post-employment benefits


602



552



1,154



498



1,652Litigation-related expenses














7,338



7,338Total operating expenses


199,663



132,256



331,919



186,650



518,569Income (loss) from operations


106,228



46,060



152,288



(186,650
)


(34,362
)Interest income














2,790



2,790Interest expense














(11,480
)


(11,480
)Miscellaneous income, net














85



85Total other income, net














(8,605
)


(8,605
)Net income (loss)

$
106,228


$
46,060


$
152,288


$
(195,255
)

$
(42,967
)Assets

$
33,763


$
21,910


$
55,673


$
217,056


$
272,729Capital expenditures for property and equipment













$
28,798


$
28,798Payment of collocation fees and purchase of other intangible
    assets













$
1,015


$
1,015   96




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Total


Corporate


ConsolidatedWholesale


Direct


Segments


Operations


TotalAs of and for the year ended December 31, 2006:Revenue, net

$
315,321


$
158,983


$
474,304


$



$
474,304Cost of sales (exclusive of depreciation and amortization)


186,142



94,484



280,626



47,848



328,474Benefit from federal exercise tax adjustment














(19,455
)


(19,455
)Selling, general and administrative


7,742



36,183



43,925



83,204



127,129Provision for bad debts














251



251Depreciation and amortization














34,876



34,876Amortization of intangible assets














9,949



9,949Provision for post-employment benefits


232



479



711



886



1,597Total operating expenses


194,116



131,146



325,262



157,559



482,821Income (loss) from operations


121,205



27,837



149,042



(157,559
)


(8,517
)Interest income














3,938



3,938Interest expense














(9,562
)


(9,562
)Miscellaneous income, net














192



192Total other income, net














(5,432
)


(5,432
)Net income (loss)

$
121,205


$
27,837


$
149,042


$
(162,991
)

$
(13,949
)Assets

$
35,795


$
22,191


$
57,986


$
255,322


$
313,308Capital expenditures for property and equipment













$
46,964


$
46,964Payment of collocation fees and purchase of other intangible
    assets













$
3,236


$
3,236   97




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  NOTES TO
    CONSOLIDATED FINANCIAL
    STATEMENTS  (Continued)
  Total


Corporate


ConsolidatedWholesale


Direct


Segments


Operations


TotalAs of and for the year ended December 31, 2005:Revenue, net

$
314,205


$
128,974


$
443,179


$



$
443,179Cost of sales (exclusive of depreciation and amortization)


193,721



81,521



275,242



35,897



311,139Selling, general and administrative


8,353



49,938



58,291



100,261



158,552Provision for bad debts














571



571Depreciation and amortization














49,813



49,813Amortization of intangible assets














17,428



17,428Provision for post-employment benefits


285



397



682



2,958



3,640Total operating expenses


202,359



131,856



334,215



206,928



541,143Income (loss) from operations


111,846



(2,882
)


108,964



(206,928
)


(97,964
)Interest income














4,142



4,142Gain on sale of equity securities














28,844



28,844Gain on deconsolidation of subsidiary














53,963



53,963Interest expense














(5,005
)


(5,005
)Miscellaneous income, net














298



298Total other income, net














82,242



82,242Net income (loss)

$
111,846


$
(2,882
)

$
108,964


$
(124,686
)

$
(15,722
)Capital expenditures for property and equipment

$



$



$



$
42,397


$
42,397Payment of collocation fees and purchase of other intangible
    assets

$



$



$



$
3,582


$
3,582  98




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##### Table of Contents



COVAD
    COMMUNICATIONS GROUP, INC.
  SUPPLEMENTARY
    DATA
  Selected
    Quarterly Financial Information (Unaudited)
  (All
    dollar and share amounts are presented in thousands, except per
    share amounts)
    Three Months EndedMarch 31


June 30


September 30


December 312007:Revenues, net

$
120,150


$
120,585


$
121,878


$
121,594Gross profit (exclusive of depreciation and amortization)

$
32,155


$
33,449


$
34,928


$
36,799Depreciation and amortization

$
13,359


$
13,141


$
12,459


$
12,310Net loss

$
(14,516
)

$
(11,603
)

$
(4,904
)

$
(11,944
)Loss per common share:Basic and Diluted

$
(0.05
)

$
(0.04
)

$
(0.02
)

$
(0.04
)2006:Revenues, net

$
117,751


$
118,535


$
118,562


$
119,456Gross profit (exclusive of depreciation and amortization)

$
37,814


$
37,733


$
35,152


$
35,131Depreciation and amortization

$
11,048


$
10,716


$
10,712


$
12,349Net income (loss)

$
(9,280
)

$
12,473


$
(8,700
)

$
(8,442
)Earnings (loss) per common share:Basic

$
(0.03
)

$
0.04


$
(0.03
)

$
(0.03
)Diluted

$
(0.03
)

$
0.04


$
(0.03
)

$
(0.03
)         2006-50 2006-50
 99




---



##### Table of Contents



ITEM 9.
    Changes
    in and Disagreements with Accountants on Accounting and
    Financial Disclosure    ITEM 9A.
    Controls
    and Procedures  Evaluation
    of Disclosure Controls and Procedures:
      Managements
    Report on Internal Control over Financial Reporting:
  Rule 13a-15(f)
  Internal Control 
    Integrated Framework.
  Internal Control  Integrated Framework.
  Financial
    Statements and Supplementary Data.
  Changes
    in Internal Control over Financial Reporting:
   100




---



##### Table of Contents



ITEM 9B.
    Other
    Information   PART III ITEM 10.  Directors,
    Executive Officers and Corporate Governance  Directors
    Name

Age

PositionCharles E. Hoffman(d)


59


President, Chief Executive Officer and DirectorCharles McMinn


56


Chairman of the Board of DirectorsL. Dale Crandall(c)


67


DirectorDaniel C. Lynch(a)(c)


67


DirectorLarry Irving(a)(b)


53


DirectorDiana E. Leonard


50


DirectorRobert M. Neumeister(b)(c)


59


DirectorRichard A. Jalkut(a)(b)


64


Director     (a)
    
    Member of the Compensation Committee(b)
    
    Member of the Nominating and Corporate Governance Committee(c)
    
    Member of the Audit Committee(d)
    
    Member of the Management Compensation Committee  Charles E. Hoffman
  Charles McMinn
  L. Dale Crandall
 101




---



##### Table of Contents



Daniel C. Lynch
  Larry Irving
  Diana E. Leonard
  Robert M. Neumeister
  Richard A. Jalkut start-up
 102




---



##### Table of Contents



Executive
    Officers
    Name

Age

PositionCharles E. Hoffman


59


President and Chief Executive OfficerJustin Spencer


37


Senior Vice President, Chief Financial Officer and TreasurerDavid McMorrow


41


Executive Vice President, SalesClaude Tolbert


35


Senior Vice President, Strategic Priorities and ExecutionEric Weiss


41


Chief Marketing OfficerDoug Carlen


38


Senior Vice President and General Counsel     Justin Spencer
  David McMorrow
  Claude Tolbert
  Eric Weiss
  Doug Carlen
  Corporate
    Governance
  Section 16(a)
    Beneficial Ownership Reporting Compliance
   103




---



##### Table of Contents



Code
    of Conduct
  Form 8-K.
  Audit
    Committee
      Communications
    with Directors
      ITEM 11.
    Executive
    Compensation  COMPENSATION
    DISCUSSION AND ANALYSIS
       104




---



##### Table of Contents



change-in-control change-in-control
      Base
    Salary Analysis
        Short-Term
    Incentive Analysis
     105




---



##### Table of Contents



Long-Term
    Incentive Analysis
      Compensation
    Consultants
      Peer
    Group Benchmarking
   106




---



##### Table of Contents



Base
    Salary
        Short-Term
    Incentives
       107




---



##### Table of Contents



BonusName

CompensationCharles E. Hoffman

$
118,985Justin Spencer

$
30,502David McMorrow

$
36,163Douglas Carlen

$
30,884Eric Weiss

$
29,287Claude Tolbert

$
28,385James A. Kirkland

$
21,942Christopher Dunn

$
0      108




---



##### Table of Contents



Long-Term
    Incentive Awards
           109




---



##### Table of Contents



Chief
    Executive Officer Compensation
          Compliance
    with Internal Revenue Code Section 162(m)
     110




---



##### Table of Contents



Employment
    Agreements, Termination of Employment and
    Change-In-Control
    Arrangements
        Change-in-Control Change-in-Control Change-in-Control
  Change-in-Control
 111




---



##### Table of Contents



Other
    Benefits
    Summary
    Compensation Table
  Change inPensionNon-

Value andEquity

NonqualifiedIncentive

DeferredStock

Option

Plan

Compensation

All OtherName and Principal



Salary

Bonus

Awards

Awards

Compensation

Earnings

Compensation

TotalPosition

Year

($)

($)

($)

($)

($)

($)

($)

($)(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)Charles E. Hoffman,


2007


$
594,923










$
266,304
(1)

$
118,985
(2)





$
7,868
(3)

$
988,080President and Chief Executive OfficerJustin Spencer,


2007


$
217,871










$
22,470
(1)

$
30,502
(2)









$
270,843Senior Vice President and Chief Financial OfficerDavid McMorrow,


2007


$
258,308










$
50,908
(1)

$
36,163
(2)









$
345,379Executive Vice President, Sales(4)Douglas A. Carlen,


2007


$
220,599


$
5,000
(5)





$
14,860
(1)

$
30,884
(2)









$
271,343Senior Vice President, General Counsel and SecretaryEric Weiss, Chief


2007


$
244,061










$
45,570
(1)

$
29,287
(2)









$
318,918Marketing Officer(6)Claude Tolbert,


2007


$
236,544










$
18,340
(1)

$
28,385
(2)









$
283,269Senior Vice President, Strategic Priorities and Execution(6)James A. Kirkland


2007


$
205,220










$
27,438
(1)

$
21,942
(2)





$
140,830
(8)

$
395,430Senior Vice President, Strategic Development, General Counsel
    and Secretary(7)Christopher Dunn,


2007


$
136,139










$
25,128
(1)













$
161,267Senior Vice President and Chief Financial Officer(9)     (1)
    
    Calculated based on the amount of compensation cost recognized
    during fiscal year 2007 under FAS 123R, including
    compensation cost for options granted in prior years. See
    Note 13 to our consolidated financial statements for
    assumptions used to value our stock option awards.(2)
    
    Payments made under the 2007 bonus plan.(3)
    
    Reimbursement of life insurance premiums.(4)
    
    Effective in January 2008, Mr. McMorrows position is
    General Manager, Wireless.(5)
    
    One-time spot bonus payment.(6)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(7)
    
    Mr. Kirklands employment was terminated in September
    2007.(8)
    
    $135,630 represents severance paid upon Mr. Kirklands
    termination of employment and $5,200 represents reimbursement of
    life insurance premiums.(9)
    
    Mr. Dunn resigned in April 2007. 112




---



##### Table of Contents



Grants of
    Plan-Based Awards in 2007
  All Other

All OtherStock

OptionAwards:

Awards:

Exercise

GrantNumber of

Number of

or Base

Date FairEstimated Future Payouts Under







Shares of

Securities

Price of

Value ofNon-Equity Incentive Plan Awards

Estimated Future Payouts Under Equity Incentive Plan
    Awards

Stock

Underlying

Option

Stock andThreshold

Target

Maximum

Threshold

Target

Maximum

or Units

Options

Awards

OptionName

Grant Date

($)(1)

($)(2)

($)

(#)

(#)

(#)

(#)

(#)(4)

($/Share)

Awards(3)(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)

(l)Charles E. Hoffman,





$
118,985


$
594,923


$
654,415



N/A



N/A



N/A



N/APresident and Chief Executive Officer


2/28/07































625,000


$
1.19


$
409,750Justin Spencer,





$
30,502


$
152,510


$
167,761Senior Vice President and Chief Financial Officer


2/28/07































24,000


$
1.19


$
15,7346/29/07































200,000


$
0.90


$
94,380David McMorrow,





$
36,163


$
180,815


$
198,897Executive Vice President, Sales(5)


2/28/07































70,000


$
1.19


$
45,892Douglas A. Carlen,





$
30,884


$
154,419


$
169,861Senior Vice President,


2/28/07































24,000


$
1.19


$
15,734General Counsel and Secretary


9/28/07































100,000


$
0.67


$
33,260Eric Weiss,





$
29,287


$
146,437


$
161,081Chief Marketing Officer(6)


2/28/07































30,000


$
1.19


$
19,668Claude Tolbert,





$
28,385


$
141,926


$
156,119Senior Vice President, Strategic Priorities and Execution(6)


2/28/07































30,000


$
1.19


$
19,668James A. Kirkland,





$
37,908


$
189,539


$
208,493Senior Vice President, Strategic Development, General Counsel
    and Secretary(7)


2/28/07































70,000


$
1.19


$
45,892Christopher Dunn,





$
41,948


$
209,740


$
230,714Senior Vice President and Chief Financial Officer(8)


2/28/07































70,000


$
1.19


$
45,892     (1)
    
    If the minimum financial targets at the threshold level were not
    met, the payment under the 2007 Bonus Plan would have been zero.
    As set forth in the Summary Compensation Table, payments of
    $118,985, $30,502, $36,163, $30,884, $29,287, $28,385 and
    $21,942 were made to Messrs. Hoffman, Spencer, McMorrow,
    Carlen, Weiss, Tolbert and Kirkland, respectively, representing
    the threshold amount to receive any payment under the bonus plan.(2)
    
    Represents the target amounts that would have been payable under
    the 2007 Bonus Plan had the financial targets set forth in the
    2007 Bonus Plan been met.(3)
    
    Calculated based on the fair value of options granted during
    2007 under FAS 123R.(4)
    
    These options vest and become exercisable ratably in 48 equal
    monthly installments, beginning one month after the grant date.(5)
    
    Effective in January 2008, Mr. McMorrows title is
    General Manager, Wireless.(6)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(7)
    
    Mr. Kirklands employment was terminated in September
    2007. The estimated future payout amounts in the table are based
    on estimated potential earnings had he been employed as of
    December 31, 2007. Mr. Kirkland received an actual
    bonus of $21,942, as described in the Summary Compensation Table
    above. 113




---



##### Table of Contents



(8)
    
    Mr. Dunn resigned in April 2007. The estimated future
    payout amounts in the table are based on estimated potential
    earnings had he been employed as of December 31, 2007.
    Mr. Dunn did not receive a bonus payment for 2007.  Outstanding
    Equity Awards at Fiscal Year-End
    Option Awards





Stock AwardsEquity











EquityIncentive









Equity

IncentivePlan









Incentive Plan

PlanAwards:





Number of

Market

Awards: Number

Awards: MarketNumber of

Number of

Number of





Shares or

Value of

of Unearned

or PayoutSecurities

Securities

Securities





Units of

Shares or

Shares,

Value ofUnderlying

Underlying

Underlying





Stock

Units of

Units or

Unearned Shares,Unexercised

Unexercised

Unexercised

Option



That Have

Stock That

Other Rights

Units or OtherOption

Options

Options

Unearned

Exercise

Option

Not

Have Not

That Have

Rights That HaveGrant

(#)

(#)

Options

Price

Expiration

Vested

Vested

Not Vested

Not VestedName

Date

Exercisable

Unexercisable

(#)

($)

Date

(#)

($)

(#)

($)(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)Charles E. Hoffman,


6/25/01



2,350,000



0






$
0.84



06/25/2009President and Chief Executive Officer


2/5/03



625,000



0






$
1.28



02/05/20112/26/04



625,000



0






$
3.34



02/26/20122/23/05



700,000



0






$
1.54



02/23/20134/6/06



260,416



364,584






$
2.14



04/06/20142/28/07



130,208



494,792






$
1.19



02/28/2015Justin Spencer,


11/29/02



2,812



0






$
1.34



11/29/2010Senior Vice President and Chief Financial Officer


2/5/03



2,032



0






$
1.28



02/05/20112/26/04



5,000



0






$
3.34



02/26/20129/30/04



4,500



0






$
1.68



09/30/201211/30/04



10,000



0






$
1.56



11/30/20122/23/05



10,000



0






$
1.54



02/23/201312/30/05



10,625



14,375






$
0.98



12/30/20132/23/06



11,000



13,000






$
1.24



02/23/20142/28/07



5,000



19,000






$
1.19



02/28/20156/29/07



25,000



175,000






$
0.90



06/29/2015David McMorrow,


3/3/00



1,875



0






$
63.3333



03/03/2008Executive Vice President, Sales(1)


12/8/00



3,646



0






$
1.5938



12/08/20083/23/01



4,688



0






$
2.5625



03/23/20099/11/01



33,542



0






$
0.56



09/11/20095/31/02



19,375



0






$
1.22



05/31/20102/5/03



65,334



0






$
1.28



02/05/20112/26/04



150,000



0






$
3.34



02/26/20122/23/05



100,000



0






$
1.54



02/23/20136/24/05



62,500



37,500






$
1.32



06/24/20132/28/06



45,831



54,169






$
1.30



02/28/20142/28/07



14,583



55,417






$
1.19



02/28/2015 114




---



##### Table of Contents



Option Awards





Stock AwardsEquity











EquityIncentive









Equity

IncentivePlan









Incentive Plan

PlanAwards:





Number of

Market

Awards: Number

Awards: MarketNumber of

Number of

Number of





Shares or

Value of

of Unearned

or PayoutSecurities

Securities

Securities





Units of

Shares or

Shares,

Value ofUnderlying

Underlying

Underlying





Stock

Units of

Units or

Unearned Shares,Unexercised

Unexercised

Unexercised

Option



That Have

Stock That

Other Rights

Units or OtherOption

Options

Options

Unearned

Exercise

Option

Not

Have Not

That Have

Rights That HaveGrant

(#)

(#)

Options

Price

Expiration

Vested

Vested

Not Vested

Not VestedName

Date

Exercisable

Unexercisable

(#)

($)

Date

(#)

($)

(#)

($)(a)

(b)

(c)

(d)

(e)

(f)

(g)

(h)

(i)

(j)

(k)Douglas A. Carlen,


5/26/00



2,500



0






$
23.25



05/26/2008Senior Vice President, General Counsel and Secretary


6/16/00



500



0






$
18.4375



06/16/20087/7/00



2,500



0






$
17.875



07/07/200812/8/00



6,500



0






$
1.5938



12/08/20083/23/01



19,500



0






$
2.5625



03/23/20095/18/01



24,000



0






$
1.10



05/18/20099/11/01



10,418



0






$
0.56



09/11/20095/31/02



20,000



0






$
1.22



05/31/20102/5/03



40,000



0






$
1.28



02/05/20112/26/04



11,500



0






$
3.34



02/26/20122/23/05



14,000



0






$
1.54



02/23/20139/30/05



16,875



13,125






$
1.06



09/30/20132/23/06



11,000



13,000






$
1.24



02/23/20142/28/07



5,000



19,000






$
1.19



02/28/20159/28/07



6,250



93,750






$
0.67



09/28/2015Eric Weiss,


8/31/06



66,666



133,334






$
1.52



08/31/2014Chief Marketing Officer(2)


2/28/07



6,250



23,750






$
1.19



2/28/2015Claude Tolbert,


3/3/00



3,000



0






$
63.3333



03/03/2008Senior Vice President, Strategic Priorities and Execution(2)


5/26/00



10,000



0






$
23.25



05/26/20088/25/00



10,000



0






$
15.0625



08/25/200812/8/00



17,500



0






$
1.5938



12/08/20083/23/01



21,999



0






$
2.5625



03/23/20099/11/01



8,334



0






$
0.56



09/11/20092/5/03



27,500



0






$
1.28



02/05/20119/30/03



30,000



0






$
5.53



09/30/20112/26/04



37,500



0






$
3.34



02/26/20122/23/05



36,000



0






$
1.54



02/23/20133/31/05



34,375



15,625






$
1.20



03/31/20132/23/06



13,747



16,253






$
1.24



02/23/20142/28/07



6,250



23,750






$
1.19



02/28/2015Christopher Dunn,Senior Vice President and Chief Financial Officer(3)James A. Kirkland,


10/23/03



125,000



0






$
4.53



10/23/2011Senior Vice President, Strategic Development, General Counsel
    and Secretary(4)


2/26/04



150,000



0






$
3.34



02/26/20122/23/05



100,000



0






$
1.54



02/23/20132/28/06



45,832



54,168






$
1.30



02/28/20142/28/07



14,583



55,417






$
1.19



02/28/2015     (1)
    
    Effective in January 2008, Mr. McMorrows position
    became General Manager, Wireless.(2)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(3)
    
    Mr. Dunn resigned in April 2007 and has no outstanding
    options.(4)
    
    Mr. Kirklands employment terminated in September 2007
    but his options remain outstanding and continue to vest because
    he is serving as a member of our Advisory Board. 115




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##### Table of Contents



Option
    Awards Vesting Schedule
  Grant Date

Vesting Schedule3/3/00

Vested monthly over four years5/26/00

Vested monthly over four years6/16/00

Vested monthly over four years and annually over four years7/7/00

Vested annually over four years8/25/00

Vested monthly over four years12/8/00

Vested monthly over four years3/23/01

4.2% vested immediately and the remaining 95.8% vested monthly
    over the following 46 months and 29.2% vested immediately
    and the remaining 70.8% vested monthly over the following
    34 months5/18/01

Vested monthly over four years6/25/01

12.5% vested in six months and the remaining 87.5% vested
    monthly over the following three and one-half years9/11/01

Vested monthly over four years5/31/02

Vested monthly over four years11/29/09

25% vested in one year and the remaining 75% vested monthly over
    the following 36 months2/5/03

Vested monthly over four years9/30/03

Vested monthly over four years10/23/03

25% vested in one year and the remaining 75% vested monthly over
    the following 36 months2/26/04

Vested monthly over four years9/30/04

Vested monthly over four years11/30/04

Vested monthly over four years2/23/05

Vested monthly over four years3/31/05

Vested monthly over four years5/31/05

25% vested in one year and the remaining 75% vested monthly over
    the following 36 months6/24/05

Vested monthly over four years9/30/05

Vested monthly over four years11/11/05

Vested monthly over four years12/30/05

Vested monthly over four years2/23/06

Vested monthly over four years2/28/06

Vested monthly over four years4/6/06

Vested monthly over four years8/31/06

25% vested in one year and the remaining 75% vested monthly over
    the following 36 months2/28/07

Vested monthly over four years6/29/07

Vested monthly over four years9/28/07

Vested monthly over four years  116




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##### Table of Contents



Option
    Exercises and Stock Vested
  Option Awards

Stock AwardsNumber of SharesAcquired

Value Realized

Number of Shares

Value Realizedon Exercise

on Exercise

Acquired on Vesting

on VestingName

(#)

($)

(#)

($)(a)

(b)

(c)

(d)

(e)Charles E. Hoffman,










N/A



N/APresident and Chief Executive OfficerJustin Spencer,










N/A



N/ASenior Vice President and Chief Financial OfficerDavid McMorrow,










N/A



N/AExecutive Vice President, Sales(1)Douglas A. Carlen,










N/A



N/ASenior Vice President, General Counsel and SecretaryEric Weiss,










N/A



N/AChief Marketing Officer(2)Claude Tolbert,










N/A



N/ASenior Vice President, Strategic Priorities and Execution(2)Christopher Dunn,


46,875


$
9,604



N/A



N/ASenior Vice President and Chief Financial Officer(3)James A. Kirkland,










N/A



N/ASenior Vice President, Strategic Development, General Counsel
    and Secretary(4)     (1)
    
    Effective in January 2008, Mr. McMorrow became General
    Manager, Wireless.(2)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(3)
    
    Mr. Dunn resigned in April 2007.(4)
    
    Mr. Kirklands employment was terminated in September
    2007. 117




---



##### Table of Contents



Pension
    Benefits [This
    table in not applicable for Covad]
  Number of Years

Present Value of

Payments DuringCredited Service

Accumulated Benefit

Last Fiscal YearName

Plan Name

(#)

($)

($)(a)

(b)

(c)

(d)

(e)Charles E. Hoffman,President and Chief Executive OfficerJustin Spencer,Senior Vice President and Chief Financial OfficerDavid McMorrow,Executive Vice President, Sales(1)Douglas A. Carlen,Senior Vice President, General Counsel and SecretaryEric Weiss,Chief Marketing Officer(2)Claude Tolbert,Senior Vice President, Strategic Priorities and Execution(2)Christopher Dunn,Senior Vice President and Chief Financial Officer(3)James A. Kirkland,Senior Vice President, Strategic Development, General Counsel
    and Secretary(4)     (1)
    
    Effective in January 2008, Mr. McMorrows position
    became General Manager, Wireless.(2)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(3)
    
    Mr. Dunn resigned in April 2007.(4)
    
    Mr. Kirklands employment was terminated in September
    2007. 118




---



##### Table of Contents



Nonqualified
    Deferred Compensation [This
    table is not applicable for Covad]
  AggregateExecutive

Registrant



Withdrawals/Contributions in

Contributions in

Aggregate Earnings

Distributions

Aggregate BalanceName

Last FY ($)

Last FY ($)

in Last FY ($)

($)

at Last FYE ($)(a)

(b)

(c)

(d)

(e)

(f)Charles E. Hoffman,President and Chief Executive OfficerJustin Spencer,Senior Vice President and Chief Financial OfficerDavid McMorrow,Executive Vice President, Sales(1)Douglas A. Carlen,Senior Vice President, General Counsel and SecretaryEric Weiss,Chief Marketing Officer(2)Claude Tolbert,Senior Vice President, Strategic Priorities and Execution(2)Christopher Dunn,Senior Vice President and Chief Financial Officer(3)James A. Kirkland,Senior Vice President, Strategic Development, General Counsel
    and Secretary(4)     (1)
    
    Effective in January 2008, Mr. McMorrows position
    became General Manager, Wireless.(2)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(3)
    
    Mr. Dunn resigned in April 2007.(4)
    
    Mr. Kirklands employment was terminated in September
    2007.  Payments
    upon Termination or Change in Control
   119




---



##### Table of Contents



Form 8-K
  Change-in-Control change-in-control, change-in-control change-in-control
 120




---



##### Table of Contents



Potential
    Payments upon Termination or Change in Control Table
  InvoluntaryNot forCause Terminationor Resignation for

Death orGood Reason

DisabilityInvoluntary Not for





After

(Before orCause Termination



Change of

Change of

AfterVoluntary

or Resignation for

For Cause

Control

Control

Change ofName

Benefit

Termination

Good Reason(1)

Termination

(2)

(2)(3)

Control)Charles E. Hoffman,

Severance Payment

$
0


$
1,200,000


$
0


$
0


$
1,800,000


$
0President and Chief

Bonus Payment

$
0


$
0


$
0


$
0


$
1,800,000


$
0Executive Officer

Stock Option Vesting Acceleration

$
0


$
0


$
0


$
2,687


$
2,687


$
0Health Care Benefits Continuation

$
0


$
13,548


$
0


$
0


$
40,644


$
0Tax Gross-ups(4)

$
0


$
0


$
0


$
0


$
1,460,642


$
0Justin Spencer,
    Severance Payment

$0

$
125,000


$
0


$
0


$
500,000


$
0Senior Vice President

Bonus Payment

$
0


$
0


$
0


$
0


$
350,000


$
0and Chief Financial Officer

Stock Option Vesting Acceleration

$
0


$
0


$
0


$
4,851


$
4,851


$
0Health Care Benefits Continuation

$
0


$
6,726


$
0


$
0


$
26,904


$
0Tax Gross-ups(4)

$
0


$
0


$
0


$
0


$
420,953


$
0David McMorrow,

Severance Payment

$
0


$
130,000


$
0


$
0


$
520,000


$
0Executive Vice

Bonus Payment

$
0


$
0


$
0


$
0


$
364,000


$
0President, Sales(5)

Stock Option Vesting Acceleration

$
0


$
0


$
0


$
460


$
460


$
0Health Care Benefits Continuation

$
0


$
9,822


$
0


$
0


$
39,288


$
0Tax Gross-ups(4)

$
0


$
0


$
0


$
0


$
0


$
0Douglas A. Carlen,

Severance Payment

$
0


$
125,000


$
0


$
0


$
500,000


$
0Senior Vice President,

Bonus Payment

$
0


$
0


$
0


$
0


$
350,000


$
0General Counsel and Secretary

Stock Option Vesting Acceleration

$
0


$
0


$
0


$
6,860


$
6,860


$
0Health Care Benefits Continuation

$
0


$
9,822


$
0


$
0


$
39,288


$
0Tax Gross-ups(4)

$
0


$
0


$
0


$
0


$
376,419


$
0Eric Weiss, Chief

Severance Payment

$
0


$
122,031


$
0


$
0


$
489,600


$
0Marketing Officer(6)

Bonus Payment

$
0


$
0


$
0


$
0


$
293,760


$
0Stock Option Vesting Acceleration

$
0


$
0


$
0


$
0


$
0


$
0Health Care Benefits Continuation

$
0


$
8,934


$
0


$
0


$
35,736


$
0Tax Gross-ups(4)

$
0


$
0


$
0


$
0


$
319,011


$
0Claude Tolbert,

Severance Payment

$
0


$
118,272


$
0


$
0


$
475,904


$
0Senior Vice President,

Bonus Payment

$
0


$
0


$
0


$
0


$
285,542


$
0Strategic Priorities and Execution(6)

Stock Option Vesting Acceleration

$
0


$
0


$
0


$
0


$
0


$
0Health Care Benefits Continuation

$
0


$
2,802


$
0


$
0


$
11,208


$
0Tax Gross-ups(4)

$
0


$
0


$
0


$
0


$
0


$
0Christopher Dunn,Senior Vice President and Chief Financial Officer(7)James A. Kirkland,Senior Vice President, Strategic Development, General Counsel
    and Secretary(8)     (1)
    
    Mr. Hoffman is entitled to one years base salary in
    the event of an involuntary termination pursuant to a letter
    agreement between Covad and Mr. Hoffman dated May 29,
    2001 and to six months health care benefits 121




---



##### Table of Contents



continuation under the Covad Executive Severance Plan.
    Messrs. Spencer, McMorrow, Carlen, Weiss and Tolbert are
    entitled to six months salary and health care benefits
    continuation in the event of an involuntary termination or
    resignation for good reason pursuant to the Executive Severance
    Plan. Assumes a change of control occurs as of December 31,
    2007.(2)
    
    All unvested options accelerate and vest in their entirety one
    year after a change of control (as defined in each
    executives option agreement). The amounts above are
    calculated based on regulations set forth in Section 280G
    of the Internal Revenue Code. The closing price of Covads
    common stock was $0.86 on December 31, 2007 (the last
    trading day of the year). Assumes a change of control occurs as
    of December 31, 2007.(3)
    
    Pursuant to Change of Control Agreements upon the occurrence of
    involuntary termination or resignation for good reason (each as
    defined therein) within three years of the date of a change of
    control (as defined therein) for Mr. Hoffman or within two
    years of the date of a change of control (as defined therein)
    for all other executives. Assumes a change of control occurs as
    of December 31, 2007.(4)
    
    Consists of payments of
    gross-up
    amounts (including excise tax amounts) of $1,460,641, $420,953,
    $376,419 and $319,011 for Messrs. Hoffman, Spencer, Carlen
    and Weiss, respectively, that were calculated based on excess
    parachute payments under Section 280G of the Internal
    Revenue Code of $2,611,117, $752,523, $672,912 and $570,281 for
    Messrs. Hoffman, Spencer, Carlen and Weiss, respectively.
    Assumes a change of control occurs as of December 31, 2007
    and that tax
    gross-ups
    are paid to the applicable executives.(5)
    
    Effective in January 2008, Mr. McMorrows position
    became General Manager, Wireless.(6)
    
    Mr. Weisss and Mr. Tolberts employment
    terminated as of February 1, 2008.(7)
    
    Mr. Dunn resigned in April 2007 and his Change of Control
    Agreement terminated at that time.(8)
    
    Mr. Kirklands employment terminated in September 2007
    and his Change of Control Agreement terminated at that time.  Limitation
    on Liability and Indemnification Matters
    Director
    Compensation
      
    An annual retainer of $25,000 is paid to each director in two
    equal cash payments every six months. During the 2007 fiscal
    year, we also paid additional retainers of $30,000 to our lead
    independent director, $15,000 to the Chairperson of our Audit
    Committee, $7,500 to the Chairperson of our Compensation
    Committee and $5,000 to members of our Audit Committee other
    than the Chairperson;
    For each Board meeting that a director attends, we pay a $1,000
    fee;
    For each Committee meeting that a director attends on a day when
    there is no Board meeting, we pay a fee of $1,000. We also pay a
    fee of $500 for Committee meetings that are on the same day as a
    Board meeting;
    Each new director receives an initial stock option grant to
    purchase 60,000 shares of our common stock, and each
    ongoing director receives an annual grant of an option to
    purchase 30,000 shares of our common stock, which vests in
    equal monthly installments over one year; 122




---



##### Table of Contents




    Each member of our Audit Committee, other than the Chairperson,
    receives an initial stock option grant to purchase
    10,000 shares of our common stock when he or she is first
    appointed to the Audit Committee; thereafter, each such member
    receives an annual grant of an option to purchase
    5,000 shares of our common stock;
    The Chairperson of our Audit Committee receives an initial
    option to purchase 15,000 shares of our common stock when
    appointed to the Audit Committee; thereafter, the Chairperson
    receives an annual grant of an option to purchase
    10,000 shares of our common stock for continued
    service; and
    The above referenced annual grants of options to Audit Committee
    members and the Chairperson of the Audit Committee vest in equal
    monthly installments over one year.            Director
    Compensation
  Change inPensionValue andOption


Non-Equity


NonqualifiedFees Earned





Awards


Incentive Plan


Deferred


All Otheror Paid in


Stock Awards


($)


Compensation


Compensation


Compensation


TotalName

Cash ($)


($)


(1)(2)


($)


Earnings


($)


($)(a)

(b)


(c)


(d)


(e)


(f)


(g)


(h)Chuck McMinn, Chairman

$
38,000(3
)


N/A


$
23,072(1
)


N/A



N/A



N/A


$
61,072L. Dale Crandall

$
65,500(4
)


N/A


$
27,744(1
)


N/A



N/A



N/A


$
93,244Larry Irving

$
49,000(5
)


N/A


$
23,072(1
)


N/A



N/A



N/A


$
72,072Richard A. Jalkut

$
93,500(6
)


N/A


$
23,072(1
)


N/A



N/A



N/A


$
116,572Diana Leonard

$
43,500(7
)


N/A


$
19,613(1
)


N/A



N/A



N/A


$
63,113Daniel C. Lynch

$
51,000(8
)


N/A


$
25,408(1
)


N/A



N/A



N/A


$
76,408Robert Neumeister

$
56,500(9
)


N/A


$
33,339(1
)


N/A



N/A



N/A


$
89,839     (1)
    
    Calculated based on the amount of compensation cost recognized
    during fiscal year 2007 under FAS 123R. See Note 13 to
    our consolidated financial statements for assumptions used to
    value our stock option awards. 123




---



##### Table of Contents



(2)
    
    The fair value of options granted to the directors during 2007
    under FAS 123R were are follows: Mr. McMinn: $13,767;
    Mr. Crandall: $13,767; Mr. Irving: $13,767;
    Mr. Jalkut: $13,767; Ms. Leonard: $13,767;
    Mr. Lynch: $13,767; and Mr. Neumeister: $13,767.(3)
    
    This includes $7,000 in fees paid in 2008 for services provided
    in 2007.(4)
    
    This includes $15,500 in fees paid in 2008 for services provided
    in 2007.(5)
    
    This includes $8,500 in fees paid in 2008 for services provided
    in 2007.(6)
    
    This includes $15,000 in fees paid in 2008 for services provided
    in 2007.(7)
    
    This includes $9,500 in fees paid in 2008 for services provided
    in 2007.(8)
    
    This includes $9,000 in fees paid in 2008 for services provided
    in 2007.(9)
    
    This includes $15,500 in fees paid in 2008 for services provided
    in 2007.  Stock
    Ownership Guidelines
    Compensation
    Committee Interlocks and Insider Participation
      Compensation
    Committee Report on Executive Compensation
  Form 10-K.
    Larry Irving
 Richard A. Jalkut
 Diana Leonard
    ITEM 12.
    Security
    Ownership of Certain Beneficial Owners and Management and
    Related Stockholder Matters    
    each Named Executive Officer;
    each of our directors;
    all of our executive officers and directors as a group; and
    all persons known to Covad to beneficially own 5% or more of our
    common stock 124




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##### Table of Contents



c/o Covad 95134-1813.
  Shares Beneficially OwnedBeneficial Owner

Number


PercentageEarthLink, Inc.(1)


31,651,562



9.8
%Charles E. Hoffman(2)


5,073,747



1.7
%Charles McMinn(3)


3,783,122



1.3
%David McMorrow(4)


553,342



*Daniel Lynch(5)


312,253



*L. Dale Crandall(6)


337,500



*Larry Irving(7)


289,500



*Claude Tolbert(8)


281,789



*Richard A. Jalkut(9)


232,500



*Douglas Carlen(10)


226,239



*Justin Spencer(11)


118,345



*Eric Weiss(12)


82,499



*Robert Neumeister(13)


61,041



*Diana Leonard(14)


47,500



*All current executive officers and directors as a group
    (15 persons)(15)


11,399,377



3.7
%     *
    
    Represents beneficial ownership of less than 1% of our
    outstanding stock.(1)
    
    This consists of: 6,134,969 shares of our common stock that
    we sold to EarthLink on March 29, 2006, and
    25,516,593 shares of our common stock issuable to EarthLink
    upon the conversion of notes we have issued to EarthLink. None
    of those notes have been converted. The Company has not done any
    additional independent investigation with respect to the
    beneficial ownership of EarthLink.(2)
    
    Includes 4,781,769 shares of common stock subject to
    options exercisable as of April 15, 2008.(3)
    
    Includes 382,500 shares of common stock subject to options
    exercisable as of April 15, 2008. Includes indirect
    ownership of 914,599 shares held by Family Trust and
    2,486,023 shares held by Living Trust.(4)
    
    Includes 516,374 shares of common stock subject to options
    exercisable as of April 15, 2008.(5)
    
    includes 178,000 shares of common stock subject to options
    exercisable as of April 15, 2008. Includes indirect
    ownership of 3,375 shares held by Childrens Trust.(6)
    
    Includes 277,500 shares of common stock subject to options
    exercisable as of April 15, 2008.(7)
    
    Includes 279,500 shares of common stock subject to options
    exercisable as of April 15, 2008.(8)
    
    Includes 260,789 shares of common stock subject to options
    exercisable as of February 29, 2008.
    Mr. Tolberts employment with the Company ended on
    February 1, 2008.(9)
    
    Includes 222,500 shares of common stock subject to options
    exercisable as of April 15, 2008.(10)
    
    Includes 201,668 shares of common stock subject to options
    exercisable as of April 15, 2008.(11)
    
    Includes 103,344 shares of common stock subject to options
    exercisable as of April 15, 2008.(12)
    
    Includes 82,499 shares of common stock subject to options
    exercisable as of February 29, 2008. Mr. Weiss
    employment with the Company ended on February 1, 2008.(13)
    
    Includes 61,041 shares of common stock subject to options
    exercisable as of April 15, 2008.(14)
    
    Includes 47,500 shares of common stock subject to options
    exercisable as of April 15, 2008.(15)
    
    Includes 7,394,984 shares of common stock subject to
    options exercisable as of April 15, 2008. 125




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##### Table of Contents



Securities
    Authorized for Issuance under Equity Compensation
    Plans
    Number ofSecuritiesNumber of





Remaining AvailableSecurities to be





for Future IssuanceIssued Upon


Weighted-Average


Under EquityExercise of


Exercise Price of


Compensation PlansOutstanding


Outstanding


(In Thousands) (ExcludingOptions, Warrants


Options, Warrants


Securities ReflectedPlan Category

and Rights


and Rights


in Column (a))(a)


(b)


(c)(In thousands)Equity compensation plans approved by security holders(1)


22,313


$
2.88



10,423Equity compensation plans not approved by security holders(2)


38


$
11.04



0Total


22,351


$
2.90



10,423     (1)
    
    These plans consist of the 2007 Equity Incentive Plan, the 1997
    Stock Plan, and the 2003 Employee Stock Purchase Plan. The 2007
    Stock Plan provides for the grant of stock options, restricted
    stock awards, restricted stock units, stock appreciation rights
    and stock bonus awards to employees and consultants from time to
    time as determined by Covads management, compensation
    committee and board of directors. The 1997 Stock Plan expired in
    July 2007 and Covad can no longer issue additional options under
    this plan. The 2003 Employee Stock Purchase Plan allows
    employees to purchase shares of Covads common stock at a
    discount from the market prices during set purchase periods. The
    number of shares that may be issued under the 2003 Employee
    Stock Purchase Plan is subject to an annual increase to be added
    on January 1 of each year equal to the lesser of either
    (a) 2% of the outstanding shares of Covads stock on
    such date, (b) 7 million shares or (c) an amount
    determined by a committee of the Board. Securities available for
    future issuance under Covads 2003 Employee Stock Purchase
    Plan are included in column (c) but are not included in
    columns (a) and (b) because the amount and price of
    securities purchased in an offering period are determined at the
    end of such offering period. The number of shares remaining
    available for future grant includes 3,760 shares under our
    2003 Employee Stock Purchase Plan. The 2003 Employee Stock
    Purchase Plan was amended and restated in December 2007 to
    suspend additional offerings after December 31, 2007.(2)
    
    These plans consist of the LaserLink.Net, Inc. 1997 Stock Plan,
    the BlueStar Communications Group, Inc. 2000 Stock Incentive
    Plan and the GoBeam, Inc. 2000 Employee and Consultant Equity
    Incentive Plan, all of which were assumed by Covad in connection
    with the acquisitions of each company and are described in
    Note 13 of the Financial Statements. Covad does not intend
    to grant additional options under these plans.  ITEM 13.
    Certain
    Relationships and Related Transactions, and Director
    Independence  Strategic
    Investments and Relationships
   126




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##### Table of Contents



Related
    Party Transaction Approval Policy
    Certain
    Relationships and Related Party Transactions
        Form 8-K
 127




---



##### Table of Contents



Director
    Independence
    
    Mr. Jalkut is the President and CEO of TelePacific
    Communications, Inc., or TelePacific, one of our resellers. We
    recognized revenues from TelePacific of approximately $160,000,
    $217,000 and $285,000 for 2007, 2006 and 2005, respectively.
    Accounts receivable from Telepacific were $24,000 and $15,000 as
    of December 31, 2007 and 2006, respectively. In August
    2006, TelePacific acquired mPower, which is one of our vendors.
    We paid $573,000 and $524,000 to mPower in 2006 and 2007,
    respectively. Accounts payable to mPower were $41,000 and
    $51,000 as of December 31, 2007 and 2006.
    Mr. Crandall is a director of BEA Systems,
    (BEA), one of our vendors. We paid $556,000,
    $1,094,000 and $993,000 to BEA in 2007, 2006 and 2005,
    respectively. There were no accounts payable to BEA as of
    December 31, 2007 or 2006. In 2007, Mr. Crandall
    became a director of Serena Software, Inc. (Serena)
    one of our vendors. We paid $27,000 to Serena in 2007. There
    were no accounts payable to Serena as of December 31, 2007
    and 2006, respectively.
    Ms. Leonard is a Senior Vice President of Orange Business
    Services (part of the France Telecom Group), which is one of our
    wholesale customers. We recognized revenues from Orange Business
    Services of $755,000, $399,000 and $202,000 for 2007, 2006 and
    2005, respectively. Accounts receivable from Orange Business
    Services were $87,000 and $28,000 as of December 31, 2007
    and 2006, respectively.    ITEM 14.
    Principal
    Accounting Fees and Services    2007


2006Audit fees

$
2,052,000


$
2,680,500All other fees


1,500



1,500Total

$
2,053,500


$
2,682,000   Form 10-Q,
 128




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##### Table of Contents



PART IV  Item 15.
    Exhibits,
    Financial Statement Schedules  Form 10-K:
  Financial Statements.
              Financial Statement
    Schedules. conditions
  Exhibits. Form 10-K.
  EXHIBIT INDEX
  Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith2
.1

Plan: First Amended Plan of Reorganization, as Modified, of
    Covad Communications Group, Inc. dated November 26, 2001

8-K

000-25271

12/28/01


2
.12
.2

Order Pursuant to Section 1129 of the Bankruptcy Code
    Confirming the Debtors First Amended Chapter 11 Plan
    of Reorganization, as Modified

8-K

000-25271

12/28/01


99
.122
.3

Agreement and Plan of Merger, dated as of March 2, 2004,
    among Covad Communications Group, Inc., Covad Communications
    Investment Corp., GoBeam, Inc. and Eduardo Briceno, as
    Representative

8-K

000-25271

5/17/04


2
.12
.4

Agreement and Plan of Merger, dated as of October 4, 2005,
    among Covad Communications Group, Inc., Windtalker Acquisition
    Corp., NextWeb, Inc. and Ghia Griarte as Representative.

8-K

000-25271

10/7/05


2
.12
.5

Agreement and Plan of Merger, dated as of October 28, 2007,
    by and among Covad Communications Group, Inc., CCGI Holding
    Corporation and CCGI Merger Corporation.

8-K

001-32588

10/29/07


2
.13
.1

Amended and Restated Certificate of Incorporation

S-1/A

333-38688

7/17/00


3
.23
.2

Certificate of Amendment of Certificate of Incorporation of the
    Registrant filed on July 14, 2000

S-1/A

333-38688

7/17/00


3
.53
.3

Certificate of Amendment of Certificate of Incorporation of the
    Registrant filed on December 20, 2001.

10-K

000-25271

3/29/02


3
.33
.4

Amended and Restated Bylaws, as currently in effect

8-K

001-32588

11/2/05


3
.1 129




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##### Table of Contents



Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith4
.1

12% Senior Secured Convertible Note due 2011, dated as of
    March 29, 2006, entered into by Covad Communications Group,
    Inc. and Covad Communications Company for the benefit of
    EarthLink, Inc.

8-K

001-32588

4/4/06


99
.14
.2

Registration Rights Agreement, dated as of March 29, 2006,
    by and between Covad Communications Group, Inc. and EarthLink,
    Inc.

8-K

001-32588

4/4/06


99
.34
.3

Indenture, dated as of March 10, 2004 between the
    Registrant and The Bank of New York, as Trustee.

10-Q

000-25271

5/17/04


4
.14
.4

Resale Registration Rights Agreement, dated as of March 10,
    2004 among the Registrant and Banc of America Securities LLC.

10-Q

000-25271

5/17/04


4
.24
.5

Form of Debenture for the Registrants 3% Convertible
    Senior Debentures due 2024.

10-Q

000-25271

5/17/04


4
.34
.6

Stockholder Protection Rights Agreement dated February 15,
    2000.

8-A

000-25271

2/22/00


4
.14
.7

Amended and Restated Stockholder Protection Rights Agreement,
    dated as of November 1, 2001

8-K

000-25271

12/14/01


4
.14
.8

Amendment to Amended and Restated Stockholder Protection Rights
    Agreement, dated as of March 29, 2006, by and between Covad
    Communications Group, Inc. and Mellon Investor Services

8-K

001-32588

4/4/06


99
.54
.9

Second Amendment to Amended and Restated Stockholder Protection
    Rights Agreement, dated as of October 28, 2007, by and
    between Covad Communications Group, Inc. and Mellon Investor
    Services

8-K

001-32588

10/29/07


99
.110
.1

Form of Indemnification Agreement entered into between the
    Registrant and each of the Registrants executive officers
    and directors

S-1

333-63899

9/21/98


10
.110
.2

1998 Employee Stock Purchase Plan and related agreements

10-K

000-25271

3/29/02


10
.210
.3

1997 Stock Plan and related option agreement, as currently in
    effect

10-K

000-25271

3/29/02


10
.310
.4

Resale Agreement dated as of November 12, 2001 by and among
    SBC Communications Inc., Covad Communications Group, Inc., Covad
    Communications Company, DIECA Communications Company and Laser
    Link.net, Inc.

8-K

000-25271

11/14/01


10
.110
.5

Form of Warrant to Purchase Common Stock Issued by the
    Registrant on September 3, 2002 to America Online,
    Inc.

8-K

000-25271

9/5/02


99
.110
.6

Form of Warrant to Purchase Common Stock Issued by the
    Registrant on January 1, 2003 to AT&T Corp.

8-K

000-25271

1/7/03


99
.110
.7

Covad Communications Group, Inc., 2003 Employee Stock Purchase
    Plan, as amended and restated.

8-K

001-32588

12/13/07


10
.110
.8

Covad Communications Group, Inc. Executive Severance Plan and
    Summary Plan Description

8-K

000-25271

10/6/04


10
.1 130




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##### Table of Contents



Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith10
.9

Letter Agreement between Covad Communications and Charles
    Hoffman dated May 29, 2001.

10-K

000-25271

2/27/04


10
.4110
.10

Lease Agreement for 110 Rio Robles, San Jose, California,
    between Covad Communications and CarrAmerica Realty Corporation
    dated August 6, 2003.

10-K

000-25271

2/27/04


10
.4210
.11

First Amendment to Lease by and between Covad Communications
    Company and CarrAmerica Realty Operating Partnership, L.P. dated
    July 27, 2005.

8-K

001-32588

8/1/05


10
.110
.12

Transition Agreement between Covad Communications Group, Inc.
    and Andrew Lockwood

8-K

001-32588

12/15/05


10
.210
.13

Covad Communications 2006 Bonus Plan

8-K

001-32588

3/8/06


10
.110
.14

Purchase Agreement, dated as of March 15, 2006, by and
    among Covad Communications Group, Inc., Covad Communications
    Company and EarthLink, Inc.

8-K

001-32588

3/17/06


99
.110
.15

Security Agreement, dated as of March 29, 2006, by and
    among Covad Communications Group, Inc., Covad Communications
    Company and EarthLink, Inc.

8-K

001-32588

4/4/06


99
.210
.16

Agreement for XGDSL Services, dated as of March 29, 2006,
    by and between Covad Communications Company and EarthLink,
    Inc.

8-K

001-32588

4/4/06


99
.410
.17

Loan and Security Agreement, dated as of April 13, 2006,
    between Covad Communications Group, Inc., Covad Communications
    Company and Silicon Valley Bank

8-K

001-32588

4/18/06


10
.110
.18

Indemnification Agreement between Covad Communications Group,
    Inc. and Robert Neumeister

8-K

001-32588

4/26/06


10
.110
.19

Change in Control Agreement between Covad Communications Group,
    Inc. and Patrick Bennett

8-K

001-32588

8/1/06


10
.110
.20

Indemnification Agreement between Covad Communications Group,
    Inc. and Diana Leonard

8-K

001-32588

12/12/06


10
.110
.21

Covad Communications 2007 Executive Short Term Incentive Plan

8-K

001-32588

1/9/07


10
.110
.22

Indemnification Agreement between Covad Communications Group,
    Inc. and Justin Spencer

8-K

001-32588

4/17/07


10
.110
.23

Amendment No. 2 to Loan and Security Agreement

8-K

001-32588

4/26/07


10
.110
.24

Covad Communications Group, Inc. Form of Indemnification
    Agreement

10-Q

001-32588

11/2/07


10
.110
.25

Transition Agreement between Covad Communications Group, Inc.
    and James Kirkland

8-K

001-32588

9/11/07


10
.110
.26

Covad Communications Group, Inc. 2007 Equity Incentive Plan, as
    amended

8-K

001-32588

9/11/07


10
.210
.27

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Stock Option Grant and Stock Option Award Agreement

8-K

001-32588

6/12/07


10
.210
.28

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Restricted Stock Award and Restricted Share
    Agreement

8-K

001-32588

6/12/07


10
.310
.29

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Stock Bonus Award

8-K

001-32588

6/12/07


10
.4 131




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##### Table of Contents



Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith10
.30

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Restricted Stock Unit Award and Award Agreement

8-K

001-32588

6/12/07


10
.510
.31

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Stock Appreciation Right Award and Award Agreement

8-K

001-32588

6/12/07


10
.610
.32

Covad Communications Group, Inc. Executive Severance Plan and
    Summary Plan Description

8-K

001-32588

9/11/07


10
.310
.33

Change of Control Agreement between Charles E. Hoffman and Covad
    Communications Group, Inc.

8-K

001-32588

9/11/07


10
.410
.34

Form of Change in Control Agreement

8-K

001-32588

9/11/07


10
.510
.35

Covad Communications 2008 Short-Term Incentive Plan

8-K

001-32588

12/26/07


10
.121
.1

Subsidiaries of the Registrant.











X23
.1

Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.











X31
.1

Certification Pursuant to
    Rule 13a-14(a)











X31
.2

Certification Pursuant to
    Rule 13a-14(a)











X32
.1*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002











X32
.2*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002











X     *
    
    These certifications accompany the Registrants Annual
    Report on
    Form 10-K
    and are not deemed filed with the SEC. 132




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##### Table of Contents



SIGNATURES      By:
    /s/  Justin
    Spencer   Justin Spencer
  Senior Vice President and
  Chief Financial Officer
    Signature

Title/s/  (Charles
    E. Hoffman)(Charles
    E. Hoffman)

Chief Executive Officer and Director
    (Principal Executive Officer)/s/  (Justin
    Spencer)(Justin
    Spencer)

Senior Vice President and Chief Financial Officer
    (Principal Financial and Accounting Officer)/s/  Charles
    McMinn(Charles
    McMinn)

Chairman of the Board of Directors/s/  L.
    Dale Crandall(L.
    Dale Crandall)

Director/s/  Diana
    Einterz Leonard(Diana
    Einterz Leonard)

Director/s/  Robert
    M. Neumeister, Jr.(Robert
    M. Neumeister, Jr.)

Director/s/  Larry
    Irving(Larry
    Irving)

Director/s/  Daniel
    Lynch(Daniel
    Lynch)

Director/s/  Richard
    A. Jalkut(Richard
    Jalkut)

Director  133




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##### Table of Contents



EXHIBIT INDEX
  Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith2
.1

Plan: First Amended Plan of Reorganization, as Modified, of
    Covad Communications Group, Inc. dated November 26, 2001

8-K

000-25271

12/28/01


2
.12
.2

Order Pursuant to Section 1129 of the Bankruptcy Code
    Confirming the Debtors First Amended Chapter 11 Plan
    of Reorganization, as Modified

8-K

000-25271

12/28/01


99
.122
.3

Agreement and Plan of Merger, dated as of March 2, 2004,
    among Covad Communications Group, Inc., Covad Communications
    Investment Corp., GoBeam, Inc. and Eduardo Briceno, as
    Representative

8-K

000-25271

5/17/04


2
.12
.4

Agreement and Plan of Merger, dated as of October 4, 2005,
    among Covad Communications Group, Inc., Windtalker Acquisition
    Corp., NextWeb, Inc. and Ghia Griarte as Representative.

8-K

000-25271

10/7/05


2
.12
.5

Agreement and Plan of Merger, dated as of October 28, 2007,
    by and among Covad Communications Group, Inc., CCGI Holding
    Corporation and CCGI Merger Corporation.

8-K

001-32588

10/29/07


2
.13
.1

Amended and Restated Certificate of Incorporation

S-1/A

333-38688

7/17/00


3
.23
.2

Certificate of Amendment of Certificate of Incorporation of the
    Registrant filed on July 14, 2000

S-1/A

333-38688

7/17/00


3
.53
.3

Certificate of Amendment of Certificate of Incorporation of the
    Registrant filed on December 20, 2001.

10-K

000-25271

3/29/02


3
.33
.4

Amended and Restated Bylaws, as currently in effect

8-K

001-32588

11/2/05


3
.14
.1

12% Senior Secured Convertible Note due 2011, dated as of
    March 29, 2006, entered into by Covad Communications Group,
    Inc. and Covad Communications Company for the benefit of
    EarthLink, Inc.

8-K

001-32588

4/4/06


99
.14
.2

Registration Rights Agreement, dated as of March 29, 2006,
    by and between Covad Communications Group, Inc. and EarthLink,
    Inc.

8-K

001-32588

4/4/06


99
.34
.3

Indenture, dated as of March 10, 2004 between the
    Registrant and The Bank of New York, as Trustee.

10-Q

000-25271

5/17/04


4
.14
.4

Resale Registration Rights Agreement, dated as of March 10,
    2004 among the Registrant and Banc of America Securities LLC.

10-Q

000-25271

5/17/04


4
.24
.5

Form of Debenture for the Registrants 3% Convertible
    Senior Debentures due 2024.

10-Q

000-25271

5/17/04


4
.34
.6

Stockholder Protection Rights Agreement dated February 15,
    2000.

8-A

000-25271

2/22/00


4
.14
.7

Amended and Restated Stockholder Protection Rights Agreement,
    dated as of November 1, 2001

8-K

000-25271

12/14/01


4
.14
.8

Amendment to Amended and Restated Stockholder Protection Rights
    Agreement, dated as of March 29, 2006, by and between Covad
    Communications Group, Inc. and Mellon Investor Services

8-K

001-32588

4/4/06


99
.5 134




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##### Table of Contents



Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith4
.9

Second Amendment to Amended and Restated Stockholder Protection
    Rights Agreement, dated as of October 28, 2007, by and
    between Covad Communications Group, Inc. and Mellon Investor
    Services

8-K

001-32588

10/29/07


99
.110
.1

Form of Indemnification Agreement entered into between the
    Registrant and each of the Registrants executive officers
    and directors

S-1

333-63899

9/21/98


10
.110
.2

1998 Employee Stock Purchase Plan and related agreements

10-K

000-25271

3/29/02


10
.210
.3

1997 Stock Plan and related option agreement, as currently in
    effect

10-K

000-25271

3/29/02


10
.310
.4

Resale Agreement dated as of November 12, 2001 by and among
    SBC Communications Inc., Covad Communications Group, Inc., Covad
    Communications Company, DIECA Communications Company and Laser
    Link.net, Inc.

8-K

000-25271

11/14/01


10
.110
.5

Form of Warrant to Purchase Common Stock Issued by the
    Registrant on September 3, 2002 to America Online,
    Inc.

8-K

000-25271

9/5/02


99
.110
.6

Form of Warrant to Purchase Common Stock Issued by the
    Registrant on January 1, 2003 to AT&T Corp.

8-K

000-25271

1/7/03


99
.110
.7

Covad Communications Group, Inc., 2003 Employee Stock Purchase
    Plan, as amended and restated.

8-K

001-32588

12/13/07


10
.110
.8

Covad Communications Group, Inc. Executive Severance Plan and
    Summary Plan Description

8-K

000-25271

10/6/04


10
.110
.9

Letter Agreement between Covad Communications and Charles
    Hoffman dated May 29, 2001.

10-K

000-25271

2/27/04


10
.4110
.10

Lease Agreement for 110 Rio Robles, San Jose, California,
    between Covad Communications and CarrAmerica Realty Corporation
    dated August 6, 2003.

10-K

000-25271

2/27/04


10
.4210
.11

First Amendment to Lease by and between Covad Communications
    Company and CarrAmerica Realty Operating Partnership, L.P. dated
    July 27, 2005.

8-K

001-32588

8/1/05


10
.110
.12

Transition Agreement between Covad Communications Group, Inc.
    and Andrew Lockwood

8-K

001-32588

12/15/05


10
.210
.13

Covad Communications 2006 Bonus Plan

8-K

001-32588

3/8/06


10
.110
.14

Purchase Agreement, dated as of March 15, 2006, by and
    among Covad Communications Group, Inc., Covad Communications
    Company and EarthLink, Inc.

8-K

001-32588

3/17/06


99
.110
.15

Security Agreement, dated as of March 29, 2006, by and
    among Covad Communications Group, Inc., Covad Communications
    Company and EarthLink, Inc.

8-K

001-32588

4/4/06


99
.210
.16

Agreement for XGDSL Services, dated as of March 29, 2006,
    by and between Covad Communications Company and EarthLink,
    Inc.

8-K

001-32588

4/4/06


99
.410
.17

Loan and Security Agreement, dated as of April 13, 2006,
    between Covad Communications Group, Inc., Covad Communications
    Company and Silicon Valley Bank

8-K

001-32588

4/18/06


10
.1 135




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith10
.18

Indemnification Agreement between Covad Communications Group,
    Inc. and Robert Neumeister

8-K

001-32588

4/26/06


10
.110
.19

Change in Control Agreement between Covad Communications Group,
    Inc. and Patrick Bennett

8-K

001-32588

8/1/06


10
.110
.20

Indemnification Agreement between Covad Communications Group,
    Inc. and Diana Leonard

8-K

001-32588

12/12/06


10
.110
.21

Covad Communications 2007 Executive Short Term Incentive Plan

8-K

001-32588

1/9/07


10
.110
.22

Indemnification Agreement between Covad Communications Group,
    Inc. and Justin Spencer

8-K

001-32588

4/17/07


10
.110
.23

Amendment No. 2 to Loan and Security Agreement

8-K

001-32588

4/26/07


10
.110
.24

Covad Communications Group, Inc. Form of Indemnification
    Agreement

10-Q

001-32588

11/2/07


10
.110
.25

Transition Agreement between Covad Communications Group, Inc.
    and James Kirkland

8-K

001-32588

9/11/07


10
.110
.26

Covad Communications Group, Inc. 2007 Equity Incentive Plan, as
    amended

8-K

001-32588

9/11/07


10
.210
.27

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Stock Option Grant and Stock Option Award Agreement

8-K

001-32588

6/12/07


10
.210
.28

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Restricted Stock Award and Restricted Share
    Agreement

8-K

001-32588

6/12/07


10
.310
.29

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Stock Bonus Award

8-K

001-32588

6/12/07


10
.410
.30

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Restricted Stock Unit Award and Award Agreement

8-K

001-32588

6/12/07


10
.510
.31

Covad Communications Group, Inc 2007 Equity Incentive Plan-Form
    of Notice of Stock Appreciation Right Award and Award Agreement

8-K

001-32588

6/12/07


10
.610
.32

Covad Communications Group, Inc. Executive Severance Plan and
    Summary Plan Description

8-K

001-32588

9/11/07


10
.310
.33

Change of Control Agreement between Charles E. Hoffman and Covad
    Communications Group, Inc.

8-K

001-32588

9/11/07


10
.410
.34

Form of Change in Control Agreement

8-K

001-32588

9/11/07


10
.510
.35

Covad Communications 2008 Short-Term Incentive Plan

8-K

001-32588

12/26/07


10
.121
.1

Subsidiaries of the Registrant.











X23
.1

Consent of PricewaterhouseCoopers LLP, Independent Registered
    Public Accounting Firm.











X31
.1

Certification Pursuant to
    Rule 13a-14(a)











X31
.2

Certification Pursuant to
    Rule 13a-14(a)











X 136




---



##### Table of Contents



Incorporated by ReferenceExhibit







Date of

Exhibit

FiledNumber

Exhibit Description

Form

File No.

First Filing

Number

Herewith32
.1*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002











X32
.2*

Certification Pursuant to 18 U.S.C. Section 1350, as
    Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
    of 2002











X     *
    
    These certifications accompany the Registrants Annual
    Report on
    Form 10-K
    and are not deemed filed with the SEC. 137