Document:

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                                                                    EXHIBIT 10.2

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                                   $40,000,000

                              DEMAND LOAN AGREEMENT

                                      among

                      BLUESTAR COMMUNICATIONS GROUP, INC.,
                                  as Borrower,

                                       and

                      BEAR STEARNS CORPORATE LENDING INC.,
                                    as Lender

                            Dated as of June 15, 2000

================================================================================

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<TABLE>
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                                                          TABLE OF CONTENTS

                                                                                                               PAGE
                                                                                                               ----

<S>      <C>                                                                                                     <C>
SECTION 1.  DEFINITIONS...........................................................................................1
         1.1  Defined Terms.......................................................................................1
         1.2  Other Definitional Provisions.......................................................................9

SECTION 2.  AMOUNT AND TERMS OF DEMAND FACILITY..................................................................10
         2.1  Demand Facility....................................................................................10
         2.2  Procedure for Loan Borrowing.......................................................................10
         2.3  Repayment of Loans.................................................................................10
         2.4  Undrawn Facility Fees..............................................................................10
         2.5  Cash Collateral Account............................................................................10

SECTION 3.  GENERAL PROVISIONS APPLICABLE TO LOANS...............................................................11
         3.1  Optional Prepayments...............................................................................11
         3.2  Conversion and Continuation Options................................................................11
         3.3  Interest Rates and Payment Dates...................................................................11
         3.4  Computation of Interest and Fees...................................................................12
         3.5  Inability to Determine Interest Rate...............................................................12
         3.6  Payments...........................................................................................12
         3.7  Taxes..............................................................................................13
         3.8  Indemnity..........................................................................................13
         3.9  Evidence of Debt...................................................................................14

SECTION 4.  REPRESENTATIONS AND WARRANTIES.......................................................................14
         4.1  Financial Condition................................................................................14
         4.2  No Change..........................................................................................15
         4.3  Corporate Existence; Compliance with Law...........................................................15
         4.4  Corporate Power; Authorization; Enforceable Obligations............................................15
         4.5  No Legal Bar.......................................................................................15
         4.6  Litigation.........................................................................................15
         4.7  No Default.........................................................................................16
         4.8  Ownership of Property; Liens.......................................................................16
         4.9  Intellectual Property..............................................................................16
         4.10  Taxes.............................................................................................16
         4.11  Federal Regulations...............................................................................16
         4.12  ERISA.............................................................................................16
         4.13  Investment Company Act; Other Regulations.........................................................17
         4.14  Subsidiaries......................................................................................17
         4.15  Use of Proceeds...................................................................................17
         4.16  Environmental Matters.............................................................................17
         4.17  Accuracy of Information, etc......................................................................18
         4.18  Security Documents................................................................................18
         4.19  Solvency..........................................................................................18
         4.20  Certain Documents.................................................................................19
         4.21  BlueStar Networks of Virginia, Inc................................................................19
         4.22  Post-Closing Requirements.........................................................................19
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<S>      <C>                                                                                                      <C>
SECTION 5.  CONDITIONS PRECEDENT.................................................................................19
         5.1  Conditions to Initial Extension of Credit..........................................................19
         5.2  Conditions to Each Extension of Credit.............................................................21

SECTION 6.  AFFIRMATIVE COVENANTS................................................................................21
         6.1  Financial Statements...............................................................................22
         6.2  Certificates; Other Information....................................................................22
         6.3  Payment of Obligations.............................................................................23
         6.4  Maintenance of Existence; Compliance...............................................................23
         6.5  Maintenance of Property; Insurance.................................................................24
         6.6  Inspection of Property; Books and Records; Discussions.............................................24
         6.7  Notices............................................................................................24
         6.8  Environmental Laws.................................................................................24
         6.9  Additional Collateral, etc.........................................................................25
         6.10 BlueStar Networks, Inc.............................................................................25
         6.11 BlueStar Communications of the Southeast, Inc......................................................25

SECTION 7.  NEGATIVE COVENANTS...................................................................................25
         7.1  Merger Agreement Covenants.........................................................................26
         7.2  Fundamental Changes................................................................................26
         7.3  Optional Payments and Modifications of Certain Debt Instruments....................................26
         7.4  Transactions with Affiliates.......................................................................26
         7.5  Negative Pledge Clauses............................................................................26
         7.6  Amendments to Merger Agreement.....................................................................26
         7.7  Cash and Cash Equivalents..........................................................................26
         7.8  BlueStar Networks of Virginia, Inc.................................................................27

SECTION 8.  MISCELLANEOUS........................................................................................27
         8.1  Amendments and Waivers.............................................................................27
         8.2  Notices............................................................................................27
         8.3  No Waiver; Cumulative Remedies.....................................................................27
         8.4  Survival of Representations and Warranties.........................................................28
         8.5  Payment of Expenses and Taxes......................................................................28
         8.6  Successors and Assigns; Participations and Assignments.............................................29
         8.7  Set-off............................................................................................29
         8.8  Counterparts.......................................................................................30
         8.9  Severability.......................................................................................30
         8.10  Integration.......................................................................................30
         8.11  GOVERNING LAWS....................................................................................30
         8.12  Submission To Jurisdiction; Waivers...............................................................30
         8.13  Acknowledgments...................................................................................31
         8.14  Releases of Guarantees and Liens..................................................................31
         8.15  Confidentiality.  ................................................................................31
         8.16  WAIVERS OF JURY TRIAL.  ..........................................................................31
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<TABLE>
<S>                   <C>
SCHEDULES:
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4.4                   Consents, Authorizations, Filings and Notices
4.14                  Subsidiaries
4.18                  UCC Filing Jurisdictions

EXHIBITS:
--------

A                     Form of Guarantee and Collateral Agreement
B                     Form of Closing Certificate
C                     Form of Borrowing Notice
D-1                   Form of Deposit Account Control Agreement (Bear, Stearns & Co. Inc.)
D-2                   Form of Deposit Account Control Agreement (AmSouth Bank Collateral Account)
D-3                   Form of Deposit Account Control Agreement (AmSouth Bank Demand Deposit Account)
E-1                   Form of Legal Opinion of Brobeck Phleger & Harrison LLP, New York and Delaware counsel to
                      the Loan Parties
E-2                   Form of Legal Opinion of Wyatt Tarrant & Combs, Tennessee counsel to the Loan Parties
</TABLE>

                                     - iii -

<PAGE>
                  DEMAND LOAN AGREEMENT, dated as of June 15, 2000, among
BLUESTAR COMMUNICATIONS GROUP, INC., a Delaware corporation (the "BORROWER"),
and BEAR STEARNS CORPORATE LENDING INC., as lender (the "LENDER").

                  The parties hereto hereby agree as follows:

                                       SECTION 1.  DEFINITIONS

                  1.1  DEFINED TERMS.  As used in this Agreement, the terms
listed in this Section 1.1 shall have the respective meanings set forth in this
Section 1.1.

                  "AFFILIATE": as to any Person, any other Person that, directly
or indirectly, is in control of, is controlled by, or is under common control
with, such Person. For purposes of this definition, "control" of a Person means
the power, directly or indirectly, either to (a) vote 10% or more of the
securities having ordinary voting power for the election of directors (or
persons performing similar functions) of such Person or (b) direct or cause the
direction of the management and policies of such Person, whether by contract or
otherwise.

                  "AGREEMENT":  this Demand Loan Agreement, as amended,
supplemented or otherwise modified from time to time.

                  "APPLICABLE MARGIN":  for each Type of Loan, the rate per
annum set forth under the relevant column heading below:

         BASE RATE LOANS                                      EURODOLLAR LOANS
         ---------------                                      ----------------
             6.00%                                                 7.00%

                  "ASSIGNEE":  as defined in Section 8.6(c).

                  "BASE RATE": for any day, a rate per annum (rounded upwards,
if necessary, to the next 1/16 of 1%) equal to the Prime Rate in effect on such
day. For purposes hereof: "PRIME RATE" shall mean the rate of interest per annum
publicly announced from time to time by Citibank, N.A. as its prime rate in
effect at its principal office in New York City (the Prime Rate not being
intended to be the lowest rate of interest charged by Citibank, N.A. in
connection with extensions of credit to debtors). Any change in the Base Rate
due to a change in the Prime Rate shall be effective as of the opening of
business on the effective day of such change in the Prime Rate.

                  "BASE RATE LOANS":  Loans the rate of interest applicable to
which is based upon the Base Rate.

                  "BOARD":  the Board of Governors of the Federal Reserve System
of the United States (or any successor).

                  "BORROWER":  as defined in the preamble to this Agreement.

                  "BORROWING DATE":  any Business Day specified by the Borrower
as a date on which the Borrower requests the Lender to make Loans hereunder and
on which all conditions precedent thereto have been satisfied.

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                                                                               2

                  "BORROWING NOTICE": a notice delivered to the Lender by the
Borrower pursuant to Section 2.2 substantially in the form of Exhibit C
specifying in addition to the requirements described in Section 2.2, the
proposed use of the Loans to be borrowed, which shall be accompanied by a
certificate of the Chief Financial Officer of the Borrower setting forth the
then-current financial condition of the Borrower and such other financial and
operational data as may be requested by the Lender and, in each case,
demonstrating the absence of any event or condition which could reasonably be
expected to have a Material Adverse Effect in reasonable detail and in form and
substance satisfactory to the Lender.

                  "BUSINESS":  as defined in Section 4.16(b).

                  "BUSINESS DAY": a day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required by law
to close, PROVIDED, that with respect to notices and determinations in
connection with, and payments of principal and interest on, Eurodollar Loans,
such day is also a day for trading by and between banks in Dollar deposits in
the interbank eurodollar market.

                  "CAPITAL LEASE OBLIGATIONS": as to any Person, the obligations
of such Person to pay rent or other amounts under any lease of (or other
arrangement conveying the right to use) real or personal property, or a
combination thereof, which obligations are required to be classified and
accounted for as capital leases on a balance sheet of such Person under GAAP
and, for the purposes of this Agreement, the amount of such obligations at any
time shall be the capitalized amount thereof at such time determined in
accordance with GAAP.

                  "CAPITAL STOCK": any and all shares, interests, participations
or other equivalents (however designated) of capital stock of a corporation, any
and all equivalent ownership interests in a Person (other than a corporation)
and any and all warrants, rights or options to purchase any of the foregoing.

                  "CASH COLLATERAL ACCOUNT":  as defined in Section 2.5.

                  "CASH EQUIVALENTS": (a) marketable direct obligations issued
by, or unconditionally guaranteed by, the United States Government or issued by
any agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition; (b)
certificates of deposit, time deposits, eurodollar time deposits or overnight
bank deposits having maturities of six months or less from the date of
acquisition issued by the Lender or by any commercial bank organized under the
laws of the United States or any state thereof having combined capital and
surplus of not less than $500,000,000; (c) commercial paper of an issuer rated
at least A-1 by Standard & Poor's Ratings Services ("S&P") or P-1 by Moody's
Investors Service, Inc. ("MOODY'S"), or carrying an equivalent rating by a
nationally recognized rating agency, if both of the two named rating agencies
cease publishing ratings of commercial paper issuers generally, and maturing
within six months from the date of acquisition; (d) repurchase obligations of
the Lender or of any commercial bank satisfying the requirements of clause (b)
of this definition, having a term of not more than 30 days, with respect to
securities issued or fully guaranteed or insured by the United States
government; (e) securities with maturities of one year or less from the date of
acquisition issued or fully guaranteed by any state, commonwealth or territory
of the United States, by any political subdivision or taxing authority of any
such state, commonwealth or territory or by any foreign government, the
securities of which state, commonwealth, territory, political subdivision,
taxing authority or foreign government (as the case may be) are rated at least A
by S&P or A by Moody's; (f) securities with maturities of six months or less
from the date of acquisition backed by standby letters of credit issued by the
Lender or any commercial bank satisfying the requirements of clause (b) of this
definition; or (g) shares of money market mutual or similar funds which invest
exclusively in assets satisfying the requirements of clauses (a) through (f) of
this definition.

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                                                                               3

                  "CLOSING DATE":  the date on which the conditions precedent
set forth in Section 5.1 shall have been satisfied.

                  "CODE":  the Internal Revenue Code of 1986, as amended from
time to time.

                  "COLLATERAL":  all property of the Loan Parties, now owned or
hereafter acquired, upon which a Lien is purported to be created by any Security
Document.

                  "COMMONLY CONTROLLED ENTITY": an entity, whether or not
incorporated, that is under common control with the Borrower within the meaning
of Section 4001 of ERISA or is part of a group that includes the Borrower and
that is treated as a single employer under Section 414 of the Code.

                  "CONTRACTUAL OBLIGATION":  as to any Person, any provision of
any security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.

                  "DEMAND FACILITY":  the obligation of the Lender to make Loans
to the Borrower hereunder in an aggregate principal amount not to exceed
$40,000,000.

                  "DEMAND FACILITY PERIOD": the period from and including the
Closing Date to a date determined by the Lender in its sole discretion or the
date which is the earliest of: (a) termination of the Demand Facility by the
Lender, (b) the date of commencement by or against the Borrower or any of its
subsidiaries of any bankruptcy proceedings, (c) the termination of the Merger
Agreement in accordance with its terms, and (d) the consummation of the merger
in accordance with the terms of the Merger Agreement, PROVIDED that in no event
shall the Demand Facility Period extend past the date which is six months after
the Closing Date.

                  "DEPOSIT ACCOUNT CONTROL AGREEMENTS": a collective reference
to (i) the Deposit Account Control Agreement, dated as of June 21, 2000, between
the Borrower, the Lender and Bear, Stearns & Co., Inc., substantially in the
form of Exhibit D-1 (the "BEAR STEARS DEPOSIT ACCOUNT CONTROL AGREEMENT"), (ii)
the Deposit Account Control Agreement, dated as of June 21, 2000, between the
Borrower, the Lender and AmSouth Bank, Nashville, Tennessee, substantially in
the form of Exhibit D-2 and (iii) the Deposit Account Control Agreement, dated
as of June 21, 2000, between the Borrower, the Lender and AmSouth Bank,
Nashville, Tennessee, substantially in the form of Exhibit D-3.

                  "DISPOSITION":  with respect to any Property, any sale, lease,
sale and leaseback, assignment, conveyance, transfer or other disposition
thereof.  The terms "DISPOSE" and "DISPOSED OF" shall have correlative meanings.

                  "DOLLARS" and "$": dollars in lawful currency of the United
States.

                  "DOMESTIC SUBSIDIARY":  any Subsidiary of the Borrower
organized under the laws of any jurisdiction within the United States.

                  "ENVIRONMENTAL LAWS": any and all foreign, Federal, state,
local or municipal laws, rules, orders, regulations, statutes, ordinances,
codes, decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability or
standards of conduct concerning protection of human health or the environment,
as now or may at any time hereafter be in effect.

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                                                                               4

                  "ERISA":  the Employee Retirement Income Security Act of 1974,
as amended from time to time.

                  "EUROCURRENCY RESERVE REQUIREMENTS": for any day as applied to
a Eurodollar Loan, the aggregate (without duplication) of the maximum rates
(expressed as a decimal fraction) of reserve requirements in effect on such day
(including basic, supplemental, marginal and emergency reserves under any
regulations of the Board or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
eurocurrency funding (currently referred to as "Eurocurrency Liabilities" in
Regulation D of the Board) maintained by a member bank of the Federal Reserve
System.

                  "EURODOLLAR BASE RATE": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, the rate per annum determined
on the basis of the rate for one month deposits in Dollars commencing on the
first day of such Interest Period appearing on Page 3750 of the Dow Jones
Markets screen as of 11:00 A.M., London time, two Business Days prior to the
beginning of such Interest Period. In the event that such rate does not appear
on Page 3750 of the Dow Jones Markets screen (or otherwise on such screen), the
"EURODOLLAR BASE RATE" shall be determined by reference to such other comparable
publicly available service for displaying eurodollar rates as may be selected by
the Lender.

                  "EURODOLLAR LOANS":  Loans the rate of interest applicable to
which is based upon the Eurodollar Rate.

                  "EURODOLLAR RATE": with respect to each day during each
Interest Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the nearest
1/100th of 1%):

                              Eurodollar Base Rate
                              --------------------
                    1.00 - Eurocurrency Reserve Requirements

                  "EXISTING DEBT DOCUMENTS": the collective reference to all
agreements related to Indebtedness (or unfunded commitments in respect thereof)
of the Borrower as of the Closing Date, including all amendments, modifications
and side letters relating thereto.

                  "GAAP":  generally accepted accounting principles in the
United States as in effect from time to time.

                  "GOVERNMENTAL AUTHORITY": any nation or government, any state
or other political subdivision thereof, any agency, authority, instrumentality,
regulatory body, court, central bank or other entity exercising executive,
legislative, judicial, taxing, regulatory or administrative functions of or
pertaining to government, any securities exchange and any self-regulatory
organization (including the National Association of Insurance Commissioners).

                  "GUARANTEE AND COLLATERAL AGREEMENT": the Guarantee and
Collateral Agreement to be executed and delivered by the Borrower and each
Subsidiary Guarantor, substantially in the form of Exhibit A, as the same may be
amended, supplemented or otherwise modified from time to time.

                  "GUARANTEE OBLIGATION": as to any Person (the "GUARANTEEING
PERSON"), any obligation of (a) the guaranteeing person or (b) another Person
(including any bank under any letter of credit) to induce the creation of which
the guaranteeing person has issued a reimbursement, counterindemnity or similar

<PAGE>
                                                                               5

obligation, in either case guaranteeing or in effect guaranteeing any
Indebtedness, leases, dividends or other obligations (the "PRIMARY OBLIGATIONS")
of any other third Person (the "PRIMARY OBLIGOR") in any manner, whether
directly or indirectly, including any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or any
property constituting direct or indirect security therefor, (ii) to advance or
supply funds (1) for the purchase or payment of any such primary obligation or
(2) to maintain working capital or equity capital of the primary obligor or
otherwise to maintain the net worth or solvency of the primary obligor, (iii) to
purchase property, securities or services primarily for the purpose of assuring
the owner of any such primary obligation of the ability of the primary obligor
to make payment of such primary obligation or (iv) otherwise to assure or hold
harmless the owner of any such primary obligation against loss in respect
thereof; PROVIDED, HOWEVER, that the term Guarantee Obligation shall not include
endorsements of instruments for deposit or collection in the ordinary course of
business. The amount of any Guarantee Obligation of any guaranteeing person
shall be deemed to be the lower of (a) an amount equal to the stated or
determinable amount of the primary obligation in respect of which such Guarantee
Obligation is made and (b) the maximum amount for which such guaranteeing person
may be liable pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which such
guaranteeing person may be liable are not stated or determinable, in which case
the amount of such Guarantee Obligation shall be such guaranteeing person's
maximum reasonably anticipated liability in respect thereof as determined by the
Borrower in good faith.

                  "HEDGE AGREEMENTS": all interest rate swaps, caps or collar
agreements or similar arrangements dealing with interest rates or currency
exchange rates or the exchange of nominal interest obligations, either generally
or under specific contingencies.

                  "INDEBTEDNESS": of any Person at any date, without
duplication, (a) all indebtedness of such Person for borrowed money, (b) all
obligations of such Person for the deferred purchase price of property or
services (other than current trade payables incurred in the ordinary course of
such Person's business), (c) all obligations of such Person evidenced by notes,
bonds, debentures or other similar instruments, (d) all indebtedness created or
arising under any conditional sale or other title retention agreement with
respect to property acquired by such Person (even though the rights and remedies
of the seller or lender under such agreement in the event of default are limited
to repossession or sale of such property), (e) all Capital Lease Obligations of
such Person, (f) all obligations of such Person, contingent or otherwise, as an
account party or applicant under or in respect of acceptances, letters of
credit, surety bonds or similar arrangements, (g) the liquidation value of all
redeemable preferred Capital Stock of such Person, (h) all Guarantee Obligations
of such Person in respect of obligations of the kind referred to in clauses (a)
through (g) above, and (i) all obligations of the kind referred to in clauses
(a) through (h) above secured by (or for which the holder of such obligation has
an existing right, contingent or otherwise, to be secured by) any Lien on
property (including accounts and contract rights) owned by such Person, whether
or not such Person has assumed or become liable for the payment of such
obligation. The Indebtedness of any Person shall include the Indebtedness of any
other entity (including any partnership in which such Person is a general
partner) to the extent such Person is liable therefor as a result of such
Person's ownership interest in or other relationship with such entity, except to
the extent the terms of such Indebtedness expressly provide that such Person is
not liable therefor.

                  "INSOLVENCY":  with respect to any Multiemployer Plan, the
condition that such Plan is insolvent within the meaning of Section 4245 of
ERISA.

                  "INSOLVENT":  pertaining to a condition of Insolvency.

<PAGE>
                                                                               6

                  "INTELLECTUAL PROPERTY": the collective reference to all
rights, priorities and privileges relating to intellectual property, whether
arising under United States, multinational or foreign laws or otherwise,
including copyrights, copyright licenses, patents, patent licenses, trademarks,
trademark licenses, technology, know-how and processes, and all rights to sue at
law or in equity for any infringement or other impairment thereof, including the
right to receive all proceeds and damages therefrom.

                  "INTEREST PAYMENT DATE": (a) as to any Base Rate Loan, the
last day of each calendar month to occur while such Loan is outstanding and the
final maturity date of such Loan, (b) as to any Eurodollar Loan, the last day of
such Interest Period, and (c) as to any Loan, the date of any repayment or
prepayment made in respect thereof.

                  "INTEREST PERIOD": as to any Eurodollar Loan, (a) initially,
the period commencing on the borrowing or conversion date, as the case may be,
with respect to such Eurodollar Loan and ending one month thereafter; and (b)
thereafter, each period commencing on the last day of the next preceding
Interest Period applicable to such Eurodollar Loan and ending one month
thereafter; PROVIDED that, all of the foregoing provisions relating to Interest
Periods are subject to the following:

                           (i) if any Interest Period would otherwise end on a
         day that is not a Business Day, such Interest Period shall be extended
         to the next succeeding Business Day unless the result of such extension
         would be to carry such Interest Period into another calendar month in
         which event such Interest Period shall end on the immediately preceding
         Business Day;

                           (ii)  the Borrower may not select an Interest Period
         that would extend beyond December 15, 2000;

                           (iii) any Interest Period that begins on the last
         Business Day of a calendar month (or on a day for which there is no
         numerically corresponding day in the calendar month at the end of such
         Interest Period) shall end on the last Business Day of a calendar
         month; and

                           (iv) the Borrower shall select Interest Periods so as
         not to require a payment or prepayment of any Eurodollar Loan during an
         Interest Period for such Loan.

                  "LENDER":  as defined in the preamble hereto.

                  "LIEN": any mortgage, pledge, hypothecation, assignment,
deposit arrangement, encumbrance, lien (statutory or other), charge or other
security interest or any preference, priority or other security agreement or
preferential arrangement of any kind or nature whatsoever (including any
conditional sale or other title retention agreement and any capital lease having
substantially the same economic effect as any of the foregoing).

                  "LOAN":  as defined in Section 2.1.

                  "LOAN DOCUMENTS":  this Agreement and the Security Documents.

                  "LOAN PARTIES":  the Borrower and each Subsidiary of the
Borrower that is a party to a Loan Document.

                  "MATERIAL ADVERSE EFFECT": a material adverse effect on (a)
the business, property, operations, condition (financial or otherwise), results
of operations or prospects of the Borrower and its Subsidiaries taken as a
whole, in light of the Borrower's circumstances as of the Closing Date or (b)
the

<PAGE>
                                                                               7

validity or enforceability of this Agreement or any of the other Loan
Documents or the rights or remedies of the Lender hereunder or thereunder.

                  "MATERIALS OF ENVIRONMENTAL CONCERN": any gasoline or
petroleum (including crude oil or any fraction thereof) or petroleum products or
any hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including asbestos, polychlorinated
biphenyls and urea-formaldehyde insulation.

                  "MERGER AGREEMENT": the Agreement and Plan of Merger and
Reorganization, dated as of June 15, 2000, among Covad Communications Group,
Inc., Covad Acquisition Corporation and BlueStar Communications Group, Inc., as
the same may be amended or modified pursuant to Section 7.6.

                  "MULTIEMPLOYER PLAN":  a Plan that is a Multiemployer plan as
defined in Section 4001(a)(3) of ERISA.

                  "NON-EXCLUDED TAXES":  as defined in Section 3.7(a).

                  "NON-U.S. LENDER":  as defined in Section 3.7(d).

                  "OBLIGATIONS": the unpaid principal of and interest on
(including interest accruing after the maturity of the Loans and interest
accruing after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to the Borrower,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding) the Loans and all other obligations and liabilities of the
Borrower to the Lender, whether direct or indirect, absolute or contingent, due
or to become due, or now existing or hereafter incurred, which may arise under,
out of, or in connection with, this Agreement, any other Loan Document or any
other document made, delivered or given in connection herewith or therewith,
whether on account of principal, interest, reimbursement obligations, fees,
indemnities, costs, expenses (including all fees, charges and disbursements of
counsel to the Lender that are required to be paid by the Borrower pursuant
hereto) or otherwise.

                  "OTHER TAXES": any and all present or future stamp or
documentary taxes or any other excise or property taxes, charges or similar
levies arising from any payment made hereunder or from the execution, delivery
or enforcement of, or otherwise with respect to, this Agreement or any other
Loan Document.

                  "PARTICIPANT":  as defined in Section 8.6(b).

                  "PBGC":  the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA (or any successor).

                  "PERSON":  an individual, partnership, corporation, limited
liability company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of whatever
nature.

                  "PLAN": at a particular time, any employee benefit plan that
is covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would under
Section 4069 of ERISA be deemed to be) an "employer" as defined in Section 3(5)
of ERISA.

                  "PRO FORMA BALANCE SHEET":  as defined in Section 4.1(a).

<PAGE>
                                                                               8

                  "PROJECTIONS":  as defined in Section 6.2(b).

                  "PROPERTIES":  as defined in Section 4.16(a).

                  "PROPERTY":  any right or interest in or to property of any
kind whatsoever, whether real, personal or mixed and whether tangible or
intangible, including, without limitation, Capital Stock.

                  "PUT/CALL OPTION AGREEMENT":  the Put/Call Option Agreement,
dated as of June 15, 2000, between the Lender and Covad Communications
Group, Inc.

                  "REGULATION U": Regulation U of the Board as in effect from
time to time.

                  "REORGANIZATION":  with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section 4241
of ERISA.

                  "REPORTABLE EVENT":  any of the events set forth in Section
4043(b) of ERISA, other than those events as to which the thirty day notice
period is waived under subsections .27, .28, .29, .30, .31, .32, .34 or .35 of
PBGC Reg.ss. 4043.

                  "REQUIREMENT OF LAW": as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.

                  "RESPONSIBLE OFFICER":  the chief executive officer, president
or chief financial officer of the Borrower, but in any event, with respect to
financial matters, the chief financial officer of the Borrower.

                  "SEC":  the Securities and Exchange Commission, any successor
thereto and any analogous Governmental Authority.

                  "SECURITY DOCUMENTS": the collective reference to the
Guarantee and Collateral Agreement, the Deposit Account Control Agreements and
all other security documents hereafter delivered to the Lender granting a Lien
on any property of any Person to secure the obligations and liabilities of any
Loan Party under any Loan Document.

                  "SINGLE EMPLOYER PLAN":  any Plan that is covered by Title IV
of ERISA, but that is not a Multiemployer Plan.

                  "SOLVENT": when used with respect to any Person, means that,
as of any date of determination, (a) the amount of the "present fair saleable
value" of the assets of such Person will, as of such date, exceed the amount of
all "liabilities of such Person, contingent or otherwise", as of such date, as
such quoted terms are determined in accordance with applicable federal and state
laws governing determinations of the insolvency of debtors, (b) the present fair
saleable value of the assets of such Person will, as of such date, be greater
than the amount that will be required to pay the liability of such Person on its
debts as such debts become absolute and matured, (c) such Person will not have,
as of such date, an unreasonably small amount of capital with which to conduct
its business, and (d) such Person will be able to pay its debts as they mature.
For purposes of this definition, (i) "debt" means liability on a "claim", and
(ii) "claim" means any (x) right to payment, whether or not such a right is
reduced to judgment, liquidated,

<PAGE>
                                                                               9

unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed,
legal, equitable, secured or unsecured or (y) right to an equitable remedy for
breach of performance if such breach gives rise to a right to payment, whether
or not such right to an equitable remedy is reduced to judgment, fixed,
contingent, matured or unmatured, disputed, undisputed, secured or unsecured.

                  "SUBSIDIARY": as to any Person, a corporation, partnership,
limited liability company or other entity of which shares of stock or other
ownership interests having ordinary voting power (other than stock or such other
ownership interests having such power only by reason of the happening of a
contingency) to elect a majority of the board of directors or other managers of
such corporation, partnership or other entity are at the time owned, or the
management of which is otherwise controlled, directly or indirectly through one
or more intermediaries, or both, by such Person. Unless otherwise qualified, all
references to a "Subsidiary" or to "Subsidiaries" in this Agreement shall refer
to a Subsidiary or Subsidiaries of the Borrower.

                  "SUBSIDIARY GUARANTOR":  each Subsidiary of the Borrower.

                  "TRANSFEREE":  any Assignee or Participant.

                  "TYPE":  as to any Loan, its nature as an Base Rate Loan or a
Eurodollar Loan.

                  "UNITED STATES":  the United States of America.

                  "UNDRAWN FACILITY FEE RATE":  1.5% per annum.

                  "WHOLLY OWNED SUBSIDIARY": as to any Person, any other Person
all of the Capital Stock of which (other than directors' qualifying shares
required by law) is owned by such Person directly and/or through other Wholly
Owned Subsidiaries.

                  "WHOLLY OWNED SUBSIDIARY GUARANTOR":  any Subsidiary Guarantor
that is a Wholly Owned Subsidiary of the Borrower.

                  1.2 OTHER DEFINITIONAL PROVISIONS. (a) Unless otherwise
specified therein, all terms defined in this Agreement shall have the defined
meanings when used in the other Loan Documents or any certificate or other
document made or delivered pursuant hereto or thereto.

                  (b) As used herein and in the other Loan Documents, and any
certificate or other document made or delivered pursuant hereto or thereto, (i)
accounting terms relating to the Borrower and its Subsidiaries not defined in
Section 1.1 and accounting terms partly defined in Section 1.1, to the extent
not defined, shall have the respective meanings given to them under GAAP, (ii)
the words "include", "includes" and "including" shall be deemed to be followed
by the phrase "without limitation", (iii) the word "incur" shall be construed to
mean incur, create, issue, assume, become liable in respect of or suffer to
exist (and the words "incurred" and "incurrence" shall have correlative
meanings), and (iv) the words "asset" and "property" shall be construed to have
the same meaning and effect and to refer to any and all tangible and intangible
assets and properties, including cash, Capital Stock, securities, revenues,
accounts, leasehold interests and contract rights.

                  (c) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement shall refer to this Agreement as a
whole and not to any particular provision of this Agreement, and Section,
Schedule and Exhibit references are to this Agreement unless otherwise
specified.

<PAGE>
                                                                              10

                  (d) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.

                      SECTION 2.  AMOUNT AND TERMS OF DEMAND FACILITY

                  2.1 DEMAND FACILITY. Subject to the terms and conditions
hereof, the Lender may, in its sole discretion, make Loans (each, a "LOAN") to
the Borrower at any time and from time to time during the Demand Facility
Period, in an aggregate amount not to exceed the amount of the Demand Facility.
The Loans may from time to time be Eurodollar Loans or Base Rate Loans, as
determined by the Borrower and notified to the Lender in accordance with
Sections 2.2 and 3.2.

                  2.2 PROCEDURE FOR LOAN BORROWING. Subject to the Borrower's
compliance with the terms and conditions hereof, the Borrower may request to
borrow under the Demand Facility at any time and from time to time during the
Demand Facility Period on any Borrowing Date, but in no event more than once
every two weeks, PROVIDED that the Borrower shall deliver to the Lender an
irrevocable Borrowing Notice (which notice must be received by the Lender prior
to 12:00 Noon, New York City time, three Business Days prior to the requested
Borrowing Date, specifying (i) the amount and Type of Loans to be borrowed, (ii)
the requested Borrowing Date, (iii) in reasonable detail, the use of the
proceeds of all prior borrowings and (iv) in reasonable detail, the intended
uses of the requested borrowing, but in no event may the Borrower submit more
than twelve Borrowing Notices. Each borrowing under the Demand Facility shall be
in an amount equal to (x) in the case of Base Rate Loans, $100,000 or a whole
multiple thereof (or, if the then Demand Facility is less than $100,000, such
lesser amount) and (y) in the case of Eurodollar Loans, $500,000 or a whole
multiple of $100,000 in excess thereof; PROVIDED that the aggregate amount of
each borrowing shall not exceed $5,000,000. Not later than 12:00 Noon, New York
City time, on the Borrowing Date the Lender shall deposit into the Cash
Collateral Account an amount in immediately available funds equal to the
requested Loan.

                  2.3 REPAYMENT OF LOANS. The Borrower unconditionally promises
to pay to the Lender, the Loans on the earliest of: (a) demand by the Lender,
(b) the date of commencement by or against the Borrower or any of its
subsidiaries of any bankruptcy proceedings, (c) the termination of the Merger
Agreement in accordance with its terms, (d) the consummation of the merger
pursuant to the terms of the Merger Agreement or (e) December 15, 2000.

                  2.4 UNDRAWN FACILITY FEES. The Borrower agrees to pay to the
Lender a facility fee for the period from and including the date hereof to the
last day of the Demand Facility Period, computed at the Undrawn Facility Fee
Rate on the average daily amount of the unused amount of the Demand Facility
then in effect during the period for which payment is made, payable in cash
monthly in arrears on the last day of each calendar month.

                  2.5 CASH COLLATERAL ACCOUNT. (a) The Borrower shall establish
and maintain a cash collateral account with the Lender, an affiliate of the
Lender or a banking institution selected by the Lender (the "CASH COLLATERAL
ACCOUNT") pursuant to the Bear Stearns Deposit Account Control Agreement. The
Borrower shall deposit the proceeds of any borrowing in the Cash Collateral
Account to be disbursed in accordance with the terms of the Bear Stearns Deposit
Account Control Agreement.

                      SECTION 3. GENERAL PROVISIONS APPLICABLE TO LOANS
                  3.1 OPTIONAL PREPAYMENTS. The Borrower may at any time and
from time to time prepay the Loans, in whole or in part, without premium or
penalty, upon irrevocable notice delivered to the Lender

<PAGE>
                                                                              11

at least three Business Days prior thereto in the case of Eurodollar Loans and
at least one Business Day prior thereto in the case of Base Rate Loans, which
notice shall specify the date and amount of prepayment and whether the
prepayment is of Eurodollar Loans or Base Rate Loans; PROVIDED, that if a
Eurodollar Loan is prepaid on any day other than the last day of the Interest
Period applicable thereto, the Borrower shall also pay any amounts owing
pursuant to Section 3.8. If any such notice is given, the amount specified in
such notice shall be due and payable on the date specified therein, together
with accrued interest to such date on the amount prepaid. Partial prepayments of
Loans shall be in an aggregate principal amount of $1,000,000 or a whole
multiple thereof. Amounts prepaid on account of the Loans may not be reborrowed.

                  3.2 CONVERSION AND CONTINUATION OPTIONS. (a) The Borrower may
elect from time to time to convert Eurodollar Loans to Base Rate Loans by giving
the Lender at least two Business Days' prior irrevocable notice of such
election, PROVIDED that any such conversion of Eurodollar Loans may only be made
on the last day of an Interest Period with respect thereto. Subject to the
Borrower's compliance with the terms and conditions hereof, the Borrower may
elect from time to time to convert Base Rate Loans to Eurodollar Loans by giving
the Lender at least three Business Days' prior irrevocable notice of such
election (which notice shall specify the length of the initial Interest Period
therefor), PROVIDED that no Base Rate Loan may be converted into a Eurodollar
Loan when the Lender has determined in its sole discretion not to permit such
conversions.

                  (b) Subject to the Borrower's compliance with the terms and
conditions hereof, any Eurodollar Loan may be continued as such upon the
expiration of the then current Interest Period with respect thereto by the
Borrower giving irrevocable notice to the Lender, in accordance with the
applicable provisions of the term "Interest Period" set forth in Section 1.1,
PROVIDED that no Eurodollar Loan may be continued as such when the Lender of
such Facility has determined in its sole discretion not to permit such
continuations, and PROVIDED, FURTHER, that if the Borrower shall fail to give
any required notice as described above in this paragraph or if such continuation
is not permitted pursuant to the preceding proviso such Loans shall be
automatically converted to Base Rate Loans on the last day of such then expiring
Interest Period.

                  3.3 INTEREST RATES AND PAYMENT DATES. (a) Each Eurodollar Loan
shall bear interest for each day during each Interest Period with respect
thereto at a rate per annum equal to the Eurodollar Rate determined for such day
plus the Applicable Margin; PROVIDED that the interest rate for any Eurodollar
Loan shall not be less than 13.0%

                  (b) Each Base Rate Loan shall bear interest at a rate per
annum equal to the Base Rate plus the Applicable Margin; PROVIDED that the
interest rate for any Base Rate Loan shall not be less than 13.0%

                  (c) (i) If all or a portion of the principal amount of any
Loan shall not be paid when due, such overdue amount shall bear interest at a
rate per annum equal to the rate that would otherwise be applicable thereto
pursuant to the foregoing provisions of this Section PLUS 2%, and (ii) if all or
a portion of any interest payable on any Loan or any facility fee or other
amount payable hereunder shall not be paid when due, such overdue amount shall
bear interest at a rate per annum equal to the rate then applicable to Base Rate
Loans PLUS 2%, in each case, with respect to clauses (i) and (ii) above, from
the date of such non-payment until such amount is paid in full (as well after as
before judgment).

                  (d) Interest shall be payable in arrears on each Interest
Payment Date, PROVIDED that interest accruing pursuant to paragraph (c) of this
Section shall be payable from time to time on demand.

<PAGE>
                                                                              12

                  3.4 COMPUTATION OF INTEREST AND FEES. (a) Interest and fees
payable pursuant hereto shall be calculated on the basis of a 360-day year for
the actual days elapsed, except that, with respect to Base Rate Loans, the
interest thereon shall be calculated on the basis of a 365- day year for the
actual days elapsed. The Lender shall as soon as practicable notify the Borrower
of each determination of a Eurodollar Rate. Any change in the interest rate on a
Loan resulting from a change in the Base Rate or the Eurocurrency Reserve
Requirements shall become effective as of the opening of business on the day on
which such change becomes effective. The Lender shall as soon as practicable
notify the Borrower of the effective date and the amount of each such change in
interest rate.

                  (b) Each determination of an interest rate by the Lender
pursuant to any provision of this Agreement shall be conclusive and binding on
the Borrower in the absence of manifest error.

                  3.5  INABILITY TO DETERMINE INTEREST RATE.  If prior to the
first day of any Interest Period:

                  (a) the Lender shall have determined (which determination
         shall be conclusive and binding upon the Borrower) that, by reason of
         circumstances affecting the relevant market, adequate and reasonable
         means do not exist for ascertaining the Eurodollar Rate for such
         Interest Period, or

                  (b) the Lender shall have determined (which determination
         shall be conclusive and binding upon the Borrower) that the Eurodollar
         Rate determined or to be determined for such Interest Period will not
         adequately and fairly reflect the cost to the Lender of making or
         maintaining its affected Loans during such Interest Period,

the Lender shall give telecopy or telephonic notice thereof to the Borrower as
soon as practicable thereafter. If such notice is given (x) any Eurodollar Loans
requested to be made on the first day of such Interest Period shall be made as
Base Rate Loans, (y) any Loans that were to have been converted on the first day
of such Interest Period to Eurodollar Loans shall be continued as Base Rate
Loans and (z) any outstanding Eurodollar Loans shall be converted, on the last
day of the then-current Interest Period, to Base Rate Loans. Until such notice
has been withdrawn by the Lender, no further Eurodollar Loans shall be made or
continued as such, nor shall the Borrower have the right to convert Loans to
Eurodollar Loans.

                  3.6 PAYMENTS. All payments (including prepayments) to be made
by the Borrower hereunder, whether on account of principal, interest, fees or
otherwise, shall be made without setoff or counterclaim and shall be made prior
to 12:00 Noon, New York City time, on the due date thereof to the Lender, at the
office of the Lender set forth in Section 8.2, in Dollars and in immediately
available funds. If any payment hereunder (other than payments on the Eurodollar
Loans) becomes due and payable on a day other than a Business Day, such payment
shall be extended to the next succeeding Business Day. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day unless
the result of such extension would be to extend such payment into another
calendar month, in which event such payment shall be made on the immediately
preceding Business Day. In the case of any extension of any payment of principal
pursuant to the preceding two sentences, interest thereon shall be payable at
the then applicable rate during such extension.

                  3.7 TAXES. (a) All payments made by the Borrower under this
Agreement shall be made free and clear of, and without deduction or withholding
for or on account of, any present or future income, stamp or other taxes,
levies, imposts, duties, charges, fees, deductions or withholdings, now or
hereafter imposed, levied, collected, withheld or assessed by any Governmental
Authority, excluding net income taxes and franchise taxes (imposed in lieu of
net income taxes) imposed on the Lender as a result of a

<PAGE>
                                                                              13

present or former connection between the Lender and the jurisdiction of the
Governmental Authority imposing such tax or any political subdivision or taxing
authority thereof or therein (other than any such connection arising solely from
the Lender having executed, delivered or performed its obligations or received a
payment under, or enforced, this Agreement or any other Loan Document). If any
such non-excluded taxes, levies, imposts, duties, charges, fees, deductions or
withholdings ("NON-EXCLUDED TAXES") or Other Taxes are required to be withheld
from any amounts payable to the Lender hereunder, the amounts so payable to the
Lender shall be increased to the extent necessary to yield to the Lender (after
payment of all Non-Excluded Taxes and Other Taxes) interest or any such other
amounts payable hereunder at the rates or in the amounts specified in this
Agreement, PROVIDED, HOWEVER, that the Borrower shall not be required to
increase any such amounts payable to the Lender with respect to any Non-Excluded
Taxes (i) that are attributable to the Lender's failure to comply with the
requirements of paragraph (d) or (e) of this Section or (ii) that are United
States withholding taxes imposed on amounts payable to the Lender at the time
the Lender becomes a party to this Agreement, except to the extent that the
Lender's assignor (if any) was entitled, at the time of assignment, to receive
additional amounts from the Borrower with respect to such Non-Excluded Taxes
pursuant to this paragraph.

                  (b) In addition, the Borrower shall pay any Other Taxes to the
relevant Governmental Authority in accordance with applicable law.

                  (c) Whenever any Non-Excluded Taxes or Other Taxes are payable
by the Borrower, as promptly as possible thereafter the Borrower shall send to
the Lender a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes or Other Taxes when due to the appropriate taxing authority or fails to
remit to the Lender the required receipts or other required documentary
evidence, the Borrower shall indemnify the Lender for any incremental taxes,
interest or penalties that may become payable by the Lender as a result of any
such failure.

                  (d) The agreements in this Section shall survive the
termination of this Agreement and the payment of the Loans and all other amounts
payable hereunder.

                  3.8 INDEMNITY. The Borrower agrees to indemnify the Lender and
to hold the Lender harmless from any loss or expense that the Lender may sustain
or incur as a consequence of (a) default by the Borrower in making a borrowing
of, conversion into or continuation of any Loan after the Borrower has given a
notice requesting the same in accordance with the provisions of this Agreement,
(b) default by the Borrower in making any prepayment of or conversion from any
Loan after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of any Loan on a
day that is not the last day of an Interest Period with respect thereto. Such
indemnification may include an amount equal to the excess, if any, of (i) the
amount of interest that would have accrued on the amount so prepaid, or not so
borrowed, converted or continued, for the period from the date of such
prepayment or of such failure to borrow, convert or continue to the last day of
such Interest Period (or, in the case of a failure to borrow, convert or
continue, the Interest Period that would have commenced on the date of such
failure) in each case at the applicable rate of interest for such Loans provided
for herein (excluding, however, the Applicable Margin included therein, if any)
OVER (ii) the amount of interest (as reasonably determined by the Lender) that
would have accrued on such amount by placing such amount on deposit for a
comparable period with leading banks in the interbank eurodollar market. A
certificate as to any amounts payable pursuant to this Section submitted to the
Borrower by the Lender shall be conclusive in the absence of manifest error.
This covenant shall survive the termination of this Agreement and the payment of
the Loans and all other amounts payable hereunder.

<PAGE>
                                                                              14

                  3.9 EVIDENCE OF DEBT. (a) The Lender shall maintain in
accordance with its usual practice an account or accounts evidencing
indebtedness of the Borrower to the Lender resulting from each Loan from time to
time, including the amounts of principal and interest payable and paid to the
Lender from time to time under this Agreement.

                  (b) The entries made in the accounts of the Lender maintained
pursuant to Section 3.9(a) shall, to the extent permitted by applicable law, be
PRIMA FACIE evidence of the existence and amounts of the obligations of the
Borrower therein recorded; PROVIDED, HOWEVER, that the failure of the Lender to
maintain any such account, or any error therein, shall not in any manner affect
the obligation of the Borrower to repay (with applicable interest) the Loans
made to the Borrower by the Lender in accordance with the terms of this
Agreement.

                         SECTION 4.  REPRESENTATIONS AND WARRANTIES

                  To induce the Lender to enter into this Agreement and to make
the Loans, the Borrower hereby represents and warrants to the Lender that:

                  4.1 FINANCIAL CONDITION. (a) The unaudited PRO FORMA
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at March 31, 2000 (including the notes thereto) (the "PRO FORMA BALANCE SHEET"),
copies of which have heretofore been furnished to the Lender, has been prepared
giving effect (as if such events had occurred on such date) to (i) the Loans to
be made on the Closing Date and the use of proceeds thereof and (ii) the payment
of fees and expenses in connection with the foregoing. The Pro Forma Balance
Sheet has been prepared based on the best information available to the Borrower
as of the date of delivery thereof, and presents fairly on a PRO FORMA basis the
estimated financial position of Borrower and its consolidated Subsidiaries as at
March 31, 2000, assuming that the events specified in the preceding sentence had
actually occurred at such date.

                  (b) The audited consolidated balance sheets of the Borrower
and its consolidated subsidiaries as at December 31, 1997, December 31, 1998 and
December 31, 1999, and the related consolidated statements of income and of cash
flows for the fiscal years ended on such dates, reported on by and accompanied
by an unqualified report from Arthur Andersen LLP, present fairly the
consolidated financial condition of the Borrower and its consolidated
subsidiaries as at such date, and the consolidated results of its operations and
its consolidated cash flows for the respective fiscal years then ended. The
unaudited consolidated balance sheet of the Borrower and its consolidated
subsidiaries as at March 31, 2000, and the related unaudited consolidated
statements of income and cash flows for the three-month period ended on such
date, present fairly the consolidated financial condition of the Borrower and
its consolidated subsidiaries as at such date, and the consolidated results of
its operations and its consolidated cash flows for the three-month period then
ended (subject to normal year-end audit adjustments). All such financial
statements, including the related schedules and notes thereto, have been
prepared in accordance with GAAP applied consistently throughout the periods
involved (except as approved by the aforementioned firm of accountants and
disclosed therein). Except as set forth in Schedule 3.6 to the Merger Agreement,
the Borrower and its Subsidiaries do not have any material Guarantee
Obligations, contingent liabilities and liabilities for taxes, or any long-term
leases or unusual forward or long-term commitments, including any interest rate
or foreign currency swap or exchange transaction or other obligation in respect
of derivatives, that are not reflected in the most recent financial statements
referred to in this paragraph. During the period from December 31, 1999 to and
including the date hereof there has been no Disposition by the Borrower or any
of its Subsidiaries of any material part of its business or property.

<PAGE>
                                                                              15

                  4.2 NO CHANGE. Except as set forth on Schedule 3.5 to the
Merger Agreement, since March 31, 2000, there has been no development or event
that has had or could reasonably be expected to have a Material Adverse Effect.

                  4.3 CORPORATE EXISTENCE; COMPLIANCE WITH LAW. Each of the
Borrower and its Subsidiaries (a) is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization, (b) has
the corporate power and authority, and the legal right, to own and operate its
property, to lease the property it operates as lessee and to conduct the
business in which it is currently engaged, (c) is duly qualified as a foreign
corporation and in good standing under the laws of each jurisdiction where its
ownership, lease or operation of property or the conduct of its business
requires such qualification and (d) is in compliance with all Requirements of
Law except to the extent that the failure to comply therewith could not, in the
aggregate, reasonably be expected to have a Material Adverse Effect.

                  4.4 CORPORATE POWER; AUTHORIZATION; ENFORCEABLE OBLIGATIONS.
Each Loan Party has the corporate power and authority, and the legal right, to
make, deliver and perform the Loan Documents to which it is a party and, in the
case of the Borrower, to obtain extensions of credit hereunder. Each Loan Party
has taken all necessary corporate action to authorize the execution, delivery
and performance of the Loan Documents to which it is a party and, in the case of
the Borrower, to authorize the extensions of credit on the terms and conditions
of this Agreement. No consent or authorization of, filing with, notice to or
other act by or in respect of, any Governmental Authority or any other Person is
required in connection with the Put/Call Option Agreement, the extensions of
credit hereunder or with the execution, delivery, performance, validity or
enforceability of this Agreement or any of the Loan Documents, except (i)
consents, authorizations, filings and notices described in Schedule 4.4, which
consents, authorizations, filings and notices have either (x) been obtained or
made and are in full force and effect or (y) pursuant to Section 6.10, will be
obtained or made and (ii) the filings referred to in Section 4.18. Each Loan
Document has been duly executed and delivered on behalf of each Loan Party party
thereto. This Agreement constitutes, and each other Loan Document upon execution
will constitute, a legal, valid and binding obligation of each Loan Party party
thereto, enforceable against each such Loan Party in accordance with its terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws affecting the enforcement of
creditors' rights generally and by general equitable principles (whether
enforcement is sought by proceedings in equity or at law).

                  4.5 NO LEGAL BAR. The execution, delivery and performance of
this Agreement and the other Loan Documents, the borrowings hereunder and the
use of the proceeds thereof will not violate any Requirement of Law or any
Contractual Obligation of the Borrower or any of its Subsidiaries and will not
result in, or require, the creation or imposition of any Lien on any of their
respective properties or revenues pursuant to any Requirement of Law or any such
Contractual Obligation (other than the Liens created by the Security Documents).
No Requirement of Law or Contractual Obligation applicable to the Borrower or
any of its Subsidiaries could reasonably be expected to have a Material Adverse
Effect.

                  4.6 LITIGATION. No litigation, investigation or proceeding of
or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of their respective properties or revenues (a) with
respect to any of the Loan Documents or any of the transactions contemplated
hereby or thereby, or (b) that could reasonably be expected to have a Material
Adverse Effect.

                  4.7 NO DEFAULT. Neither the Borrower nor any of its
Subsidiaries is in default under or with respect to any of its Contractual
Obligations in any respect that could reasonably be expected to have a Material
Adverse Effect.

<PAGE>
                                                                              16

                  4.8 OWNERSHIP OF PROPERTY; LIENS. Each of the Borrower and its
Subsidiaries has title in fee simple to, or a valid leasehold interest in, all
its real property, and good title to, or a valid leasehold interest in, all its
other property, and none of such property is subject to any Lien except as
permitted by Section 7.1.

                  4.9 INTELLECTUAL PROPERTY. The Borrower and each of its
Subsidiaries owns, or is licensed to use, all Intellectual Property necessary
for the conduct of its business as currently conducted. No material claim has
been asserted and is pending by any Person challenging or questioning the use of
any Intellectual Property or the validity or effectiveness of any Intellectual
Property, nor does the Borrower know of any valid basis for any such claim. The
use of Intellectual Property by the Borrower and its Subsidiaries does not
infringe on the rights of any Person in any material respect.

                  4.10 TAXES. The Borrower and each of its Subsidiaries has
filed or caused to be filed all Federal, state and other material tax returns
that are required to be filed and has paid all taxes shown to be due and payable
on said returns or on any assessments made against it or any of its property and
all other taxes, fees or other charges imposed on it or any of its property by
any Governmental Authority (other than any the amount or validity of that are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); no tax Lien has
been filed, and, to the knowledge of the Borrower, no claim is being asserted,
with respect to any such tax, fee or other charge.

                  4.11 FEDERAL REGULATIONS. No part of the proceeds of any
Loans, and no other extensions of credit hereunder, will be used for "buying" or
"carrying" any "margin stock" within the respective meanings of each of the
quoted terms under Regulation U as now and from time to time hereafter in effect
or for any purpose that violates the provisions of the Regulations of the Board.
If requested by the Lender, the Borrower will furnish to the Lender a statement
to the foregoing effect in conformity with the requirements of FR Form G-3 or FR
Form U-1, as applicable, referred to in Regulation U.

                  4.12 ERISA. Neither a Reportable Event nor an "accumulated
funding deficiency" (within the meaning of Section 412 of the Code or Section
302 of ERISA) has occurred during the five-year period prior to the date on
which this representation is made or deemed made with respect to any Plan, and
each Plan has complied in all material respects with the applicable provisions
of ERISA and the Code. No termination of a Single Employer Plan has occurred,
and no Lien in favor of the PBGC or a Plan has arisen, during such five-year
period. The present value of all accrued benefits under each Single Employer
Plan (based on those assumptions used to fund such Plans) did not, as of the
last annual valuation date prior to the date on which this representation is
made or deemed made, exceed the value of the assets of such Plan allocable to
such accrued benefits by a material amount. Neither the Borrower nor any
Commonly Controlled Entity has had a complete or partial withdrawal from any
Multiemployer Plan that has resulted or could reasonably be expected to result
in a material liability under ERISA, and neither the Borrower nor any Commonly
Controlled Entity would become subject to any material liability under ERISA if
the Borrower or any such Commonly Controlled Entity were to withdraw completely
from all Multiemployer Plans as of the valuation date most closely preceding the
date on which this representation is made or deemed made. No such Multiemployer
Plan is in Reorganization or Insolvent.

                  4.13 INVESTMENT COMPANY ACT; OTHER REGULATIONS. No Loan Party
is an "investment company", or a company "controlled" by an "investment
company", within the meaning of the Investment Company Act of 1940, as amended.
No Loan Party is subject to regulation under any Requirement of Law (other than
Regulation X of the Board) that limits its ability to incur Indebtedness.

<PAGE>
                                                                              17

                  4.14 SUBSIDIARIES. Except as disclosed to the Lender by the
Borrower in writing from time to time after the Closing Date, (a) Schedule 4.14
sets forth the name and jurisdiction of incorporation of each Subsidiary and, as
to each such Subsidiary, the percentage of each class of Capital Stock owned by
any Loan Party and (b) there are no outstanding subscriptions, options,
warrants, calls, rights or other agreements or commitments (other than stock
options granted to employees or directors and directors' qualifying shares) of
any nature relating to any Capital Stock of the Borrower or any Subsidiary,
except as created by the Loan Documents.

                  4.15 USE OF PROCEEDS. The proceeds of the Loans shall be used
to finance the working capital needs of the Borrower as specified in each
Borrowing Notice and to pay interest and fees under the Loans.

                  4.16  ENVIRONMENTAL MATTERS.  Except as, in the aggregate,
could not reasonably be expected to have a Material Adverse Effect:

                  (a) the facilities and properties owned, leased or operated by
         the Borrower or any of its Subsidiaries (the "PROPERTIES") do not
         contain, and have not previously contained, any Materials of
         Environmental Concern in amounts or concentrations or under
         circumstances that constitute or constituted a violation of, or could
         give rise to liability under, any Environmental Law;

                  (b) neither the Borrower nor any of its Subsidiaries has
         received or is aware of any notice of violation, alleged violation,
         non-compliance, liability or potential liability regarding
         environmental matters or compliance with Environmental Laws with regard
         to any of the Properties or the business operated by the Borrower or
         any of its Subsidiaries (the "BUSINESS"), nor does the Borrower have
         knowledge or reason to believe that any such notice will be received or
         is being threatened;

                  (c) Materials of Environmental Concern have not been
         transported or disposed of from the Properties in violation of, or in a
         manner or to a location that could give rise to liability under, any
         Environmental Law, nor have any Materials of Environmental Concern been
         generated, treated, stored or disposed of at, on or under any of the
         Properties in violation of, or in a manner that could give rise to
         liability under, any applicable Environmental Law;

                  (d) no judicial proceeding or governmental or administrative
         action is pending or, to the knowledge of the Borrower, threatened,
         under any Environmental Law to which the Borrower or any Subsidiary is
         or will be named as a party with respect to the Properties or the
         Business, nor are there any consent decrees or other decrees, consent
         orders, administrative orders or other orders, or other administrative
         or judicial requirements outstanding under any Environmental Law with
         respect to the Properties or the Business;

                  (e) there has been no release or threat of release of
         Materials of Environmental Concern at or from the Properties, or
         arising from or related to the operations of the Borrower or any
         Subsidiary in connection with the Properties or otherwise in connection
         with the Business, in violation of or in amounts or in a manner that
         could give rise to liability under Environmental Laws;

                  (f) the Properties and all operations at the Properties are in
         compliance, and have in the last five years been in compliance, with
         all applicable Environmental Laws, and there is no contamination at,
         under or about the Properties or violation of any Environmental Law
         with respect to the Properties or the Business; and

<PAGE>
                                                                              18

                  (g) neither the Borrower nor any of its Subsidiaries has
         assumed any liability of any other Person under Environmental Laws.

                  4.17 ACCURACY OF INFORMATION, ETC. No statement or information
contained in this Agreement, any other Loan Document or any other document,
certificate or statement furnished by or on behalf of any Loan Party to the
Lender, for use in connection with the transactions contemplated by this
Agreement or the other Loan Documents, contained as of the date such statement,
information, document or certificate was so furnished, any untrue statement of a
material fact or omitted to state a material fact necessary to make the
statements contained herein or therein not misleading. The projections and PRO
FORMA financial information contained in the materials referenced above are
based upon good faith estimates and assumptions believed by management of the
Borrower to be reasonable at the time made, it being recognized by the Lender
that such financial information as it relates to future events is not to be
viewed as fact and that actual results during the period or periods covered by
such financial information may differ from the projected results set forth
therein by a material amount. As of the date hereof, the representations and
warranties of the Borrower contained in the Merger Agreement are true and
correct in all material respects. There is no fact known to any Loan Party that
could reasonably be expected to have a Material Adverse Effect that has not been
expressly disclosed herein, in the other Loan Documents or in any other
documents, certificates and statements furnished to the Lender for use in
connection with the transactions contemplated hereby and by the other Loan
Documents.

                  4.18 SECURITY DOCUMENTS. Each of the Security Agreements is
effective to create in favor of the Lender a legal, valid and enforceable
security interest in the Collateral described therein and proceeds thereof. In
the case of the Pledged Stock described in the Guarantee and Collateral
Agreement, when stock certificates representing such Pledged Stock are delivered
to the Lender, and in the case of the other Collateral described in the
Guarantee and Collateral Agreement, when financing statements and other filings
specified on Schedule 4.18 in appropriate form are filed in the offices
specified on Schedule 4.18, the Guarantee and Collateral Agreement shall
constitute a fully perfected Lien on, and security interest in, all right, title
and interest of the Loan Parties in such Collateral and the proceeds thereof, as
security for the Obligations (as defined in the Guarantee and Collateral
Agreement), in each case prior and superior in right to any interest of other
Person (except, in the case of Collateral other than Pledged Stock, Liens
permitted to encumber such Collateral by Section 7.1 or as described in Schedule
3.10 to the Merger Agreement). In the case of the Collateral described in the
Deposit Account Control Agreements, upon receipt of such agreements, the
Security Documents shall constitute a fully perfected Lien on, and security
interest in, all right, title and interest of the Loan Parties in such
Collateral and the proceeds thereof, as security for the Obligations (as defined
in such Security Documents), in each case prior and superior in right to any
interest of other Person (except Liens permitted to encumber such Collateral by
Section 7.1).

                  4.19 SOLVENCY. Each Loan Party is, and after giving effect to
the incurrence of all Indebtedness and obligations being incurred in connection
herewith will be and will continue to be, Solvent.

                  4.20 CERTAIN DOCUMENTS. The Borrower has delivered to the
Lender a complete and correct copy of the Merger Agreement and each Existing
Debt Document, including any amendments, supplements or modifications with
respect to any of the foregoing.

                  4.21 BLUESTAR NETWORKS OF VIRGINIA, INC. On the date hereof,
BlueStar Networks of Virginia, Inc., a wholly-owned Subsidiary of the Borrower
and a Subsidiary Guarantor does not own any assets (other than the CLEC license
granted by the Virginia State Corporations Commission) and does have any
liabilities (contingent or otherwise).

<PAGE>
                                                                              19

                  4.22 POST-CLOSING REQUIREMENTS. Within seven days after the
Closing Date, the Borrower shall have provided to the Lender such tax
certificates or other documentation as are necessary to complete the filings
referred to in Section 4.18 in jurisdictions requiring tax certificates other
than Tennessee.

                               SECTION 5.  CONDITIONS PRECEDENT

                  5.1 CONDITIONS TO INITIAL EXTENSION OF CREDIT. The agreement
of the Lender to make the initial extension of credit requested to be made by it
is subject to the satisfaction, prior to or concurrently with the making of such
extension of credit on the Closing Date (but in any event no later than June 15,
2000), of the following conditions precedent:

                  (a) LOAN AGREEMENT; SECURITY DOCUMENTS. The Lender shall have
         received (i) this Agreement, executed and delivered by the Borrower and
         the Lender, (ii) the Guarantee and Collateral Agreement, executed and
         delivered by the Borrower and each Subsidiary Guarantor, (iii) an
         Acknowledgment and Consent in the form attached to the Guarantee and
         Collateral Agreement, executed and delivered by each Issuer (as defined
         therein), if any, that is not a Loan Party and (iv) the Deposit Account
         Control Agreements executed by the parties thereto.

                  (b) PRO FORMA BALANCE SHEET; FINANCIAL STATEMENTS. The Lender
         shall have received (i) the Pro Forma Balance Sheet, (ii) audited
         consolidated financial statements of Borrower and its consolidated
         subsidiaries for the 1997, 1998 and 1999 fiscal years and (iii)
         unaudited interim consolidated financial statements of Borrower and its
         consolidated subsidiaries for each fiscal month and quarterly period
         ended subsequent to the date of the latest applicable financial
         statements delivered pursuant to clause (ii) of this paragraph as to
         which such financial statements are available, and such financial
         statements shall not, in the reasonable judgment of the Lender, reflect
         any material adverse change in the consolidated financial condition of
         Borrower and its consolidated subsidiaries, as reflected in the
         financial statements or projections.

                  (c) APPROVALS. All governmental and third party approvals
         (including landlords' and other consents) necessary in connection with
         the Put/Call Option Agreement, continuing operations of the Borrower
         and its Subsidiaries, this Agreement and the transactions contemplated
         hereby shall have been obtained and be in full force and effect,
         including, without limitation, consents from the holders of the
         Borrower's existing indebtedness and all applicable waiting periods
         shall have expired without any action being taken or threatened by any
         competent authority that would restrain, prevent or otherwise impose
         adverse conditions on the financing contemplated hereby.

                  (d) LIEN SEARCHES. The Lender shall have received the results
         of a recent lien search in each of the jurisdictions where assets of
         the Loan Parties are located, and such search shall reveal no liens on
         any of the assets of the Borrower or its Subsidiaries except for liens
         permitted by Section 7.1 or discharged on or prior to the Closing Date
         pursuant to documentation satisfactory to the Lender.

                  (e) FEES AND EXPENSES. The Lender shall have received (i) a
         fee in the amount of 1.25% of the aggregate Demand Facility on the
         Closing Date and (ii) all expenses for which invoices have been
         presented (including the reasonable fees and expenses of legal
         counsel), on or before the Closing Date. All such amounts will be paid
         with proceeds of Loans made on the Closing Date and will be reflected
         in the funding instructions given by the Borrower to the Lender on or
         before the Closing Date.

<PAGE>
                                                                              20

                  (f) CLOSING CERTIFICATE. The Lender shall have received a
         certificate of each Loan Party, dated the Closing Date, substantially
         in the form of Exhibit B, with appropriate insertions and attachments.

                  (g)  LEGAL OPINIONS.  The Lender shall have received the
         following executed legal opinions:

                           (i) the legal opinion of Brobeck Phleger & Harrison
                  LLP, New York and Delaware counsel to the Loan Parties,
                  substantially in the form of Exhibit E-1; and

                           (ii) the legal opinion of Wyatt Tarrant & Combs,
                  Tennessee counsel to the Loan Parties substantially in the
                  form of Exhibit E-2.

         Each such legal opinion shall cover such other matters incident to the
         transactions contemplated by this Agreement as the Lender may
         reasonably require.

                  (h) PLEDGED STOCK; STOCK POWERS; PLEDGED NOTES. The Lender
         shall have received (i) the certificates representing the shares of
         Capital Stock pledged pursuant to the Guarantee and Collateral
         Agreement, together with an undated stock power for each such
         certificate executed in blank by a duly authorized officer of the
         pledgor thereof and (ii) each promissory note (if any) pledged to the
         Lender pursuant to the Guarantee and Collateral Agreement endorsed
         (without recourse) in blank (or accompanied by an executed transfer
         form in blank) by the pledgor thereof.

                  (i) FILINGS, REGISTRATIONS AND RECORDINGS. Each document
         (including any Uniform Commercial Code financing statement) required by
         the Security Documents or under law or reasonably requested by the
         Lender to be filed, registered or recorded in order to create in favor
         of the Lender a perfected Lien on the Collateral described therein,
         prior and superior in right to any other Person (other than with
         respect to Liens expressly permitted by Section 7.1), shall be in
         proper form for filing, registration or recordation.

                  (j) SOLVENCY CERTIFICATE. The Lender shall have received a
         solvency certificate of the Borrower, dated the Closing Date, executed
         by the Chief Financial Officer of the Borrower, in form and substance
         satisfactory to the Lender.

                  (k) INSURANCE. The Lender shall have received insurance
         certificates satisfying the requirements of Section 5.2(b) of the
         Guarantee and Collateral Agreement.

                  (l) MERGER AGREEMENT.  The Borrower shall have entered into
         the Merger Agreement on terms and conditions satisfactory to the
         Lender.

                  (m) PUT/CALL OPTION AGREEMENT. The Lender shall have received
         a duly executed Put/Call Option Agreement and copies of the closing
         documentation with respect thereto in form and substance satisfactory
         to it, including, officers' and secretary's certificates, with
         appropriate attachments, and legal opinions covering such matters as
         the Lender may reasonably request and all conditions precedent to the
         effectiveness thereof shall have been satisfied.

                  (n) EXISTING DEBT DOCUMENTS. The Lender shall have received
         certified copies of each of the Existing Debt Documents, and shall be
         satisfied that the execution, delivery and performance

<PAGE>
                                                                              21

         by the Loan Parties of the Loan Documents to which they are
         respectively parties will not violate or conflict with any of the terms
         thereof.

                  5.2 CONDITIONS TO EACH EXTENSION OF CREDIT. In no event shall
the Lender be required to make any extension of credit requested to be made by
it on any date (including its initial extension of credit) unless the following
conditions precedent are satisfied:

                  (a) REPRESENTATIONS AND WARRANTIES. Each of the
         representations and warranties made by any Loan Party in or pursuant to
         the Loan Documents shall be true and correct on and as of such date as
         if made on and as of such date.

                  (b) NO DEFAULT. No default or event of default under the
         Security Documents or any Contractual Obligation of the Borrower or any
         of its Subsidiaries shall have occurred and be continuing on such date
         or after giving effect to the extensions of credit requested to be made
         on such date.

                  (c) BORROWING NOTICE.  The Lender shall have received a
         Borrowing Notice from the Borrower in accordance with Section 2.2.

                  (d) FEES. The Lender shall have received a fee equal to 1.75%
         of the amount of the Loans drawn on such borrowing date, payable in
         cash.

                  (e) CASH AND CASH EQUIVALENTS.  The aggregate amount of Cash
         and Cash Equivalents of the Borrower and its Subsidiaries, taken as a
         whole, shall not exceed $5,000,000.

                  (f) EXPENDITURES; USE OF PROCEEDS. The Borrower shall not have
         made any expenditures since its last Borrowing Notice, except as
         described in its last Borrowing Notice. The proceeds of all prior
         borrowings shall have been used as described in prior Borrowing
         Notices.

                               SECTION 6.  AFFIRMATIVE COVENANTS

                  The Borrower hereby agrees that, so long as the Demand
Facility remains in effect or any Loan or other amount is owing to the Lender
hereunder, the Borrower shall and shall cause each of its Subsidiaries to:

                  6.1  FINANCIAL STATEMENTS.  Furnish to the Lender:

                  (a as soon as available, but in any event within 90 days after
         the end of each fiscal year of the Borrower, a copy of the audited
         consolidated balance sheet of the Borrower and its consolidated
         Subsidiaries as at the end of such year and the related audited
         consolidated statements of income and of cash flows for such year,
         setting forth in each case in comparative form the figures for the
         previous year, reported on without a "going concern" or like
         qualification or exception, or qualification arising out of the scope
         of the audit, by Arthur Andersen LLP or other independent certified
         public accountants of nationally recognized standing;

                  (b as soon as available, but in any event not later than 45
         days after the end of each of the first three quarterly periods of each
         fiscal year of the Borrower, the unaudited consolidated balance sheet
         of the Borrower and its consolidated Subsidiaries as at the end of such
         quarter and the related unaudited consolidated statements of income and
         of cash flows for such quarter and the portion of

<PAGE>
                                                                              22

         the fiscal year through the end of such quarter, setting forth in each
         case in comparative form the figures for the previous year, certified
         by a Responsible Officer as being fairly stated in all material
         respects (subject to normal year-end audit adjustments);

                  (c as soon as available, but in any event not later than 45
         days after the end of each month occurring during each fiscal year of
         the Borrower (other than the third, sixth, ninth and twelfth such
         month), the unaudited consolidated balance sheets of the Borrower and
         its Subsidiaries as at the end of such month and the related unaudited
         consolidated statements of income and of cash flows for such month and
         the portion of the fiscal year through the end of such month, setting
         forth in each case in comparative form the figures for the previous
         year, certified by a Responsible Officer as being fairly stated in all
         material respects (subject to normal year-end audit adjustments).

All such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).

                  6.2  CERTIFICATES; OTHER INFORMATION.  Furnish to the Lender:

                  (a concurrently with the delivery of any financial statements
         pursuant to Section 6.1, (i) a certificate of a Responsible Officer
         stating that, to the best of each such Responsible Officer's knowledge,
         each Loan Party during such period has observed or performed all of its
         covenants and other agreements, and satisfied every condition,
         contained in this Agreement and the other Loan Documents to which it is
         a party to be observed, performed or satisfied by it, and that such
         Responsible Officer has obtained no knowledge of any default or event
         of default under any Contractual Obligation of the Borrower or its
         Subsidiaries except as specified in such certificate and (ii) in the
         case of quarterly or annual financial statements, or (x) to the extent
         not previously disclosed to the Lender, a listing of any county or
         state within the United States where any Loan Party keeps inventory or
         equipment and of any Intellectual Property acquired by any Loan Party
         since the date of the most recent list delivered pursuant to this
         clause (x) (or, in the case of the first such list so delivered, since
         the Closing Date);

                  (b as soon as available, and in any event no later than 45
         days after the end of each fiscal year of the Borrower, a detailed
         consolidated budget for the following fiscal year (including a
         projected consolidated balance sheet of the Borrower and its
         Subsidiaries as of the end of the following fiscal year, the related
         consolidated statements of projected cash flow, projected changes in
         financial position and projected income and a description of the
         underlying assumptions applicable thereto), and, as soon as available,
         significant revisions, if any, of such budget and projections with
         respect to such fiscal year (collectively, the "PROJECTIONS"), which
         Projections shall in each case be accompanied by a certificate of a
         Responsible Officer stating that such Projections are based on
         reasonable estimates, information and assumptions and that such
         Responsible Officer has no reason to believe that such Projections are
         incorrect or misleading in any material respect;

                  (c within 45 days after the end of each fiscal quarter of the
         Borrower and 90 days after the end of each fiscal year, a narrative
         discussion and analysis of the financial condition and results of
         operations of the Borrower and its Subsidiaries for such fiscal quarter
         or fiscal year, as the case may be, and for the period from the
         beginning of the then current fiscal year to the end of such

<PAGE>
                                                                              23

         fiscal quarter, or for such fiscal year, as the case may be, as
         compared to the portion of the Projections covering such periods and to
         the comparable periods of the previous year;

                  (d as soon as available, but not later than the business day
         after the end of any week, accounts receivable aging reports,
         expenditures, cash balances, customer data, projected cash usage for
         current week;

                  (e   daily financial information of the Borrower and its
         subsidiaries in form and substance as
         requested by the Lender;

                  (f no later than 10 Business Days prior to the effectiveness
         thereof, copies of substantially final drafts of any proposed
         amendment, supplement, waiver or other modification with respect to the
         Merger Agreement;

                  (g within five days after the same are sent, copies of all
         financial statements and reports that the Borrower sends to the holders
         of any class of its debt securities or public equity securities and,
         within five days after the same are filed, copies of all financial
         statements and reports that the Borrower may make to, or file with, the
         SEC; and

                  (h promptly, such additional financial and other information
         as the Lender may from time to time reasonably request.

                  6.3 PAYMENT OF OBLIGATIONS. Pay, discharge or otherwise
satisfy at or before maturity or before they become delinquent, as the case may
be, all its material obligations of whatever nature, except where the amount or
validity thereof is currently being contested in good faith by appropriate
proceedings and reserves in conformity with GAAP with respect thereto have been
provided on the books of the Borrower or its Subsidiaries, as the case may be.

                  6.4 MAINTENANCE OF EXISTENCE; COMPLIANCE. (a)(i) Preserve,
renew and keep in full force and effect its corporate existence and (ii) take
all reasonable action to maintain all rights, privileges and franchises
necessary or desirable in the normal conduct of its business, except, in each
case, as otherwise permitted by Section 7.1 and except, in the case of clause
(ii) above, to the extent that failure to do so could not reasonably be expected
to have a Material Adverse Effect; and (b) comply with all Contractual
Obligations and Requirements of Law except to the extent that failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.

                  6.5 MAINTENANCE OF PROPERTY; INSURANCE. (a) Keep all property
useful and necessary in its business in good working order and condition,
ordinary wear and tear excepted and (b) maintain with financially sound and
reputable insurance companies insurance on all its property in at least such
amounts and against at least such risks (but including in any event public
liability, product liability and business interruption) as are usually insured
against in the same general area by companies engaged in the same or a similar
business.

                  6.6 INSPECTION OF PROPERTY; BOOKS AND RECORDS; DISCUSSIONS.
(a) Keep proper books of records and account in which full, true and correct
entries in conformity with GAAP and all Requirements of Law shall be made of all
dealings and transactions in relation to its business and activities and (b)
permit representatives of the Lender to visit and inspect any of its properties
and examine and make abstracts from any of its books and records at any
reasonable time and as often as may reasonably be desired and to discuss the
business, operations, properties and financial and other condition of the
Borrower and its

<PAGE>
                                                                              24

Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants.

                  6.7  NOTICES.  Promptly give notice to the Lender of:

                  (a) any (i) default or event of default under any Contractual
         Obligation of the Borrower or any of its Subsidiaries or (ii)
         litigation, investigation or proceeding that may exist at any time
         between the Borrower or any of its Subsidiaries and any Governmental
         Authority, that in either case, if not cured or if adversely
         determined, as the case may be, could reasonably be expected to have a
         Material Adverse Effect;

                  (b) any litigation or proceeding affecting the Borrower or any
         of its Subsidiaries (i) in which the amount involved is $1,000,000 or
         more and not covered by insurance, (ii) in which injunctive or similar
         relief is sought or (iii) which relates to any Loan Document;

                  (c) the following events, as soon as possible and in any event
         within 30 days after the Borrower knows or has reason to know thereof:
         (i) the occurrence of any Reportable Event with respect to any Plan, a
         failure to make any required contribution to a Plan, the creation of
         any Lien in favor of the PBGC or a Plan or any withdrawal from, or the
         termination, Reorganization or Insolvency of, any Multiemployer Plan or
         (ii) the institution of proceedings or the taking of any other action
         by the PBGC or the Borrower or any Commonly Controlled Entity or any
         Multiemployer Plan with respect to the withdrawal from, or the
         termination, Reorganization or Insolvency of, any Plan; and

                  (d) any development or event that has had or could reasonably
         be expected to have a Material Adverse Effect.

Each notice pursuant to this Section 6.7 shall be accompanied by a statement of
a Responsible Officer setting forth details of the occurrence referred to
therein and stating what action the Borrower or the relevant Subsidiary proposes
to take with respect thereto.

                  6.8 ENVIRONMENTAL LAWS. (a) Comply in all material respects
with, and ensure compliance in all material respects by all tenants and
subtenants, if any, with, all applicable Environmental Laws, and obtain and
comply in all material respects with and maintain, and ensure that all tenants
and subtenants obtain and comply in all material respects with and maintain, any
and all licenses, approvals, notifications, registrations or permits required by
applicable Environmental Laws.

                  (b Conduct and complete all investigations, studies, sampling
and testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply in all material respects with all lawful
orders and directives of all Governmental Authorities regarding Environmental
Laws.

                  6.9 ADDITIONAL COLLATERAL, ETC. (a) With respect to any
property acquired after the Closing Date by the Borrower or any of its
Subsidiaries (other than (x) any property described in paragraph (b) below or
(y) any property subject to a Lien expressly permitted by Section 7.1) as to
which the Lender, does not have a perfected Lien, promptly (i) execute and
deliver to the Lender such amendments to the Guarantee and Collateral Agreement
or such other documents as the Lender deems necessary or advisable to grant to
the Lender, a security interest in such property and (ii) take all actions
necessary or advisable to grant to the Lender, a perfected first priority
security interest in such property, including the filing of

<PAGE>
                                                                              25

Uniform Commercial Code financing statements in such jurisdictions as may be
required by the Guarantee and Collateral Agreement or by law or as may be
requested by the Lender.

                  (b) With respect to either BlueStar Networks, Inc. or any new
Subsidiary created or acquired after the Closing Date by the Borrower any of its
Subsidiaries, promptly (i) execute and deliver to the Lender such amendments to
the Guarantee and Collateral Agreement as the Lender deems necessary or
advisable to grant to the Lender a perfected first priority security interest in
the Capital Stock of BlueStar Networks, Inc. or such new Subsidiary, as the case
may be, that is owned by the Borrower or any of its Subsidiaries, (ii) deliver
to the Lender the certificates representing such Capital Stock, together with
undated stock powers, in blank, executed and delivered by a duly authorized
officer of the Borrower or such Subsidiary, as the case may be, (iii) cause
BlueStar Networks, Inc. or such new Subsidiary, as the case may be, (A) to
become a party to the Guarantee and Collateral Agreement, (B) to take such
actions necessary or advisable to grant to the Lender a perfected first priority
security interest in the Collateral described in the Guarantee and Collateral
Agreement with respect to such new Subsidiary, including the filing of Uniform
Commercial Code financing statements in such jurisdictions as may be required by
the Guarantee and Collateral Agreement or by law or as may be requested by the
Lender and (C) to deliver to the Lender a certificate of such Subsidiary,
substantially in the form of Exhibit B, with appropriate insertions and
attachments, and (iv) if requested by the Lender, deliver to the Lender legal
opinions relating to the matters described above, which opinions shall be in
form and substance, and from counsel, reasonably satisfactory to the Lender.

                  6.10 BLUESTAR NETWORKS, INC. The Borrower shall, within 5
Business Days of the Closing Date, have filed applications with the appropriate
Governmental Authority to receive each of the consents listed on Schedule 4.4.

                  6.11 BLUESTAR COMMUNICATIONS OF THE SOUTHEAST, INC. The
Borrower shall, within 5 Business Days of the Closing Date, have paid all fees
necessary and filed with the Secretary of State of the State of Tennessee all
documents necessary to dissolve BlueStar Communications of the Southeast, Inc.

                                  SECTION 7.  NEGATIVE COVENANTS

                  The Borrower hereby agrees that, so long as the Demand
Facility remains in effect or any Loan or other amount is owing to the Lender
hereunder, the Borrower shall not, and shall not permit any of its Subsidiaries
to, directly or indirectly:

                  7.1 MERGER AGREEMENT COVENANTS. Fail to observe or comply with
any of the covenants set forth in Sections 5.1 and 5.2 of the Merger Agreement,
which covenants are incorporated herein MUTATIS MUTANDIS as in effect on the
date hereof.

                  7.2 FUNDAMENTAL CHANGES. Enter into any merger, consolidation
or amalgamation, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or Dispose of, all or substantially all of its
property or business, except that:

                  (a any Subsidiary of the Borrower may be merged or
         consolidated with or into the Borrower (PROVIDED that the Borrower
         shall be the continuing or surviving corporation) or with or into any
         Wholly Owned Subsidiary Guarantor (PROVIDED that the Wholly Owned
         Subsidiary Guarantor shall be the continuing or surviving corporation);

<PAGE>
                                                                              26

                  (b   any Subsidiary of the Borrower may Dispose of any or all
         of its assets (upon voluntary liquidation or otherwise) to the Borrower
         or any Wholly Owned Subsidiary Guarantor;

                  (c   the merger pursuant to the Merger Agreement may be
         consummated in accordance with the terms thereof.

                  7.3 OPTIONAL PAYMENTS AND MODIFICATIONS OF CERTAIN DEBT
INSTRUMENTS. (a) Make or offer to make any optional or voluntary payment,
prepayment, repurchase or redemption of or otherwise optionally or voluntarily
defease or segregate funds with respect to any Indebtedness of the Borrower or
any of its Subsidiaries or (b) amend, modify, waive or otherwise change, or
consent or agree to any amendment, modification, waiver or other change to, any
of the terms of the Existing Debt Documents (other than any such amendment,
modification, waiver or other change that (i) would extend the maturity or
reduce the amount of any payment of principal thereof or reduce the rate or
extend any date for payment of interest thereon and (ii) does not involve the
payment of a consent fee).

                  7.4 TRANSACTIONS WITH AFFILIATES. Enter into any transaction,
including any purchase, sale, lease or exchange of property, the rendering of
any service or the payment of any management, advisory or similar fees, with any
Affiliate (other than the Borrower or any Wholly Owned Subsidiary Guarantor)
unless such transaction is (a) otherwise permitted under this Agreement, (b) in
the ordinary course of business of the Borrower or such Subsidiary, as the case
may be, and (c) upon fair and reasonable terms no less favorable to the Borrower
or such Subsidiary, as the case may be, than it would obtain in a comparable
arm's length transaction with a Person that is not an Affiliate.

                  7.5 NEGATIVE PLEDGE CLAUSES. Enter into or suffer to exist or
become effective any agreement that prohibits or limits the ability of the
Borrower or any of its Subsidiaries to create, incur, assume or suffer to exist
any Lien upon any of its property or revenues, whether now owned or hereafter
acquired, to secure its obligations under the Loan Documents to which it is a
party other than (a) this Agreement and the other Loan Documents and (b) any
agreements governing any purchase money Liens or Capital Lease Obligations
otherwise permitted hereby (in which case, any prohibition or limitation shall
only be effective against the assets financed thereby).

                  7.6  AMENDMENTS TO MERGER AGREEMENT.  (a)  Amend, supplement
or otherwise modify (pursuant to a waiver or otherwise) the terms and conditions
of the indemnities and licenses furnished to the Borrower or any of its
Subsidiaries pursuant to the Merger Agreement.

                  7.7  CASH AND CASH EQUIVALENTS.  At any time, permit the
aggregate amount of Cash or Cash Equivalents of the Borrower and its
Subsidiaries, taken as a whole, to exceed $5,000,000.

                  7.8 BLUESTAR NETWORKS OF VIRGINIA, INC. Fail to own all of the
outstanding capital stock of BlueStar Networks of Virginia, Inc. or permit
BlueStar Networks of Virginia, Inc. to have any operations, hold any assets
(other than the CLEC license granted by the Virginia State Corporations
Commission) and or incur any liabilities (contingent or otherwise).

                                   SECTION 8.  MISCELLANEOUS

                  8.1 AMENDMENTS AND WAIVERS. Neither this Agreement, any other
Loan Document, nor any terms hereof or thereof may be amended, supplemented or
modified except by a written instrument signed by all parties hereto.

<PAGE>
                                                                              27

                  8.2 NOTICES. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
telecopy), and, unless otherwise expressly provided herein, shall be deemed to
have been duly given or made when delivered, or three Business Days after being
deposited in the mail, postage prepaid, or, in the case of telecopy notice, when
received, addressed as follows in the case of the Borrower and the Lender, or to
such other address as may be hereafter notified by the respective parties
hereto:
<TABLE>
         <S>                                         <C>

         The Borrower:                               801 Crescent Centre Drive
                                                     Suite 600
                                                     5 Corporate Centre
                                                     Franklin, TN 37067
                                                     Attention:  Norton Cutler, General Counsel
                                                     Telecopy:  (615) 346-3875
                                                     Telephone:  (615) 346-3848

         The Lender:                                 Bear Stearns Corporate Lending Inc.
                                                     245 Park Avenue
                                                     New York, NY  10167
                                                     Attention: Victor Bulzacchelli
                                                     Telecopy:  (212) 272-4844
                                                     Telephone:  (212) 272-3042

         with a copy to:                             Attention:  Gloria Dombrowski
                                                     Telecopy:  (212) 272-4844
                                                     Telephone:  (212) 272-6043

         with a copy to:                             Attention:  James Crystal
                                                     Telecopy:  (212) 272-5393
                                                     Telephone:  (212) 272-6958
</TABLE>

PROVIDED that any notice, request or demand to or upon the Lender shall not be
effective until received.

                  8.3 NO WAIVER; CUMULATIVE REMEDIES. No failure to exercise and
no delay in exercising, on the part of the Lender, any right, remedy, power or
privilege hereunder or under the other Loan Documents shall operate as a waiver
thereof; nor shall any single or partial exercise of any right, remedy, power or
privilege hereunder preclude any other or further exercise thereof or the
exercise of any other right, remedy, power or privilege. The rights, remedies,
powers and privileges herein provided are cumulative and not exclusive of any
rights, remedies, powers and privileges provided by law.

                  8.4 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties made hereunder, in the other Loan Documents and
in any document, certificate or statement delivered pursuant hereto or in
connection herewith shall survive the execution and delivery of this Agreement
and the making of the Loans and other extensions of credit hereunder.

                  8.5 PAYMENT OF EXPENSES AND TAXES. The Borrower agrees (a) to
pay or reimburse the Lender for all its out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents, the Put/Call Option Agreement and any other documents prepared in
connection herewith or therewith, and the consummation and administration of the
transactions contemplated hereby and thereby, including the reasonable fees and
disbursements of counsel to the Lender and filing and recording fees and
expenses, with statements with respect to the foregoing to be submitted to the
Borrower

<PAGE>
                                                                              28

prior to the Closing Date (in the case of amounts to be paid on the Closing
Date) and from time to time thereafter on a quarterly basis or such other
periodic basis as the Lender shall deem appropriate, (b) to pay or reimburse the
Lender for all its costs and expenses incurred in connection with the
enforcement or preservation of any rights under this Agreement, the other Loan
Documents, the Put/Call Option Agreement and any such other documents, including
the fees and disbursements of counsel (including the allocated fees and expenses
of in-house counsel) to the Lender, (c) to pay, indemnify, and hold the Lender
harmless from, any and all recording and filing fees and any and all liabilities
with respect to, or resulting from any delay in paying, stamp, excise and other
taxes, if any, that may be payable or determined to be payable in connection
with the execution and delivery of, or consummation or administration of any of
the transactions contemplated by, or any amendment, supplement or modification
of, or any waiver or consent under or in respect of, this Agreement, the other
Loan Documents and any such other documents, and (d) to pay, indemnify, and hold
the Lender and its respective officers, directors, employees, affiliates, agents
and controlling persons (each, an "INDEMNITEE") harmless from and against any
and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents and any such other
documents, including any of the foregoing relating to the use of proceeds of the
Loans or the violation of, noncompliance with or liability under, any
Environmental Law applicable to the operations of the Borrower any of its
Subsidiaries or any of the Properties and the reasonable fees and expenses of
legal counsel in connection with claims, actions or proceedings by any
Indemnitee against any Loan Party under any Loan Document (all the foregoing in
this clause (d), collectively, the "INDEMNIFIED LIABILITIES"), PROVIDED, that
the Borrower shall have no obligation hereunder to any Indemnitee with respect
to Indemnified Liabilities to the extent such Indemnified Liabilities are found
by a final and nonappealable decision of a court of competent jurisdiction to
have resulted from the gross negligence or willful misconduct of such
Indemnitee. Without limiting the foregoing, and to the extent permitted by
applicable law, the Borrower agrees not to assert and to cause its Subsidiaries
not to assert, and hereby waives and agrees to cause its Subsidiaries to waive,
all rights for contribution or any other rights of recovery with respect to all
claims, demands, penalties, fines, liabilities, settlements, damages, costs and
expenses of whatever kind or nature, under or related to Environmental Laws,
that any of them might have by statute or otherwise against any Indemnitee. All
amounts due under this Section 8.5 shall be payable not later than 10 days after
written demand therefor. Statements payable by the Borrower pursuant to this
Section 8.5 shall be submitted to Attention: Norton Cutler, General Counsel
(Telephone No. (615) 346-3848) (Telecopy No. (615) 346-3875) at the address of
the Borrower set forth in Section 8.2, or to such other Person or address as may
be hereafter designated by the Borrower in a written notice to the Lender. The
agreements in this Section 8.5 shall survive repayment of the Loans and all
other amounts payable hereunder.

                  8.6 SUCCESSORS AND ASSIGNS; PARTICIPATIONS AND ASSIGNMENTS.
(a) This Agreement shall be binding upon and inure to the benefit of the
Borrower, the Lender, all future holders of the Loans and their respective
successors and assigns, except that the Borrower may not assign or transfer any
of its rights or obligations under this Agreement without the prior written
consent of the Lender.

                  (b The Lender may, without the consent of the Borrower, in
accordance with applicable law, at any time sell to one or more banks, financial
institutions or other entities (each, a "PARTICIPANT") participating interests
in any Loan owing to the Lender, a portion of the Demand Facility of the Lender
or any other interest of the Lender hereunder and under the other Loan
Documents. In the event of any such sale by the Lender of a participating
interest to a Participant, the Lender's obligations under this Agreement to the
other parties to this Agreement shall remain unchanged, the Lender shall remain
solely responsible for the performance thereof, the Lender shall remain the
holder of any such Loan for all purposes under this Agreement and the other Loan
Documents, and the Borrower shall continue to deal solely and directly with the
Lender in connection with the Lender's rights and obligations under this

<PAGE>
                                                                              29

Agreement and the other Loan Documents. In no event shall any Participant under
any such participation have any right to approve any amendment or waiver of any
provision of any Loan Document, or any consent to any departure by any Loan
Party therefrom, except to the extent that such amendment, waiver or consent
would reduce the principal of, or interest on, the Loans or any fees payable
hereunder, or postpone the date of the final maturity of the Loans, in each case
to the extent subject to such participation. The Borrower agrees that if amounts
outstanding under this Agreement and the Loans are due or unpaid, or shall have
been declared or shall have become due and payable upon, each Participant shall,
to the maximum extent permitted by applicable law, be deemed to have the right
of setoff in respect of its participating interest in amounts owing under this
Agreement to the same extent as if the amount of its participating interest were
owing directly to it as the Lender under this Agreement. The Borrower also
agrees that each Participant shall be entitled to the benefits of Sections 3.7
and 3.8 with respect to its participation in the Demand Facility and the Loans
outstanding from time to time as if it was the Lender; PROVIDED that, in the
case of Section 3.7, such Participant shall have complied with the requirements
of said Section and PROVIDED, FURTHER, that no Participant shall be entitled to
receive any greater amount pursuant to any such Section than the transferor
Lender would have been entitled to receive in respect of the amount of the
participation transferred by such transferor Lender to such Participant had no
such transfer occurred.

                  (c The Lender may, in accordance with applicable law, at any
time and from time to time assign to any affiliate of the Lender, to an
additional bank, financial institution or other entity (an "ASSIGNEE") all or
any part of its rights and obligations under this Agreement and the other Loan
Documents. Upon the execution and delivery of an assignment and acceptance by
the Lender and the Assignee (an "ASSIGNMENT AND ACCEPTANCE"), from and after the
effective date determined pursuant to such Assignment and Acceptance, (x) the
Assignee thereunder shall be a party hereto and, to the extent provided in such
Assignment and Acceptance, have the rights and obligations of the Lender
hereunder with respect to the Demand Facility and/or Loans as set forth therein,
and (y) the Lender shall, to the extent provided in such Assignment and
Acceptance, be released from its obligations under this Agreement (and, in the
case of an Assignment and Acceptance covering all of the Lender's rights and
obligations under this Agreement, the Lender shall cease to be a party hereto).
The Borrower acknowledges that the Lender may at any time assign all of its
interests in the Loans, this Agreement and the other Loan Documents.

                  8.7 SET-OFF. In addition to any rights and remedies of the
Lender provided by law, the Lender shall have the right, without prior notice to
the Borrower, any such notice being expressly waived by the Borrower to the
extent permitted by applicable law, upon any amount becoming due and payable by
the Borrower hereunder (whether at the stated maturity, by acceleration or
otherwise), to set off and appropriate and apply against such amount any and all
deposits (general or special, time or demand, provisional or final), in any
currency, and any other credits, indebtedness or claims, in any currency, in
each case whether direct or indirect, absolute or contingent, matured or
unmatured, at any time held or owing by the Lender or any branch or agency
thereof to or for the credit or the account of the Borrower. The Lender agrees
promptly to notify the Borrower after any such setoff and application made by
the Lender, PROVIDED that the failure to give such notice shall not affect the
validity of such setoff and application.

                  8.8 COUNTERPARTS. This Agreement may be executed by one or
more of the parties to this Agreement on any number of separate counterparts,
and all of said counterparts taken together shall be deemed to constitute one
and the same instrument. Delivery of an executed signature page of this
Agreement by facsimile transmission shall be effective as delivery of a manually
executed counterpart hereof. A set of the copies of this Agreement signed by all
the parties shall be lodged with the Borrower and the Lender.

<PAGE>
                                                                              30

                  8.9 SEVERABILITY. Any provision of this Agreement that is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

                  8.10 INTEGRATION. This Agreement and the other Loan Documents
represent the entire agreement of the Borrower and the Lender with respect to
the subject matter hereof and thereof, and there are no promises, undertakings,
representations or warranties by the Lender relative to subject matter hereof
not expressly set forth or referred to herein or in the other Loan Documents.

                  8.11 GOVERNING LAWS. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

                  8.12  SUBMISSION TO JURISDICTION; WAIVERS.  The Borrower
hereby irrevocably and unconditionally:

                  (a submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which it
is a party, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the courts of the State of
New York, the courts of the United States for the Southern District of New York,
and appellate courts from any thereof;

                  (b consents that any such action or proceeding may be brought
in such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

                  (c agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or certified
mail (or any substantially similar form of mail), postage prepaid, to the
Borrower, as the case may be at its address set forth in Section 11.2 or at such
other address of which the Lender shall have been notified pursuant thereto;

                  (d agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and

                  (e waives, to the maximum extent not prohibited by law, any
right it may have to claim or recover in any legal action or proceeding referred
to in this Section any special, exemplary, punitive or consequential damages.

                  8.13  ACKNOWLEDGMENTS.  The Borrower hereby acknowledges that:

                  (a   it has been advised by counsel in the negotiation,
execution and delivery of this Agreement and the other Loan Documents;

                  (b the Lender does not have any fiduciary relationship with or
duty to the Borrower arising out of or in connection with this Agreement or any
of the other Loan Documents, and the

<PAGE>
                                                                              31

relationship between the Lender, on one hand, and the Borrower, on the other
hand, in connection herewith or therewith is solely that of debtor and creditor;
and

                  (c no joint venture is created hereby or by the other Loan
Documents or otherwise exists by virtue of the transactions contemplated hereby
among the Borrower and the Lender.

                  8.14 RELEASES OF GUARANTEES AND LIENS. At such time as the
Loans and the other obligations under the Loan Documents (other than obligations
under or in respect of Hedge Agreements) shall have been paid in full, and the
Demand Facility has been terminated, the Collateral shall be released from the
Liens created by the Security Documents, and the Security Documents and all
obligations (other than those expressly stated to survive such termination) of
the Lender and each Loan Party under the Security Documents shall terminate, all
without delivery of any instrument or performance of any act by any Person.

                  8.15 CONFIDENTIALITY. The Lender agrees to keep confidential
all non-public information provided to it by any Loan Party pursuant to this
Agreement that is designated by such Loan Party as confidential; PROVIDED that
nothing herein shall prevent the Lender from disclosing any such information (a)
to any affiliate of the Lender, (b) to any actual or prospective Transferee or
Hedge Agreement counterparty that agrees to comply with the provisions of this
Section, (c) to its employees, directors, agents, attorneys, accountants and
other professional advisors or those of any of its affiliates, (d) upon the
request or demand of any Governmental Authority, (e) in response to any order of
any court or other Governmental Authority or as may otherwise be required
pursuant to any Requirement of Law, (f) if requested or required to do so in
connection with any litigation or similar proceeding, (g) that has been publicly
disclosed, (h) to the National Association of Insurance Commissioners or any
similar organization or any nationally recognized rating agency that requires
access to information about the Lender's investment portfolio in connection with
ratings issued with respect to the Lender, (i) in connection with the exercise
of any remedy hereunder or under any other Loan Document or (j) to any party to
the Merger Agreement.

                  8.16 WAIVERS OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

<PAGE>
                  IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
officers as of the day and year first above written.

                                       BLUESTAR COMMUNICATIONS GROUP, INC.,
                                        as Borrower

                                       By: /s/ Robert E. Dupuis
                                          --------------------------------------
                                          Name: Robert E. Dupuis
                                          Title: Chief Executive Officer

                                       BEAR STEARNS CORPORATE LENDING INC.,
                                        as Lender

                                       By: /s/ Keith C. Barnish
                                          --------------------------------------
                                          Name: Keith C. Barnish
                                          Title: Senior Managing Director

<PAGE>

                                                                    SCHEDULE 4.4
                                                               TO LOAN AGREEMENT

                  CONSENTS, AUTHORIZATIONS, FILINGS and NOTICES

BLUESTAR NETWORKS, INC.

Consent by the public utility commission of the following states:

Florida
Kentucky
Georgia
Tennessee
North Carolina
South Carolina
Alabama
Louisiana
Mississippi

<PAGE>

                                                                   SCHEDULE 4.14
                                                               TO LOAN AGREEMENT

                                  SUBSIDIARIES

NAME                                                 STATE OF INCORPORATION
--------------------------------------------------------------------------------

BlueStar Networks, Inc.                              Tennessee
BlueStar Communications, Inc.                        Tennessee
BlueStar Communications of the Southeast, Inc.       Tennessee
BlueStar Networks of Virginia, Inc.                  Virginia

<PAGE>

                                                                   SCHEDULE 4.18
                                                               TO LOAN AGREEMENT

                            UCC FILING JURISDICTIONS
<TABLE>
<S>                                                         <C>

----------------------------------------------------------- -------------------------------------
NAME                                                        JURISDICTION
----------------------------------------------------------- -------------------------------------
BlueStar Networks, Inc. (1)                                 TN SOS
----------------------------------------------------------- -------------------------------------
BlueStar Communications, Inc.                               AL SOS
                                                            FL SOS
                                                            GA - Chatham County
                                                            KY SOS
                                                            KY - Fayette County
                                                            KY - Jefferson County
                                                            LA - Bossier Parish
                                                            LA - Caddo Parish
                                                            LA - East Baton Rouge Parish
                                                            LA - Jefferson Parish
                                                            MS SOS
                                                            MS - Hinds County
                                                            NC SOS
                                                            NC - Guilford County
                                                            NC - Mecklenburg County
                                                            NC - Wake County
                                                            SC SOS
                                                            TN SOS
----------------------------------------------------------- --------------------------------------------------------
BlueStar Communications of the Southeast, Inc.              FL SOS
                                                            TN SOS
----------------------------------------------------------- --------------------------------------------------------
BlueStar Networks of Virginia, Inc.                         TN SOS
                                                            VA SOS
----------------------------------------------------------- --------------------------------------------------------
BlueStar Communications Group, Inc.                         DE SOS
                                                            TN SOS
----------------------------------------------------------- --------------------------------------------------------
</TABLE>

----------------------------------

          (1)  Filings for BlueStar Networks, Inc. will not be made until the
               consents listed in Schedule 4.4 have been obtained.<PAGE>
                                                                    EXHIBIT 10.3
                                                                  EXECUTION COPY

================================================================================

                            PUT/CALL OPTION AGREEMENT

                                     between

                        COVAD COMMUNICATIONS GROUP, INC.

                                       and

                       BEAR STEARNS CORPORATE LENDING INC.

                            Dated as of June 15, 2000

================================================================================

<PAGE>

                                TABLE OF CONTENTS

                                                                            Page

ARTICLE  IDEFINITIONS........................................................-1-
    SECTION 1.1  CERTAIN DEFINED TERMS.......................................-1-
    SECTION 1.2  OTHER DEFINITIONAL PROVISIONS...............................-6-

ARTICLE IIPUT OPTION.........................................................-6-
    SECTION 2.1  PURCHASE OBLIGATION.........................................-6-
    SECTION 2.2  ASSIGNMENT..................................................-6-
    SECTION 2.3  RESALE TRUE-UP..............................................-7-
    SECTION 2.4  INTERIM TRUE-UP.............................................-7-
    SECTION 2.5  RESERVATION OF RESALE RIGHTS................................-7-
    SECTION 2.6  DELAY FEE...................................................-7-

ARTICLE IIICALL OPTION.......................................................-8-
    SECTION 3.1  CALL RIGHT..................................................-8-

ARTICLE IVREGISTRATION RIGHTS................................................-8-
    SECTION 4.1  DEMAND REGISTRATIONS........................................-8-
    SECTION 4.2  PRESERVATION OF RIGHTS......................................-9-
    SECTION 4.3  REGISTRATION PROCEDURES.....................................-9-
    SECTION 4.4  SELLING FEES...............................................-12-
    SECTION 4.5  REGISTRATION EXPENSES......................................-13-
    SECTION 4.6  LIMITATIONS ON SALE OR DISTRIBUTION OF OTHER SECURITIES....-13-
    SECTION 4.7  COMPANY RIGHT TO POSTPONE RESALE...........................-14-
    SECTION 4.8  NO REQUIRED SALE...........................................-14-
    SECTION 4.9  INDEMNIFICATION............................................-14-
    SECTION 4.10  CONTRIBUTION..............................................-16-

ARTICLE VCONDITIONS OF EFFECTIVENESS........................................-18-
    SECTION 5.1  CONDITIONS OF EFFECTIVENESS................................-18-

ARTICLE VIREPRESENTATIONS AND WARRANTIES....................................-19-
    SECTION 6.1  REPRESENTATIONS AND WARRANTIES OF THE COMPANY..............-19-

ARTICLE VIICOVENANTS........................................................-22-
    SECTION 7.1  COVENANTS OF THE COMPANY...................................-22-
    SECTION 7.2  COVENANTS OF BEAR STEARNS..................................-23-

ARTICLE VIII MISCELLANEOUS..................................................-24-
    SECTION 8.1  TAXES......................................................-24-

                                      -i-

<PAGE>

    SECTION 8.2  ABSOLUTE NATURE OF OBLIGATION..............................-24-
    SECTION 8.3  RESALE INDEMNITY...........................................-25-
    SECTION 8.4  WAIVER OF DEFENSES.........................................-25-
    SECTION 8.5  REINSTATEMENT..............................................-26-
    SECTION 8.6  PLACE OF CLOSING...........................................-26-
    SECTION 8.7  NOTICES....................................................-26-
    SECTION 8.8  REMEDIES...................................................-27-
    SECTION 8.9  NO RIGHT TO PURCHASE.......................................-27-
    SECTION 8.10  NO WAIVER; CUMULATIVE REMEDIES............................-27-
    SECTION 8.11  COUNTERPARTS..............................................-27-
    SECTION 8.12  SEVERABILITY..............................................-27-
    SECTION 8.13  AMENDMENTS IN WRITING; NO WAIVER..........................-27-
    SECTION 8.14  INTEGRATION...............................................-27-
    SECTION 8.15  GOVERNING LAW.............................................-28-
    SECTION 8.16  SUBMISSION TO JURISDICTION; WAIVERS.......................-28-
    SECTION 8.17 ACKNOWLEDGMENTS............................................-28-
    SECTION 8.18  WAIVERS OF JURY TRIAL.....................................-29-
    SECTION 8.19  ASSIGNMENT................................................-29-
    SECTION 8.20  PAYMENT OF CERTAIN FEES AND EXPENSES......................-29-

                                      -ii-

<PAGE>

EXHIBIT A  -     Form of Assignment and Acceptance
EXHIBIT B  -     Form of Opinion of Irell & Manella

                                     -iii-

<PAGE>

                            PUT/CALL OPTION AGREEMENT

                    PUT/CALL OPTION AGREEMENT, dated as of June 15, 2000
(this "AGREEMENT") between Covad Communications Group, Inc., a Delaware
Corporation (the "COMPANY") and Bear Stearns Corporate Lending Inc. ("BEAR
STEARNS").

                              W I T N E S S E T H:

                    WHEREAS, the Company has entered into that certain Agreement
and Plan of Merger and Reorganization, dated as of June 15, 2000 (the "Merger
Agreement"), among the Company, Covad Acquisition Corp., a Delaware Corporation,
and BlueStar Communications Group, Inc., a Delaware Corporation ("BLUESTAR");

                    WHEREAS, pursuant to the Merger Agreement, the Company has
agreed to make or cause to be made certain loans to BlueStar until the earlier
of the Effective Time (as defined in the Merger Agreement) and termination of
the Merger Agreement;

                    WHEREAS, BlueStar, as borrower, and Bear Stearns, as lender,
have entered into that certain Demand Loan Agreement of even date herewith (the
"LOAN AGREEMENT"); and

                    WHEREAS, Bear Stearns is willing to enter into the Loan
Agreement only if the Company agrees to purchase the Loans thereunder from Bear
Stearns upon the terms and conditions hereinafter set forth;

                    NOW THEREFORE, to induce Bear Stearns to enter into the Loan
Agreement, and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company hereby covenants and
agrees with Bear Stearns as follows:

                                    ARTICLE I

                                   DEFINITIONS

                    SECTION I.1 CERTAIN DEFINED TERMS. As used in this
Agreement, the following terms shall have the following meanings:

                    "AFFILIATE" means, with respect to any Person, any other
          Person that directly, or indirectly through one or more
          intermediaries, controls, is controlled by or is under common control
          with, such specified Person, for so long as such Person remains so
          associated to the specified Person.

                    "ALL-IN LOAN VALUE", on any date, means an amount equal to
          the aggregate outstanding principal balance of the Loans, plus accrued
          and unpaid interest thereon from

<PAGE>

          the closing of the Loans through and including the date or dates Bear
          Stearns receives cash in complete satisfaction of the Put Option or
          the Call Option, as the case may be (including, without limitation,
          interest accruing at the applicable rate provided in the Loan
          Agreement, including any applicable default margin, after the maturity
          of the Loans and after the filing of any petition in bankruptcy, or
          the commencement of any insolvency, reorganization or like proceeding,
          relating to BlueStar, whether or not a claim for post-filing or
          post-petition interest is allowed in such proceeding), any other
          outstanding amounts payable under the Loan Agreement, together with
          any accrued and unpaid fees and expenses through and including the
          date or dates Bear Stearns receives cash in complete satisfaction of
          the Put Option or the Call Option, as the case may be, which fees and
          expenses, under the Loan Agreement, are payable to Bear Stearns, and
          any accrued and unpaid fees and expenses (including, without
          limitation, Selling Fees and any Delay Fee) payable to Bear Stearns
          under this Agreement.

                    "BLACKOUT PERIOD" has the meaning set forth in Section 4.7
          hereof.

                    "BUSINESS DAY" means any day that is not a Saturday, a
          Sunday or other day on which banks are required or authorized by law
          to be closed in The City of New York.

                    "CHANGE OF CONTROL," with respect to BlueStar, means the
          occurrence of any of the following: (i) the consummation of the merger
          pursuant to the Merger Agreement (ii) the sale, lease, transfer,
          conveyance or other disposition, in one or a series of related
          transactions, of all or substantially all of the assets of BlueStar
          and its subsidiaries, taken as a whole, to any Person or group (as
          such term is used in Section 13(d)(3) and 14(d)(2) of the Exchange
          Act), (iii) any Person or group (as defined above) is or becomes the
          beneficial owner, directly or indirectly, of more than 50% of the
          total voting stock of BlueStar, including by way of merger,
          consolidation or otherwise or (iv) the first day on which a majority
          of the members of the Board of Directors of BlueStar are not
          Continuing Directors.

                    "CLAIMS" has the meaning set forth in Section 4.9(a).

                    "CLOSING DATE" means the date on which the conditions
          precedent set forth in Section 5.1 shall have been satisfied.

                    "COMMENCEMENT DATE" means the earliest to occur of the
          following dates:

                         (i)   the date 180 days following the Closing Date,

                         (ii)  the date on which a Change of Control occurs with
                    respect to BlueStar,

                         (iii) the date of commencement by or against BlueStar
                    or any of its subsidiaries of any bankruptcy proceedings,

                                       2
<PAGE>

                         (iv)  the date on which the Merger Agreement is (x)
                    terminated or (y) amended without the prior written consent
                    of Bear Stearns,

                         (v)   such day as the bid price per Company Share is at
                    or below     per share at the close of the afternoon session
                    for the immediately preceding three (3) Nasdaq trading days,
                    as determined by Bear Stearns, and

                         (vi)  the date on which (x) the holder or holders of
                    any indebtedness of BlueStar for borrowed money (or a
                    trustee or agent on behalf of such holder or holders) causes
                    or has the right to cause such indebtedness for borrowed
                    money to be declared to be due and payable prior to its
                    stated maturity, (y) BlueStar fails to make any payment in
                    respect of any indebtedness for borrowed money when due
                    (whether by scheduled maturity, required prepayment,
                    acceleration, demand, or otherwise) or (z) BlueStar fails to
                    perform or observe any other condition or covenant, or any
                    other event shall occur or condition exist, under any
                    agreement or instrument relating to any such indebtedness
                    for borrowed money, that results in an event of default
                    under such indebtedness.

                    "COMPANY SHARE VALUE" means, for each Company Share, an
          amount equal to 90% of the average bid price per Company Share at the
          close of the afternoon session for the two Nasdaq trading days
          immediately preceding the related Exercise Date, as determined by Bear
          Stearns.

                    "COMPANY SHARES" means shares of the common stock, par value
          $0.001 per share, of the Company.

                    "CONTINUING DIRECTORS" means, with respect to BlueStar, as
          of any date of determination, any member of the Board of Directors of
          BlueStar who (i) was a member of such Board of Directors on the date
          of this Agreement or (ii) was nominated for election to such Board of
          Directors with the affirmative vote of a majority of the Continuing
          Directors who were members of such Board at the time of such
          nomination or election or who was elected or appointed in the ordinary
          course by Continuing Directors or other directors so elected or
          appointed.

                    "DELAY FEE" has the meaning set forth in Section 2.5 hereof.

                    "EFFECTIVE PERIOD" has the meaning set forth in Section
          4.3(b).

                    "EXCHANGE ACT" means the U.S. Securities Exchange Act of
          1934, as amended.

                    "EXERCISE DATE" means the date on which Bear Stearns
          exercises the Put Option or the Company exercises the Call Option.

                    "GOVERNMENTAL AUTHORITY" means any governmental, regulatory
          or administrative agency, authority, instrumentality or commission or
          any court, tribunal or judicial or

                                       3
<PAGE>

          arbitral body of the United States (federal, state or local) or any
          other country or the European Community or any other supranational
          organization or body.

                    "IN CASH" means in U.S. dollars.

                    "INDENTURES" means the Indenture dated as of March 11, 1998
          between the Company and The Bank of New York, the Indenture dated as
          of February 18, 1999 between the Company and The Bank of New York and
          the Indenture dated as of January 28, 2000 between the Company and
          United States Trust Company of New York.

                    "LOANS" has the meaning set forth in the Loan Agreement.

                    "MATERIAL ADVERSE EFFECT" means a material adverse effect on
          (a) the business, operations, property, condition (financial or
          otherwise) or prospects of the Company and its Subsidiaries taken as a
          whole or (b) the validity or enforceability of this Agreement or the
          rights or remedies of Bear Stearns hereunder.

                    "OTHER TAXES" means any present or future stamp, court or
          documentary taxes or any other excise or property taxes, charges or
          similar levies which arise from any payment made hereunder or from the
          execution, delivery, performance, enforcement or registration of, or
          otherwise with respect to, this Agreement.

                    "PERSON" means any individual, corporation, limited
          liability company, limited or general partnership, joint venture,
          association, joint-stock company, trust, unincorporated organization,
          government or any agency or political subdivisions thereof or any
          group comprised of two or more of the foregoing.

                    "PURCHASE PRICE" has the meaning set forth in Section 2.1.

                    "REGISTRABLE SECURITIES" means the Company Shares (including
          Company Shares issued and delivered pursuant to Section 2.3 or 2.4 of
          this Agreement) whether beneficially owned by Bear Stearns as of the
          Closing Date or thereafter acquired by Bear Stearns or an Affiliate of
          Bear Stearns. As to any particular Registrable Securities, such
          securities shall cease to be Registrable Securities when (i) a
          registration statement with respect to the sale of such securities
          shall have been declared effective under the Securities Act and such
          securities shall have been disposed of in accordance with such
          registration statement, (ii) such securities shall have been sold
          (other than in a privately-negotiated sale) pursuant to Rule 144 (or
          any successor provision) under the Securities Act, (iii) such
          securities are eligible for sale pursuant to Rule 144 without being
          subject to applicable volume limitations thereunder or (iv) such
          securities shall have ceased to be outstanding.

                    "REGISTRATION PERIOD" means the period from the Closing Date
          and ending on the date when, after the Settlement Date, neither Bear
          Stearns nor an Affiliate of Bear Stearns

                                       4
<PAGE>

          holds Registrable Securities or otherwise is entitled to receive
          Company Shares pursuant to this Agreement.

                    "REGISTRATION RIGHTS EXPENSES" means any and all fees and
          expenses incident to the Company's performance of or compliance with
          its obligations under Article IV of this Agreement, including, without
          limitation: (i) registration, filing and other fees of the SEC or
          relating to any U.S. securities exchange or market registration or
          qualification, (ii) fees and expenses of compliance with U.S. state
          and local securities or "blue sky" laws and in connection with the
          preparation of a "blue sky" survey, including reasonable fees and
          expenses of "blue sky" counsel, (iii) printing and copying expenses,
          (iv) messenger and delivery expenses, (v) expenses incurred in
          connection with any road show, (vi) fees and disbursements of counsel
          for the Company, (vii) with respect to each registration, the
          reasonable fees and disbursements of one counsel for Bear Stearns and
          (viii) fees and disbursements of the Company's independent public
          accountants (including the expenses relating to any audit or limited
          review and "comfort" letters).

                    "REQUIREMENT OF LAW" means, as to any Person, the
          Certificate of Incorporation and By-Laws or other organizational or
          governing documents of such Person, and any law, treaty, rule or
          regulation or determination of an arbitrator or a court or other
          Governmental Authority, in each case applicable to or binding upon
          such Person or any of its property or to which such Person or any of
          its property is subject.

                    "RESPONSIBLE OFFICER" means the chief executive officer, the
          president or chief financial officer of the Company, or any other
          officer having substantially the same authority and responsibility.

                    "SEC" means the U.S. Securities and Exchange Commission.

                    "SECURITIES ACT" means the U.S. Securities Act of 1933, as
          amended.

                    "SELLING FEE" has the meaning set forth in the Section 4.4
          hereof.

                    "SETTLEMENT DATE" means the first practicable day following
          the Exercise Date, but no later than the second day following the
          Exercise Date, that is a business day for The Depository Trust
          Company.

                    "SHARE CAPITAL" means any and all shares, interest,
          participation or other equity equivalents (however designated and
          whether voting or non-voting) and any and all rights (other than any
          evidence of indebtedness), warrants or options exchangeable for or
          convertible into such shares, interest, participation or other equity
          equivalents.

                    "TRANSFER" means, as to any security, directly or
          indirectly, to sell, transfer, assign, pledge, encumber, hypothecate
          or similarly dispose of, either voluntarily or involuntarily, or to
          enter into any contract, option or other arrangement or understanding
          with respect to the sale, transfer, assignment, pledge, encumbrance,
          hypothecation or similar disposition,

                                       5
<PAGE>

          of such security beneficially owned by a Person or any interest in any
          such security beneficially owned by a Person.

                  "VOTING SHARES" means shares of the class or classes of Share
         Capital pursuant to which the holders thereof have the general voting
         power to vote at meetings of Shareholders (irrespective of whether or
         not at the time shares of any other class or classes shall have or
         might have voting power by reason of the happening of any contingency).

                  SECTION I.2 OTHER DEFINITIONAL PROVISIONS. (a) The words
"HEREOF," "HEREIN" and "HEREUNDER" and words of similar import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement, and Article, Section, Annex and Schedule references
are to this Agreement unless otherwise specified; and

                  (b) The meanings given to terms defined herein shall be
equally applicable to both the singular and plural forms of such terms.

                                   ARTICLE II

                                   PUT OPTION

                  SECTION II.1 PURCHASE OBLIGATION. If all or any portion of the
Loans is outstanding as of the Commencement Date and for so long as the Loans
remain outstanding, Bear Stearns shall have the right, at any time after the
Commencement Date, to sell and assign all of such Loans to the Company ("PUT
OPTION"), in the manner and for the purchase price set forth in this Article II.
On the Exercise Date for the Put Option, Bear Stearns shall provide written
notice (which may be notice by telecopy with an oral confirmation of delivery)
to the Company stating that the Put Option is being exercised pursuant to this
Article II. On the Settlement Date, the Company shall purchase the Loans from
the Company in cash in an amount equal to the All-In Loan Value or, at the
Company's election, in Company Shares with an aggregate Company Share Value then
equal to the All-In Loan Value (such cash amount or Company Share amount
sometimes hereinafter referred to as the "PURCHASE PRICE"). Payment of such
Purchase Price shall be made without reduction or setoff of any kind whatsoever.
Any such Purchase Price paid in cash shall be paid to Bear Stearns in federal
funds or other immediately available funds.

                  SECTION II.2 ASSIGNMENT. Promptly upon receipt of the Purchase
Price, Bear Stearns shall deliver to the Company an assignment of its rights
with respect to the Loans and the Loan Documents in substantially the form of
ANNEX A attached, with blanks filled in appropriately (each, an "ASSIGNMENT").
The Company and Bear Stearns shall cooperate in taking any other action
reasonably requested by either of them (with the Company to bear the reasonable
out-of-pocket costs incurred by either party in taking such action) to perfect
or further evidence the assignment of the Loans to the Company including,
without limitation, in the event of a bankruptcy with respect to BlueStar, any
required registration of transfers of claims in such bankruptcy. In the event
that the purchase of the Loans under this Article II is enjoined, excused

                                       6
<PAGE>

or stayed in connection with any bankruptcy case commenced by BlueStar, the
Company shall (to the extent not so enjoined, excused or stayed) nevertheless
pay the Purchase Price as required herein and shall have a participating
interest in the Loans until such time as the assignment of the Loans
contemplated herein shall be permitted. In such event, Bear Stearns will
promptly deliver to the Company any consideration it receives in respect of the
Loans after the Settlement Date, less any applicable fees and expenses incurred
by Bear Stearns, with all necessary endorsements.

                  SECTION II.3 RESALE TRUE-UP. Upon completion of each resale of
any Company Shares by Bear Stearns (but not more frequently than daily), Bear
Stearns shall furnish to the Company a statement setting forth the aggregate
proceeds received from all such resales and the applicable selling concessions,
transfer taxes and other fees and expenses. Bear Stearns further agrees to (i)
remit to the Company the excess of the aggregate proceeds received from the
resale of such Company Shares over the All-In Loan Value, after deducting from
such proceeds of sale any selling concessions, transfer taxes and other fees and
expenses and (ii) to the extent not sold by Bear Stearns to satisfy the All-In
Loan Value, return to the Company any remaining Company Shares. If the All-In
Loan Value exceeds the aggregate proceeds received by Bear Stearns from the
resale of all Company Shares, less applicable selling concessions, transfer
taxes and other fees and expenses, the Company shall, immediately upon
completion of the last such resale, pay such excess amount to Bear Stearns in
cash or, at the Company's option, in additional Company Shares. This procedure
shall be repeated until Bear Stearns realizes in cash the total All-In Loan
Value.

                  SECTION II.4 INTERIM TRUE-UP. In the event that the average
bid price per share of the Company's common stock at the close of the afternoon
session for any two consecutive Nasdaq trading days shall have decreased after
the Settlement Date such that the All-In Loan Value at that time exceeds the
product of (i) the number of Company Shares received by Bear Stearns on the
Settlement Date and (ii) that average bid price by at least $1 million, the
Company shall, immediately upon notice by Bear Stearns, pay such excess amount
to Bear Stearns in cash or, at the Company's option, in additional Company
Shares.

                  SECTION II.5 RESERVATION OF RESALE RIGHTS. Bear Stearns
reserves the absolute right to sell, in its sole discretion, any or all of the
Company Shares in a transaction exempt from registration under the Securities
Act or pursuant to a registration statement and to effect such sale, in its sole
discretion, in any amount of Company Shares and at any time or from time to
time.

                  SECTION II.6 DELAY FEE. The Company shall pay to Bear Stearns
a Delay Fee ("DELAY FEE") of 2% of the All-In Loan Value, which shall accrue
from and after the date that the Company fails to deliver cash or Company Shares
in an amount then equal to the All-In-Loan Value when required pursuant to the
terms of this Agreement.

                                   ARTICLE III

                                   CALL OPTION

                                       7

<PAGE>

                  SECTION III.1 CALL RIGHT. The Company may, at any time and at
its sole option, give Bear Stearns written notice (which may be notice by
telecopy with an oral confirmation of delivery) of its intention to call the
Loans (the "CALL OPTION"). The date of such notice shall be deemed the Exercise
Date for such Call Option. On the Settlement Date, the Company shall purchase
the Loans from Bear Stearns for cash in an amount equal to the All-In Loan
Value, and Bear Stearns shall deliver the Assignments to the Company. Such cash
payment shall be paid to Bear Stearns in federal funds or other immediately
available funds.

                                   ARTICLE IV

                               REGISTRATION RIGHTS

                  SECTION IV.1 DEMAND REGISTRATIONS. (a) At any time and from
time to time after the Closing Date and during the Registration Period, Bear
Stearns shall have the right on one occasion to require the Company to file a
"shelf" registration statement on any appropriate form pursuant to Rule 415 (or
similar rule that may be adopted by the SEC) under the Securities Act covering
all or any part of its Registrable Securities, within three (3) Business Days of
written request (which may be notice by telecopy with an oral confirmation of
delivery) by Bear Stearns and in any event no later than the date that is three
months after the Closing Date (each such date, a "FILING DATE"), to permit
resales of Registrable Securities as contemplated by this Agreement. A request
pursuant to this Section 4.1(a) is referred to herein as a "DEMAND REGISTRATION
REQUEST" and a registration so requested is referred to herein as a "DEMAND
REGISTRATION."

                  (b) The Company shall include in a Demand Registration
requested under Section 4.1(a) any or all of the Registrable Securities of Bear
Stearns as requested by Bear Stearns.

                  (c) The Company shall, as expeditiously as practicable
following a Demand Registration Request, use its best efforts to (i) effect the
registration under the Securities Act (including by means of a shelf
registration pursuant to Rule 415 under the Securities Act if so requested by
Bear Stearns) of the Registrable Securities which the Company has been so
requested to register by Bear Stearns, for distribution, in accordance with such
intended method of distribution, (ii) to cause such registration to become
effective no later than the Exercise Date of the Put Option, (iii) if requested
by Bear Stearns, to obtain acceleration of the effective date of the
registration statement relating to such registration and (iv) to keep any Demand
Registration required by this Section 4.1 continuously effective, supplemented
and amended as required by and subject to the provisions of Section 4.3 hereof
to the extent necessary to ensure that it is available for sales of Registrable
Securities by Bear Stearns and to ensure that it conforms with the requirements
of this Agreement, the Securities Act and the policies, rules and regulations of
the SEC as announced from time to time during the Effective Period.

                                       8
<PAGE>

                  SECTION IV.2 PRESERVATION OF RIGHTS. From the Closing Date and
for so long as Bear Stearns or an Affiliate of Bear Stearns holds Registrable
Securities, the Company shall not effect any registration under the Securities
Act of Voting Shares or otherwise grant any rights to third parties which
contravene the rights of Bear Stearns granted hereunder.

                  SECTION IV.3 REGISTRATION PROCEDURES. If and whenever the
Company is required by the provisions of this Agreement to effect or cause the
registration of any Registrable Securities under the Securities Act as provided
in this Agreement, the Company shall, as expeditiously as practicable:

                  (a) prepare and file with the SEC a registration statement on
an appropriate registration form of the SEC for the disposition of such
Registrable Securities in accordance with the intended method of disposition
thereof, which form shall be selected by the Company and shall, in the case of a
shelf registration, be available for the sale of the Registrable Securities by
Bear Stearns and such registration statement shall comply as to form in all
material respects with the requirements of the applicable form and include all
financial statements required by the SEC to be filed therewith during the
Effective Period, and the Company shall use its best efforts to cause such
registration statement to become effective (PROVIDED, HOWEVER, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, or comparable statements under U.S. state securities or "blue sky"
laws, the Company will, upon request by Bear Stearns, furnish to one counsel for
Bear Stearns copies of all such documents proposed to be filed (including all
exhibits thereto), which documents will be subject to the reasonable review and
reasonable comment of such counsel, and the Company shall not file any
registration statement or amendment thereto or any prospectus or supplement
thereto with respect to a Demand Registration to which Bear Stearns shall
reasonably object in writing;

                  (b) prepare and file with the SEC such amendments (including
post-effective amendments) and supplements to such registration statement and
the prospectus used in connection therewith as may be necessary to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all Registrable
Securities covered by such registration statement in accordance with the
intended methods of disposition by the seller or sellers thereof set forth in
such registration statement in each case for a period until the earlier of (i)
such time as all such Registrable Securities have been disposed of in accordance
with the intended methods of disposition set forth in such registration
statement by Bear Stearns and (ii) the expiration of 10 Nasdaq trading days from
the Settlement Date; PROVIDED that the period described in this clause (ii)
shall be extended (x) to the date two Nasdaq trading days after Bear Stearns
last receives any additional Company Shares pursuant to Section 2.3 of this
Agreement and (y) by the number of days that resales in the Company Shares
(including resales contemplated by Section 2.3 of this Agreement) are prohibited
by the Company pursuant to Section 4.7 of this Agreement (such period, the
"EFFECTIVE PERIOD").

                  (c) furnish, without charge, to Bear Stearns such number of
copies of such registration statement, each amendment and supplement thereto (in
each case including all exhibits), and the prospectus included in such
registration statement (including each preliminary

                                       9
<PAGE>

prospectus and summary prospectus), in conformity with the requirements of the
Securities Act, such documents incorporated by reference in such registration
statement, and such other documents, as Bear Stearns may reasonably request in
order to facilitate the disposition of the Registrable Securities as
contemplated by such registration statement;

          (d) use its best efforts to register or qualify all Registrable
Securities covered by such registration statement under such other securities or
"blue sky" laws of such jurisdictions within the United States as Bear Stearns
shall reasonably request, to the extent such registration or qualification is
required by law, and do any and all other acts and things that may be necessary
or advisable to enable Bear Stearns to consummate the disposition of the
Registrable Securities in such jurisdictions, except that in no event shall the
Company be required to qualify generally to do business as a foreign corporation
in any jurisdiction where it would not, but for the requirements of this
paragraph (d), be required to be so qualified, to subject itself to taxation in
any such jurisdiction or to consent to general service of process in any such
jurisdiction;

          (e) enter into such customary agreements (including an agreement which
may include customary indemnification provisions in favor of underwriters and
other persons in addition to, or in substitution for, the provisions of Section
4.9 hereof) and take such other actions as Bear Stearns shall reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities;

          (f) obtain (i) any opinion of counsel for the Company, dated the
Settlement Date, in customary form and in form and scope reasonably satisfactory
to Bear Stearns and its counsel and (ii) any "comfort" letter signed by the
independent public accountants in customary form and covering matters of the
type customarily covered by "comfort" letters;

          (g) notify Bear Stearns as soon as practicable: (i) when the
registration statement, any pre-effective amendment, the prospectus or any
prospectus supplement related thereto or post-effective amendment to the
registration statement has been filed and, with respect to the registration
statement or any post-effective amendment, when the same has become effective;
(ii) of any request by the SEC or state securities authority for amendments or
supplements to the registration statement or the prospectus related thereto or
for additional information; (iii) of the issuance by the SEC of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose; (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the U.S. state securities or "blue sky"
laws or the initiation of any proceeding for such purpose; and (v) of the
existence of any fact of which the Company becomes aware that results in the
registration statement, the prospectus related thereto or any document
incorporated therein by reference containing an untrue statement of a material
fact or omitting to state a material fact required to be stated therein or
necessary to make any statement therein not misleading; and, if the notification
relates to an event described in clause (v), the Company shall, as soon as
reasonably practicable, prepare and furnish to Bear Stearns a reasonable number
of copies of a prospectus as supplemented or amended so that, as thereafter
delivered to Bear Stearns the prospectus shall not include an untrue statement
of a material fact or omit to state a material fact

                                       10
<PAGE>

required to be stated therein or necessary to make the statements therein in the
light of the circumstances under which they were made not misleading;

          (h) use its best efforts to comply with all applicable rules and
regulations of the SEC, and make available to its security holders, as soon as
reasonably practicable after the effective date of the registration statement
(and in any event within 16 months thereafter), an earning statement (which need
not be audited) covering the period of at least 12 consecutive months beginning
with the first day of the Company's first calendar quarter after the effective
date of the registration statement, which earnings statement shall satisfy the
provisions of Section 11(a) of the Securities Act and the rules and regulations
thereunder;

          (i) use its best efforts to (i) cause all such Registrable Securities
covered by such registration statement to be listed on each U.S. securities
exchange or market or quotation system on which similar securities issued by the
Company are then listed or quoted, and provide a transfer agent and registrar
for such Registrable Securities not later than the effective date of such
registration statement; (ii) comply with all applicable laws and the
requirements of the relevant securities exchange or market or quotation system
in respect of such listing and (iii) consult with Bear Stearns in respect of all
aspects of such listing;

          (j) deliver, as soon as practicable, to Bear Stearns and one counsel
for Bear Stearns copies of all correspondence between the SEC and the Company,
its counsel or auditors and any memoranda relating to discussions with the SEC
or its staff with respect to the registration statement, other than those
portions of any such memoranda that contain information subject to
attorney-client privilege with respect to the Company or other shareholders,
and, upon receipt of such confidentiality agreements as the Company may
reasonably request, make reasonably available for inspection by Bear Stearns and
by any attorney, accountant or other agent retained by Bear Stearns, all
pertinent financial and other records, pertinent corporate documents and
properties of the Company, and cause all of the Company's officers, directors
and employees to supply all information reasonably requested by Bear Stearns,
any such attorney, accountant or agent in connection with such registration
statement;

          (k) use reasonable efforts to prevent the issuance of any stop order
suspending the effectiveness of the registration statement or of any order
preventing or suspending the use of any preliminary prospectus and, if any such
order is issued, to obtain the withdrawal of any such order at the earliest
possible moment;

          (l) make reasonably available its employees and personnel and
otherwise provide reasonable assistance to Bear Stearns (taking into account the
needs of the Company's businesses and the requirements of the resale process) in
the resale of Registrable Securities as contemplated in this Agreement.

          (m) promptly prior to the filing of any document that is to be
incorporated by reference into the registration statement or the prospectus
(after the initial filing of such registration statement), provide copies of
such document to one counsel for Bear Stearns and make the Company's
representatives reasonably available for discussion of such document and

                                       11
<PAGE>

make such changes in such document concerning Bear Stearns prior to the filing
thereof as such counsel for Bear Stearns may reasonably request;

          (n) furnish to Bear Stearns, without charge, at least one signed copy
of the registration statement and each post-effective amendment thereto,
including financial statements and schedules, all documents incorporated therein
by reference and all exhibits (including those incorporated by reference);

          (o) cooperate with Bear Stearns and each agent participating in the
disposition of such Registrable Securities and their respective counsel in
connection with any filings required to be made with the National Association of
Securities Dealers, Inc.;

          (p) cooperate with Bear Stearns to facilitate the timely preparation
and delivery of certificates not bearing any restrictive legends representing
the Registrable Securities to be sold, and cause such Registrable Securities to
be issued in such denominations and registered in such names in accordance with
the instructions of Bear Stearns at least two Business Days prior to any sale of
Registrable Securities; and

          (q) take all such other reasonable actions as are necessary or
advisable or reasonably requested by Bear Stearns in order to expedite or
facilitate the disposition of such Registrable Securities.

The Company may require as a condition precedent to the Company's obligations
under this Section 4.3 that Bear Stearns furnish the Company such information
regarding Bear Stearns and the distribution of such securities as the Company
may from time to time reasonably request in writing and as shall be required by
law, by the SEC or by any securities exchange or market or quotation system on
which the Registrable Securities are to be listed or quoted in connection
therewith; PROVIDED, that such information shall be used only in connection with
such registration and the fulfillment of the Company's obligations under this
Agreement. If any such registration statement or comparable statement under
"blue sky" laws refers to Bear Stearns by name or otherwise as Bear Stearns,
then Bear Stearns shall have the right to require (i) the insertion therein of
language, in form and substance satisfactory to Bear Stearns and the Company, to
the effect that the holding by Bear Stearns of such securities is not to be
construed as a recommendation by Bear Stearns of the investment quality of the
Company's securities covered thereby and that such holding does not imply that
Bear Stearns will assist in meeting any future financial requirements of the
Company or (ii) in the event that such reference to Bear Stearns by name or
otherwise is not in the judgment of the Company, as advised by counsel, required
by the Securities Act or any similar federal statute or any state "blue sky" or
securities law then in force, the deletion of the reference to Bear Stearns.

          SECTION IV.4 SELLING FEES. All Purchase Price amounts due that are
satisfied in Company Shares, whether on the Settlement Date or on any subsequent
date on which the Company pays Bear Stearns in additional Company Shares
pursuant Section 2.3 hereof, shall be subject to a selling fee (a "SELLING
FEE"), payable by the Company to Bear Stearns in cash or

                                       12
<PAGE>

Company Shares on the Settlement Date or on such subsequent date, as the case
may be, as follows:

                    (a) If a registration statement is effective in respect of
          such Company Shares at the time of the their delivery to Bear Stearns,
          and such registration statement is useable for its intended purpose,
          the Selling Fee shall be an amount equal to 2% of the All-In Loan
          Value.

                    (b) If a registration statement is not effective in respect
          of such Company Shares at the time of their delivery to Bear Stearns,
          or if a registration statement is effective but fails to be useable
          for its intended purpose (including, without limitation, due to any
          Blackout Period), the Selling Fee shall be an amount equal to 5% of
          the All-In Loan Value; provided, however, that such Selling Fee shall
          increase at the rate of .25%, payable weekly in cash or Company
          Shares, for each additional week or portion thereof that a
          registration statement is not effective or fails to be useable for its
          intended purpose (including, without limitation, due to any Blackout
          Period); PROVIDED, FURTHER, that the Selling Fee under this subsection
          (b) shall not exceed 9% of the All-In Loan Value. If the Company
          delivers an effective registration statement after the date Company
          Shares are delivered to Bear Stearns and such registration statement
          is useable for its intended purpose at the time such registration
          statement becomes effective, the Selling Fee shall be reduced by an
          amount equal to 1% of the All-In Loan Value in respect of shares sold
          under such registration statement.

          SECTION IV.5 REGISTRATION EXPENSES. To the fullest extent permitted by
applicable laws, the Company will pay (or promptly reimburse the payment of) all
Registration Expenses incurred in connection with each registration statement
filed pursuant to this Agreement and the fulfillment of the Company's
obligations under this Agreement.

          SECTION IV.6 LIMITATIONS ON SALE OR DISTRIBUTION OF OTHER SECURITIES.
(a) To the extent reasonably requested in writing by Bear Stearns, the Company
hereby agrees (except that the Company may effect any sale or distribution of
any such securities pursuant to a registration on Form S-8 or any successor or
similar form that is then in effect or upon the conversion, exchange or exercise
of any then outstanding options, warrants, rights or other securities
convertible into or exchangeable or exercisable for Registrable Securities or on
Form S-4 or any successor or similar form that is then in effect for a merger,
acquisition or other transaction and related distributions of securities) to use
its reasonable best efforts to cause each holder, directly or indirectly, of at
least 1% of any Share Capital of the Company purchased from the Company at any
time other than in a public offering to agree) not to Transfer, including,
without limitation, any sale pursuant to Rule 144 under the Securities Act, any
common stock of the Company (other than as part of such underwritten public
offering) during the time period reasonably requested by the Bear Stearns, not
to exceed 90 days from the effective date of the registration statement.

          (b) The Company hereby agrees that, if it shall previously have
received a request for registration pursuant to Section 4.1 hereof or postponed
pursuant to Section 4.7

                                       13
<PAGE>

hereof, and if such previous registration shall not have
been withdrawn or abandoned, the Company shall not Transfer any common stock of
the Company (other than as part of such underwritten public offering, a
registration on Form S-8 or any successor or similar form that is then in effect
or upon the conversion, exchange or exercise of any then outstanding options,
warrants, rights or other securities convertible into or exchangeable or
exercisable for Registrable Securities or on Form S-4 or any successor or
similar form that is then in effect for a merger, acquisition or other
transaction and related distributions of securities) during the time period
reasonably requested by Bear Stearns.

          SECTION IV.7 COMPANY RIGHT TO POSTPONE RESALE. The Company shall be
entitled to postpone for a reasonable period of time (but not exceeding 120
days) the resale of Registrable Securities under any effective registration
statement filed by it pursuant to this Agreement if the Company determines in
its good faith judgment, based upon the advice of external counsel, that
maintaining the effectiveness of the Registration Statement would require
premature disclosure of non-public material information that would reasonably be
likely to have a material adverse effect on the Company's material financing
plans or any planned material transaction involving the Company, PROVIDED THAT
the Company promptly gives Bear Stearns written notice of such prohibition (such
prohibitions, "BLACKOUT EVENTS", and the period during which any such Blackout
Event continues, a "BLACKOUT PERIOD").

          SECTION IV.8 NO REQUIRED SALE. Nothing in this Agreement shall be
deemed to create an independent obligation on the part of Bear Stearns to sell
any Registrable Securities pursuant to any effective registration statement.

          SECTION IV.9 INDEMNIFICATION. (a) In the event of any registration of
any securities of the Company under the Securities Act pursuant this Agreement,
the Company will, and hereby does, indemnify and hold harmless, to the fullest
extent permitted by all applicable laws, Bear Stearns, its directors, officers,
affiliates, employees, shareholders, members and general and limited partners
(and the directors, officers, affiliates, employees, shareholders, members and
general and limited partners thereof), each other Person who participates as an
underwriter in the offering or sale of such securities, each director, officer,
employee, shareholder, member or general and limited partner of such
underwriter, and each other Person, if any, who controls such seller or any such
underwriter within the meaning of Section 15 of the Securities Act or Section 20
of the Exchange Act (the "INDEMNITEES"), against any and all losses, claims,
damages or liabilities, joint or several, actions or proceedings (whether
commenced or threatened) in respect thereof ("CLAIMS") and expenses (including
reasonable fees of counsel and any amounts paid in any settlement effected with
the Company's consent, which consent shall not be unreasonably withheld) to
which each such indemnified party may become subject under the Securities Act or
otherwise, insofar as such Claims or expenses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of a material fact contained in
any registration statement under which such securities were registered under the
Securities Act, together with the documents incorporated by reference therein or
the omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein not misleading, or
(ii) any untrue statement or alleged untrue statement of a material fact
contained in any preliminary, final or summary prospectus or listing particulars
or

                                       14
<PAGE>

any amendment or supplement thereto, together with the documents incorporated by
reference therein, or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; PROVIDED, however, that the Company shall not be liable to
any such indemnified party in any such case to the extent such Claim or expense
arises out of or is based upon any untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact made in
such registration statement or amendment thereof or supplement thereto or in any
such prospectus or any preliminary, final or summary prospectus in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of such indemnified party specifically for use therein. Such indemnity
and reimbursement of expenses shall remain in full force and effect regardless
of any investigation made by or on behalf of such indemnified party and shall
survive the Transfer of such securities by such seller.

          (b) Bear Stearns shall indemnify and hold harmless (in the same manner
and to the same extent as set forth in paragraph (a) of this Section 4.9) to the
extent permitted by law the Company, its directors and officers, each Person
controlling the Company within the meaning of the Securities Act and all other
prospective sellers and their directors, officers, general and limited partners
and respective controlling Persons with respect to any untrue statement or
alleged untrue statement of any material fact in, or omission or alleged
omission of any material fact from, such registration statement, any
preliminary, final or summary prospectus or listing particulars, or any
amendment or supplement thereto, if such statement or alleged statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or its representatives by or on
behalf of Bear Stearns specifically for use therein and reimburse such
indemnified party for any legal or other expenses reasonably incurred in
connection with investigating or defending any such Claim as such expenses are
incurred; PROVIDED, HOWEVER, that the aggregate amount that Bear Stearns shall
be required to pay pursuant to this Section 4.9(b) and Section 4.10 shall in no
case be greater than the amount of the net proceeds received by Bear Stearns
upon the sale of the Registrable Securities pursuant to the registration
statement giving rise to such Claim.

          (c) Indemnification similar to that specified in the preceding
paragraph (a) of this Section 4.9 (with appropriate modifications) shall be
given by the Company with respect to any required registration or other
qualification of securities under any U.S. state securities and "blue sky" laws.

          (d) Any person entitled to indemnification under this Agreement shall
notify promptly the indemnifying party in writing of the commencement of any
action or proceeding with respect to which a claim for indemnification may be
made pursuant to this Section 4.9, but the failure of any indemnified party to
provide such notice shall not relieve the indemnifying party of its obligations
under the preceding paragraphs of this Section 4.9, except to the extent the
indemnifying party is materially prejudiced thereby, and shall not relieve the
indemnifying party from any liability that it may have to any indemnified party
otherwise than under Sections 4.9 and 4.10. In case any action or proceeding is
brought against an indemnified party and it shall notify the indemnifying party
of the commencement thereof, the indemnifying party

                                       15
<PAGE>

shall be entitled to participate therein and, unless in the reasonable opinion
of outside counsel to the indemnified party a conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, to
assume the defense thereof jointly with any other indemnifying party similarly
notified, to the extent that it chooses, with counsel reasonably satisfactory to
such indemnified party, and after notice from the indemnifying party to such
indemnified party of its election to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party for any legal
or other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation; PROVIDED,
HOWEVER, that if (i) the indemnifying party fails to take reasonable steps
necessary to defend diligently the action or proceeding within 20 days after
receiving notice from such indemnified party that the indemnified party believes
it has failed to do so; (ii) such indemnified party who is a defendant in any
action or proceeding that is also brought against the indemnifying party
reasonably shall have concluded that there may be one or more legal defenses
available to such indemnified party that are not available to the indemnifying
party; or (iii) representation of both parties by the same counsel is otherwise
inappropriate under applicable standards of professional conduct, then, in any
such case, the indemnified party shall have the right to assume or continue its
own defense as set forth above (but with no more than one firm of counsel for
all indemnified parties in each jurisdiction who shall be approved by Bear
Stearns), and, to the fullest extent permitted by all applicable laws, the
indemnifying party shall be liable for any expenses therefor. No indemnifying
party shall, without the written consent of the indemnified party, effect the
settlement or compromise of, or consent to the entry of any judgment with
respect to, any pending or threatened action or claim in respect of which
indemnification or contribution may be sought hereunder (whether or not the
indemnified party is an actual or potential party to such action or claim)
unless such settlement, compromise or judgment (x) includes an unconditional
release of the indemnified party from all liability arising out of such action
or claim and (y) does not include a statement as to or an admission of fault,
culpability or a failure to act, by or on behalf of any indemnified party.

          (e) The indemnity agreements contained herein shall be in addition to
any other rights to indemnification or contribution that any indemnified party
may have pursuant to law or contract and shall remain operative and in full
force and effect regardless of any investigation made or omitted by or on behalf
of any indemnified party and shall survive the Transfer of the Registrable
Securities by any such party.

          (f) The indemnification and contribution required by this Section 4.9
and Section 4.10 shall be made by periodic payments of reasonable frequency of
the amount thereof during the course of the investigation or defense, as and
when bills are received or expense, loss, damage or liability is incurred.

          SECTION IV.10 CONTRIBUTION. (a) If for any reason the indemnity
provided for in Section 4.9 is unavailable or is insufficient to hold harmless
an indemnified party under Sections 4.9(a), (b) or (c) in respect of any Claims
or expenses (including reasonable fees of counsel and any amounts paid in any
settlement effected with the indemnifying party's consent, which consent shall
not be unreasonably withheld), then each indemnifying party, in lieu of
indemnifying such indemnified party, shall, to the fullest extent permitted by
all applicable laws,

                                       16
<PAGE>

contribute to the amount paid or payable by such indemnified party as a result
of such Claims or expenses (i) as between the Company and Bear Stearns, on the
one hand, and the underwriters, on the other, in such proportion as is
appropriate to reflect the relative benefits received by the Company and Bear
Stearns, on the one hand, and the underwriters, on the other, from the offering
of the Registrable Securities, or if such allocation is not permitted by
applicable law, in such proportion as is appropriate to reflect not only the
relative benefits but also the relative fault of the Company and Bear Stearns,
on the one hand, and of the underwriters, on the other, in connection with the
statements or omissions that resulted in such losses, claims, damages or
liabilities, as well as any other relevant equitable considerations, and (ii) as
between the Company, on the one hand, and Bear Stearns, on the other, in such
proportion as is appropriate to reflect the relative fault of the Company and of
Bear Stearns in connection with such statements or omissions, as well as any
other relevant equitable considerations. The relative benefits received by the
Company and Bear Stearns, on the one hand, and the underwriters, on the other,
shall be deemed to be in the same proportion as the total proceeds from the
offering (net of underwriting discounts and commissions but before deducting
expenses) received by the Company and Bear Stearns bear to the total
underwriting discounts and commissions received by the underwriters. The
relative fault of the Company and Bear Stearns, on the one hand, and of the
underwriters, on the other, shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Company and Bear Stearns or by the underwriters. The relative
fault of the Company, on the one hand, and of Bear Stearns, on the other, shall
be determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact relates to information supplied by such
party, and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.

          (b) The Company and Bear Stearns agree that it would not be just and
equitable if contribution pursuant to this Section 4.10 were determined by pro
rata allocation (even if the underwriters were treated as one entity for such
purpose) or by any other method of allocation that does not take account of the
equitable considerations referred to in the next preceding paragraph. The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities referred to in the next preceding paragraph shall be
deemed to include, subject to the limitations set forth above, any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 4.10, no underwriter shall be required to contribute
any amount in excess of the amount by which the total price at which the
Registrable Securities underwritten by it and distributed to the public exceeds
the amount of any damages that such underwriter has otherwise been required to
pay by reason of such untrue or alleged untrue statement or omission or alleged
omission, and Bear Stearns shall not be required to contribute any amount in
excess of the amount by which the total price at which the Registrable
Securities of Bear Stearns were offered to the public exceeds the amount of any
damages that such holder has otherwise been required to pay by reason of such
untrue or alleged untrue statement or omission or alleged omission. No person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person who was
not guilty of such fraudulent misrepresentation. The aggregate amount that

                                       17
<PAGE>

Bear Stearns shall be required to pay pursuant to this Section 4.10 and Section
4.9(b) shall in no case be greater than the amount of the net proceeds received
by Bear Stearns upon the sale of the Registrable Securities pursuant to the
registration statement giving rise to such Claim.

                                    ARTICLE V

                           CONDITIONS OF EFFECTIVENESS

          SECTION V.1 CONDITIONS OF EFFECTIVENESS. The effectiveness of this
Agreement is subject to the following conditions:

               (a) RESOLUTIONS; INCUMBENCY. Bear Stearns shall have received:

               (i) copies of the resolutions of the board of directors of
          the Company authorizing the transactions contemplated hereby,
          certified as of the Closing Date by the Secretary or an Assistant
          Secretary of the Company; and

               (ii) A certificate of the Secretary or Assistant Secretary of
         the Company certifying the names and true signatures of the officers of
         the Company authorized to execute, deliver and perform this Agreement;

               (b) ORGANIZATION DOCUMENTS; GOOD STANDING. Bear Stearns shall
have received each of the following documents:

               (i) the Certificate of Incorporation and the By-laws of the
          Company as in effect on the date of this Agreement, certified by the
          Secretary or Assistant Secretary of the Company as of the date of this
          Agreement;

              (ii) a good standing certificate for the Company from the
          appropriate Delaware authorities as of a recent date; and

             (iii) a certificate signed by a Responsible Officer, dated
          as of the Closing Date, stating that:

            (x)         the representations and warranties contained in Section
                        6.1 are true and correct on and as of such date, as
                        though made on and as of such date; and

            (y)         since March 31, 2000, there has occurred no event
                        or circumstance that has resulted or could reasonably be
                        expected to result in a Material Adverse Effect.

               (c) LEGAL OPINION. Bear Stearns shall have received on the
Closing Date an opinion, dated the Closing Date, in form and substance
satisfactory to Bear Stearns and counsel

                                       18
<PAGE>

to Bear Stearns, of Irell & Manella LLP, counsel for the Company, to the effect
set forth in EXHIBIT B.

                                   ARTICLE VI

                         REPRESENTATIONS AND WARRANTIES

               SECTION VI.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The
Company hereby represents and warrants to Bear Stearns that:

               (a) CORPORATE EXISTENCE AND POWER; COMPLIANCE WITH LAWS. Each of
the Company and its subsidiaries:

               (i) is a company duly organized, validly existing and in good
          standing under the laws of the jurisdiction of its incorporation;

               (ii) has the corporate power and authority, and the legal right,
          and all governmental licenses, authorizations, consents and approvals
          to own its assets, carry on its business and to execute, deliver, and
          perform its obligations under this Agreement;

               (iii) is duly qualified as a foreign corporation and is licensed
          and in good standing under the laws of each jurisdiction where its
          ownership, lease or operation of property or the conduct of its
          business requires such qualification or license except where the
          failure to be so qualified or licensed is not reasonably likely to
          result in a Material Adverse Effect; and

               (iv) is in compliance with all Requirement of Law except where
          the failure to so comply is not reasonably likely to result in a
          Material Adverse Effect.

               (b) CORPORATE AUTHORIZATION. The Company has all requisite
corporate power and authority to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby,
including, without limitation, the corporate power and authority to issue and
deliver the Company Shares as provided herein.

               (c) NON-CONTRAVENTION, ETC. None of (A) the execution, delivery
or performance by the Company of this Agreement, (B) the issuance and delivery
of the Company Shares and (C) consummation by the Company of the transactions
contemplated hereby violate, conflict with or constitute a breach of any of the
terms or provisions of, or a default under (or an event that with notice or the
lapse of time, or both, would constitute a default), or require consent which
has not been obtained under, or result in the imposition of a lien or
encumbrance, or an acceleration of any indebtedness of the Company or any of its
subsidiaries pursuant to, (i) any Requirement of Law or (ii) any bond,
debenture, note, indenture, mortgage, deed of trust or other agreement or
instrument to which the Company or any of its subsidiaries is a party or by

                                       19
<PAGE>

which the Company or its subsidiaries or their properties is or may be bound,
except in the case of clause (ii), for such violations, conflicts, breaches,
defaults, consents, impositions of liens or accelerations that (x) would not
singly, or in the aggregate, have a Material Adverse Effect. No consent,
approval, authorization or order of, or filing, registration, qualification,
license or permit of or with, (A) any court or governmental agency, body or
administrative agency (including, without limitation, the FCC) or (B) any other
person is required for (1) the execution, delivery and performance by the
Company of this Agreement, (2) the issuance and delivery of the Company Shares
and the transactions contemplated hereby, except (x) such as have been obtained
and made (or, in the case of the Company's obligations under Article IV hereof
(registration rights), will be obtained and made) under the Securities Act, the
Trust Indenture Act of 1939, as amended (the "TRUST INDENTURE ACT") and state
securities or Blue Sky laws and regulations or such as may be required by the
NASD or (y) where the failure to obtain any such consent, approval,
authorization or order of, or filing registration, qualification, license or
permit would not reasonably be expected to result in a Material Adverse Effect.

               (d) BINDING EFFECT. This Agreement has been duly and validly
authorized, executed and delivered by the Company and is the legally valid and
binding agreement of the Company, enforceable against it in accordance with its
terms, except insofar as indemnification and contribution provisions may be
limited by applicable law or equitable principles and subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization or similar laws
affecting the rights of creditors generally and subject to general principles of
equity. Each Assignment, upon execution, will have been duly and validly
authorized, executed and delivered by the Company and constitute the legally
valid and binding agreement of the Company, enforceable against it in accordance
with its terms.

               (e) COMPANY SHARES. (i) On the Settlement Date, and on any other
date on which the Company pays additional Company Shares to Bear Stearns
pursuant to this Agreement, the Company Shares delivered on such date will have
been duly and validly authorized by the Company for issuance and delivery to
Bear Stearns pursuant to this Agreement and will be fully paid and
nonassessable.

               (f) LITIGATION. There are no actions, suits, proceedings, claims
or disputes pending, or to the best knowledge of the Company, threatened or
contemplated, at law, in equity, in arbitration or before any Governmental
Authority, against the Company or its Subsidiaries or any of their respective
properties which:

               (i) purport to affect or pertain to this Agreement or the Merger
          Agreement or any of the transactions contemplated hereby or thereby;
          or

               (ii) if determined adversely to the Company or its Subsidiaries,
          would reasonably be expected to have a Material Adverse Effect. No
          injunction, writ, temporary restraining order or any order of any
          nature has been issued by any court or other Governmental Authority
          purporting to enjoin or restrain the execution, delivery or
          performance of this Agreement, or directing that the transactions
          provided for herein not be consummated as herein provided.

                                       20
<PAGE>

     (g) NO DEFAULT. As of the Closing Date, neither the Company nor any of its
subsidiaries is in default under or with respect to any Contractual Obligation
in any respect which, individually or together with all such defaults, could
reasonably be expected to have a Material Adverse Effect.

     (h) CERTAIN DOCUMENTS. The Company has delivered to Bear Stearns a complete
and correct copy of the Merger Agreement and any other agreements to which the
Company or any of its Affiliates, on the one hand, and BlueStar or any of its
Affiliates, on the other hand, are parties, including any amendments,
supplements or modifications with respect to any of the foregoing.

     (i) TAXES. The Company and its subsidiaries have filed all federal and
other material tax returns and reports required to be filed, and have paid all
federal and other material taxes, assessments, fees and other governmental
charges levied or imposed upon them or their properties, income or assets
otherwise due and payable, except those which are being contested in good faith
by appropriate proceedings and for which adequate reserves have been provided in
accordance with G.A.A.P. There is no proposed tax assessment against the Company
or any of its subsidiaries that would, if made, have a Material Adverse Effect.

     (j) TITLE TO PROPERTIES. The Company and each Subsidiary have good record
and marketable title in fee simple to, or valid leasehold interests in, all real
property necessary or used in the ordinary conduct of their respective
businesses, except for such defects in title as could not, individually or in
the aggregate, reasonably be expected to have a Material Adverse Effect.

     (k) FINANCIAL CONDITION. The unaudited condensed consolidated balance sheet
of the Company and its Subsidiaries as of March 31, 2000, and the related
unaudited condensed consolidated statements of income or operations and cash
flows for the fiscal quarter ended on that date:

         (i) were prepared in accordance with G.A.A.P. consistently applied
     throughout the period covered thereby, except as otherwise expressly noted
     therein, subject to normal year end audit adjustments and the absence of
     footnotes;

         (ii) fairly present the financial condition of the Company and its
     Subsidiaries as of the date thereof and results of operations for the
     period covered thereby; and

         (iii)show any material guarantee obligation, material Contingent
     Obligation or material liability for taxes, or any long-term lease or
     unusual forward or long-term commitment, including, without limitation, any
     interest rate or foreign currency swap or exchange agreement.

                                       21
<PAGE>

     (l) MATERIAL ADVERSE EFFECTS. Since March 31, 2000, there has been no
development or event that has had or could reasonably be expected to have a
Material Adverse Effect.

     (m) REGULATED ENTITIES. Neither the Company for any subsidiary of the
Company is an "investment company" within the meaning of the Investment Company
Act of 1940, as amended. The Company is not subject to regulation under any
Requirement of Law limiting its ability to incur Indebtedness.

     (n) COPYRIGHTS, PATENTS, TRADEMARKS AND LICENSES, ETC. To the best
knowledge of the Company, the Company or its Subsidiaries own or are licensed or
otherwise have the right to use all of the patents, trademarks, service marks,
trade names, copyrights, contractual franchises, authorizations and other rights
that are reasonably necessary for the operation of their respective businesses,
without conflict with the rights of any other Person except to the extent that
any such conflict is not reasonably likely to have a Material Adverse Effect. To
the best knowledge of the Company, no slogan or other advertising device,
product, process, method, substance, part or other material now employed, or now
contemplated to be employed, by the Company or any Subsidiary infringes upon any
rights held by any other Person except to the extent that any such infringement
is not reasonably likely to have a Material Adverse Effect. No claim or
litigation regarding any of the foregoing is pending or threatened, and the
Company knows of no violation of any patent, invention, device, application,
principle or any statute, law, rule, regulation, standard or code is pending or,
to the knowledge of the Company, proposed, which, in either case, could
reasonably be expected to have a Material Adverse Effect.

                                   ARTICLE VII

                                    COVENANTS

     SECTION VII.1 COVENANTS OF THE COMPANY. The Company hereby agrees that, so
long as this Agreement remains outstanding:

     (a) The Company shall not file any motion seeking to enjoin or otherwise
postpone the enforcement of its obligations hereunder (including, without
limitation, seeking an order under Section 105 of the Bankruptcy Code) in any
bankruptcy case by or with respect to BlueStar or any of its subsidiaries;

     (b) Immediately upon the acquisition of BlueStar by the Company pursuant to
the Merger Agreement, the Company shall cause BlueStar to be a "Restricted
Subsidiary" under the Company's Indentures;

     (c) The Company shall not under any circumstance file against Bear Stearns
any action, suit or proceeding with any court or Governmental Authority for any
losses, claims or damages arising out of or based upon or in any way related to
Bear Stearns' resale of the

                                       22
<PAGE>

Company Shares, except any such claims arising from Bear Stearns' bad faith or
willful misconduct; and

     (d) So long as applicable, each certificate representing the Company Shares
shall bear the following legend:

     "The securities represented hereby have not been registered under the U.S.
Securities Act of 1933, as amended, and may not be offered, sold, transferred or
otherwise disposed of except in compliance with such Act."

     The Company agrees that, promptly upon the request of Bear Stearns or any
transferee, it will remove such legend from the certificates representing
Company Shares in the event that U.S. counsel for Bear Stearns or such
transferee determines that the transfer thereof is no longer restricted by the
Securities Act.

     SECTION VII.2 COVENANTS OF BEAR STEARNS. Bear Stearns hereby agrees that,
so long as this Agreement remains outstanding:

     (a Bear Stearns shall agree to deliver a copy of any and all documentation,
including financial reports, received by it from BlueStar pursuant to the Loan
Agreement promptly after receipt thereof and shall further agree to promptly
notify the Company of any borrowing request received by BlueStar pursuant to the
terms thereof and deliver copies of the documentation supporting such borrowing
request at least two Business Days prior to making any Loan to BlueStar under
the Loan Agreement; provided, however, that the failure of Bear Stearns to
deliver to the Company any or all of such documentation shall not constitute a
defense against any obligations of the Company under this Agreement.

     (b Bear Stearns shall use commercially reasonable efforts to effect any
resale of Company Shares;

     (c Except upon the prior consent by the Company, Bear Stearns shall not
demand repayment of any Loans pursuant to subclause (a) of Section 2.3 of the
Loan Agreement prior to the date 30 days after the Closing Date. For the
avoidance of doubt, the preceding sentence shall not be deemed to restrict Bear
Stearns' right to demand repayment of any Loans after such date, or Bear
Stearns' right of repayment pursuant to subclauses (b), (c), (d) or (e) of
Section 2.3 of the Loan Agreement.

                                  ARTICLE VIII

                                  MISCELLANEOUS

                                       23
<PAGE>

     SECTION VIII.1 TAXES. (a) Any and all payments by the Company to Bear
Stearns under this Agreement shall be made free and clear of, and without
deduction or withholding for, any Taxes. In addition, the Company shall pay all
Other Taxes.

     (b If the Company shall be required by law to deduct or withhold any Taxes
from or in respect of any sum payable hereunder to Bear Stearns, then:

         (i the sum payable shall be increased as necessary so that, after
     making all required deductions and withholdings for Taxes (including
     deductions and withholdings applicable to additional sums payable under
     this Section 8.1), Bear Stearns receives an amount equal to the sum it
     would have received had no such deductions or withholdings been made;

         (ii the Company shall make such deductions and withholdings; and

         (iii the Company shall pay the full amount deducted or withheld to the
     relevant taxing authority or other authority in accordance with applicable
     law.

     (c The Company agrees to indemnify and hold harmless Bear Stearns for the
full amount of any Taxes or Other Taxes (including without limitation any Taxes
or Other Taxes imposed on amounts payable under this Section 8.1) paid by Bear
Stearns and any liability (including penalties, interest, additions to tax and
expenses) arising therefrom or with respect thereto, whether or not such Taxes
or Other Taxes were correctly or legally asserted. Payment under this
indemnification shall be made within 30 days after the date Bear Stearns makes
written demand therefor.

     (d Within 30 days after the date of any payment by the Company of Taxes or
Other Taxes, the Company shall furnish to Bear Stearns the original or a
certified copy of a receipt evidencing payment thereof, or other evidence of
payment satisfactory to Bear Stearns.

     SECTION VIII.2 ABSOLUTE NATURE OF OBLIGATION. The Company agrees that its
obligation to pay the Purchase Price and purchase the Loans from Bear Stearns on
the Settlement Date pursuant to this Agreement is absolute and unconditional and
shall in no event be conditioned on or subject to a defense or setoff arising
from: (a) the enforceability, effectiveness, validity or value of the Merger
Agreement or any part thereof, (b) the existence or non-existence of defaults by
BlueStar under, or non-compliance with the terms of, the Loan Agreement or the
other Loan Documents, (c) the value or lack of value of the Loans, (d) the
validity, regularity or enforceability of the Loans, the Loan Agreement or the
other Loan Documents, (e) the financial condition of BlueStar, (f) the validity
of the organization of BlueStar, the Company or Bear Stearns, (g) any defense,
claim, set-off recoupment, abatement or other right, existing or future, which
BlueStar may have against Bear Stearns, the Company or any other Person or which
the Company may have against Bear Stearns, BlueStar or any other Person, (h)
whether the lien of any document or instrument securing the Loans shall have
been perfected or shall continue to be perfected or shall otherwise be impaired
in any manner, (i) whether any of the Loan Documents have been amended,
extended, supplemented,

                                       24
<PAGE>

accelerated, surrendered, released, waived, terminated or otherwise modified
(but any such amendment shall not increase or decrease the Purchase Price
payable hereunder), (j) the impossibility of performance by any party to any of
the Loan Documents or any party to the Merger Agreement or (k) the bankruptcy,
insolvency, reorganization, liquidation, dissolution, winding-up, arrangement,
composition, readjustment of debt or similar event with respect to BlueStar or
any other Person. Without limiting the generality of the foregoing, the Company
acknowledges and agrees that it is of the essence of this Agreement that the
Company shall be obligated to purchase the Loans in circumstances (including,
without limitation, bankruptcy of BlueStar) under which collection of the Loans
from BlueStar and obtaining control of the collateral for the Loans may be
difficult or impossible and the existence of such circumstances shall not impair
or delay the obligation of the Company to purchase the Loans hereunder.

     SECTION VIII.3 RESALE INDEMNITY. The Company agrees to indemnify and hold
harmless, to the fullest extent permitted by all applicable laws, each
Indemnitee against any and all Claims and expenses (including reasonable fees of
counsel and any amounts paid in any settlement effected with the Company's
consent, which consent shall not be unreasonably held) to which any such
indemnified person may become subject, insofar as such Claims or expenses arise
out of or are based upon or related in any way to Bear Stearns' resale of
Company Shares after Bear Stearns' receipt thereof from the Company pursuant to
this Agreement, except any Claims arising from Bear Stearns' bad faith or
willful misconduct; provided, that insofar as any Claims or expenses arise out
of or are based upon any matter set forth under clause (i) or (ii) of Section
4.9(a), this Section 8.3 shall not apply to such Claims and the provisions of
Section 4.9 shall apply to such Claims.

     SECTION VIII.4 WAIVER OF DEFENSES. The Company waives any and all notice of
the creation, renewal, extension or accrual of any of the Obligations (as
defined in the Loan Agreement) and notice of or proof of reliance by Bear
Stearns upon this Agreement or acceptance of this Agreement; the Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Agreement; and all dealings between BlueStar or the Company, on the one hand,
and Bear Stearns, on the other, shall likewise be conclusively presumed to have
been had or consummated in reliance upon this Agreement. The Company waives
diligence, presentment, protest, demand for payment and notice of default or
nonpayment to or upon BlueStar or the Company with respect to the Obligations.
This Agreement shall be construed as a continuing, absolute and unconditional
obligation of the Company without regard to (a) the validity, regularity or
enforceability of the Loan Agreement, any other Loan Document, any of the
Obligations or any other collateral security therefor or guarantee or right of
offset with respect thereto at any time or from time to time held by Bear
Stearns, (b) any defense, set-off or counterclaim (other than a defense of
payment or performance) which may at any time be available to or be asserted by
BlueStar against Bear Stearns, or (c) any other circumstance whatsoever (with or
without notice to or knowledge of BlueStar or the Company) which constitutes, or
might be construed to constitute, an equitable or legal discharge of BlueStar
for the Obligations, or of the Company under this Agreement, in bankruptcy or in
any other instance. When pursuing its rights and remedies hereunder against the
Company, Bear Stearns shall be under no obligation to pursue such rights and
remedies as it may have against BlueStar

                                       25
<PAGE>

or any other Person or against any collateral security or guarantee for the
Obligations or any right of offset with respect thereto, and any failure by Bear
Stearns to pursue such other rights or remedies or to collect any payments from
BlueStar or any such other Person or to realize upon any such collateral
security or guarantee or to exercise any such right of offset, or any release of
BlueStar or any such other Person or of any such collateral security, guarantee
or right of offset, shall not relieve the Company of any liability hereunder,
and shall not impair or affect the rights and remedies, whether express, implied
or available as a matter of law, of Bear Stearns against the Company. This
Agreement shall remain in full force and effect and be binding in accordance
with and to the extent of its terms upon the Company and its successors and
assigns thereof, and shall inure to the benefit of Bear Stearns, and its
successors, indorsees, transferees and assigns, until all the obligations of the
Company under this Agreement shall have been satisfied in full. Bear Stearns
shall have no duty of care to the Company with respect to the administration of
the Loans, the Loan Agreement or the other Loan Documents and the Company
expressly waives any defense to its obligations hereunder arising from any
course of conduct as between Bear Stearns and BlueStar, regardless of whether
the ability of the Company to collect the Loans is impaired by such course of
conduct.

     SECTION VIII.5 REINSTATEMENT. This Agreement shall continue to be
effective, or be reinstated, as the case may be, if at any time any payment made
by the Company hereunder, or any part thereof, is rescinded or must otherwise be
restored or returned by Bear Stearns upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of BlueStar or upon or as a result of
the appointment of a receiver, intervenor or conservator of, or trustee or
similar officer for, BlueStar or any substantial part of its property, or
otherwise, all as though such payments had not been made.

     SECTION VIII.6 PLACE OF CLOSING. The purchase of the Loans by the Company
pursuant to this Agreement shall take place at the offices of Simpson Thacher &
Bartlett, 425 Lexington Avenue, New York, New York 10017 or at such other place
as shall be designated by Bear Stearns.

     SECTION VIII.7 NOTICES. All communications hereunder, except as may be
otherwise specifically provided herein, shall be in writing and, if sent to Bear
Stearns shall be mailed, delivered, or telexed, telegraphed or telecopied and
confirmed in writing to Bear Stearns Corporate Lending Inc., 245 Park Avenue,
New York, New York 10167, Attention: Victor Bulzacchelli, telecopy number: (212)
272-4844, with a copy to Christopher Atkinson, telecopy number: (212) 272-9630,
with a copy, which shall not constitute notice, to Simpson Thacher & Bartlett,
425 Lexington Avenue, New York, New York 10017, Attn: Gary L. Sellers, telecopy
number: (212) 455-2502; and if sent to the Company, shall be mailed, delivered
or telexed, telegraphed or telecopied and confirmed in writing to Covad
Communications Group, Inc., 2330 Central Expressway, Santa Clara, CA 95050,
Attention: Chief Financial Officer, telecopy number: (408) 844-7501, with a
copy, which shall not constitute notice, to Irell & Manella LLP, 1800 Avenue of
the Stars, Suite 900, Los Angeles, CA 90067, Attn: Meredith S. Jackson, telecopy
number: (310) 203-7199.

                                       26
<PAGE>

     SECTION VIII.8 REMEDIES. The Company's obligations to purchase the Loans
may be enforced by Bear Stearns in an action for specific performance against
the Company.

     SECTION VIII.9 NO RIGHT TO PURCHASE. Nothing contained in this Agreement
shall be construed as obligating Bear Stearns to sell the Loans (other than
pursuant to the Company's exercise of the Call Option) to the Company or as
restricting in any manner the right of Bear Stearns to sell or assign its
interest therein in whole or in part.

     SECTION VIII.10 NO WAIVER; CUMULATIVE REMEDIES. (a) No failure to exercise
and no delay in exercising, on the part of Bear Stearns, any right, remedy,
power or privilege hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any right, remedy, power or privilege hereunder
preclude any other or further exercise thereof or the exercise of any other
right, remedy, power or privilege. The rights, remedies, powers and privileges
herein provided are cumulative and not exclusive of any rights, remedies, powers
and privileges provided by law.

     (b No action by Bear Stearns pursuant to the provisions of the Loan
Agreement or the other Loan Documents, whether such action is optional or
obligatory, shall affect the absolute and unconditional obligation of the
Company to purchase the Loans pursuant to this Agreement.

     SECTION VIII.11 COUNTERPARTS. This Agreement may be executed by one or more
of the parties to this Agreement on any number of separate counterparts, and all
of said counterparts taken together shall be deemed to constitute one and the
same instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Company and Bear Stearns.

     SECTION VIII.12 SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.

     SECTION VIII.13 AMENDMENTS IN WRITING; NO WAIVER. None of the terms or
provisions of this Agreement may be waived, amended, supplemented or otherwise
modified except by a written instrument executed by the Company and Bear
Stearns, provided that any provision of this Agreement may be waived by Bear
Stearns in a letter or agreement executed by Bear Stearns or by telex or
facsimile transmission from Bear Stearns.

     SECTION VIII.14 INTEGRATION. This Agreement represents the agreement of the
Company and Bear Stearns with respect to the subject matter hereof, and there
are no promises, undertakings, representations or warranties by Bear Stearns
relative to the subject matter hereof not expressly set forth or referred to
herein.

                                       27
<PAGE>

     SECTION VIII.15 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

     SECTION VIII.16 SUBMISSION TO JURISDICTION; WAIVERS. The Company hereby
irrevocably and unconditionally:

     (a submits for itself and its property in any legal action or proceeding
relating to this Agreement or for recognition and enforcement of any judgement
in respect hereof, to the non-exclusive general jurisdiction of the Courts of
the State of New York, the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;

     (b consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the venue
of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;

     (c agrees that service of process in any such action or proceeding may be
effected by mailing a copy thereof by registered or certified mail (or any
substantially similar form of mail), postage prepaid, to BlueStar at its address
set forth in Section 8.7 or at such other address of which Bear Stearns shall
have been notified pursuant thereto;

     (d agrees that nothing herein shall affect the right to effect service of
process in any other manner permitted by law or shall limit the right to sue in
any other jurisdiction; and

     (e waives, to the maximum extent not prohibited by law, any right it may
have to claim or recover in any legal action or proceeding referred to in this
subsection any special, exemplary, punitive or consequential damages.

     SECTION VIII.17 ACKNOWLEDGMENTS. The Company hereby acknowledges that:

     (a The Company has examined the Loan Agreement, and the other Loan
Documents as executed and delivered, and has relied solely upon such examination
in entering into this Agreement. The Company hereby acknowledges that Bear
Stearns has not made representations or warranties to the Company with respect
to the enforceability of the Loan Agreement or the other Loan Documents and that
Bear Stearns in entering into the Loan Agreement has relied upon the absolute
and unconditional obligation of the Company to purchase the Loans from Bear
Stearns pursuant to this Agreement.

     (b The Company has been advised by counsel in the negotiation, execution
and delivery of this Agreement and in its examination of the Loan Agreement and
the other Loan Documents.

                                       28
<PAGE>

     (c Bear Stearns does not have any fiduciary relationship to the Company,
and the relationship between Bear Stearns and the Company is solely that of
obligor and obligee with respect to the purchase by the Company of the Loans.

     (d No joint venture exists between the Company and Bear Stearns.

     SECTION VIII.18 WAIVERS OF JURY TRIAL. THE COMPANY AND BEAR STEARNS HEREBY
IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION OR
PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.

     SECTION VIII.19 ASSIGNMENT. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto, in whole or in part (whether by operation of law or otherwise), without
the prior written consent of the other parties hereto, and any attempt to make
any such assignment without such consent shall be null and void; provided,
however, that Bear Stearns may, without the consent of the Company, (i assign
its rights and obligations hereunder in whole or in part to any Affiliate with
at least 90% common control. Subject to the preceding sentence, this Agreement
will be binding upon, inure to the benefit of and be enforceable by, the parties
and their respective successors and assigns.

     SECTION VIII.20 PAYMENT OF CERTAIN FEES AND EXPENSES. The Company agrees
(a) to pay or reimburse Bear Stearns for all its reasonable out-of-pocket costs
and expenses incurred in connection with the development, preparation and
execution of, and any amendment, supplement or modification to, this Agreement
and any other documents prepared in connection herewith but excluding the Loan
Agreement and the other Loan Documents, and the consummation and administration
of the transactions contemplated hereby, including the Registration Rights
Expenses and reasonable fees and disbursements of counsel to Bear Stearns, with
statements with respect to the foregoing to be submitted to the Company prior to
the Closing Date (in the case of amounts to be paid on the Closing Date) and
from time to time thereafter on a quarterly basis or such other periodic basis
as Bear Stearns shall deem appropriate, (b) to pay or reimburse Bear Stearns for
all its costs and expenses incurred in connection with the enforcement or
preservation of any rights under this Agreement and any such other documents,
including the fees and disbursements of counsel (including the allocated fees
and expenses of in-house counsel) to Bear Stearns, and (c) to pay, indemnify,
and hold Bear Stearns harmless from, any and all recording and filing fees and
any and all liabilities with respect to, or resulting from any delay in paying,
stamp, excise and other taxes, if any, that may be payable or determined to be
payable in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement and any such other documents.

                            [Signature page follows]

                                       29
<PAGE>

     IN WITNESS WHEREOF, the Company and Bear Stearns have caused this Agreement
to be duly executed the day and year first above written.

                                          COVAD COMMUNICATIONS GROUP, INC.

                                          By:___________________________________
                                          Name:
                                          Title:

                                          BEAR STEARNS CORPORATE LENDING INC.

                                          By:__________________________________
                                          Name:
                                          Title:

<PAGE>

                                                                         ANNEX A
                                                    TO PUT/CALL OPTION AGREEMENT

                                     FORM OF
                            ASSIGNMENT AND ACCEPTANCE

     Reference is made to the Demand Loan Agreement, dated as of June 15, 2000,
(as amended, supplemented or modified from time to time, the "LOAN AGREEMENT"),
between BlueStar Communications Group, Inc., a Delaware corporation (the
"COMPANY") and Bear Stearns Corporate Lending Inc., Stearns Corporate Lending
Inc. ("BEAR STEARNS"). Unless otherwise defined herein, terms defined in the
Loan Agreement and used herein shall have the meanings given to them in the Loan
Agreement.

     The Assignor identified on Schedule l hereto (the "ASSIGNOR") and the
Assignee identified on Schedule l hereto (the "ASSIGNEE") agree as follows:

     (a The Assignor hereby irrevocably sells and assigns to the Assignee
without recourse to the Assignor, and the Assignee hereby irrevocably purchases
and assumes from the Assignor, as-is, without any recourse or warranty
whatsoever to the Assignor, as of the Effective Date (as defined below), the
interest described in Schedule 1 hereto (the "ASSIGNED INTEREST") in and to the
Assignor's rights and obligations under the Loan Agreement with respect to those
credit facilities contained in the Loan Agreement as are set forth on Schedule 1
hereto (individually, an "ASSIGNED FACILITY"; collectively, the "ASSIGNED
FACILITIES"), in a principal amount for each Assigned Facility as set forth on
Schedule 1 hereto.

     (b The Assignor (a) makes no representation or warranty and assumes no
responsibility with respect to any statements, warranties or representations
made in or in connection with the Loan Agreement or with respect to the
execution, legality, validity, enforceability, genuineness, sufficiency or value
of the Loan Agreement, any other Loan Document or any other instrument or
document furnished pursuant thereto, other than that the Assignor has not
created any adverse claim upon the interest being assigned by it hereunder and
that such interest is free and clear of any such adverse claim; (b) makes no
representation or warranty and assumes no responsibility with respect to the
financial condition of BlueStar, any of its Subsidiaries or any other obligor or
the performance or observance by BlueStar, any of its Subsidiaries or any other
obligor of any of their respective obligations under the Loan Agreement or any
other Loan Document or any other instrument or document furnished pursuant
hereto or thereto; and (c) attaches any Notes held by it evidencing the Assigned
Facilities and requests that BlueStar, upon request by the Assignee, exchange
the attached Notes for a new Note or Notes payable to the Assignee.

<PAGE>

     (c The Assignee (a) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (b) confirms that it has received
a copy of the Loan Agreement, together with copies of the financial statements
delivered pursuant to Section 6.1 thereof and such other documents and
information as it has deemed appropriate to make its own credit analysis and
decision to enter into this Assignment and Acceptance; (c) agrees that it will,
independently and without reliance upon the Assignor or Bear Stearns and based
on such documents and information as it shall deem appropriate at the time,
continue to make its own credit decisions in taking or not taking action under
the Loan Agreement, the other Loan Documents or any other instrument or document
furnished pursuant hereto or thereto; and (d) agrees that it will be bound by
the provisions of the Loan Agreement and will perform in accordance with its
terms all the obligations which by the terms of the Loan Agreement are required
to be performed by it as a Lender.

     (d The effective date of this Assignment and Acceptance shall be the
Effective Date of Assignment described in Schedule 1 hereto (the "Effective
Date"). Following the execution of this Assignment and Acceptance, it will be
delivered to BlueStar for its acknowledgment, effective as of the Effective
Date.

     (e From and after the Effective Date, BlueStar shall make all payments in
respect of the Assigned Interest (including payments of principal, interest,
fees and other amounts) to the Assignor for amounts which have accrued to the
Effective Date and to the Assignee for amounts which have accrued subsequent to
the Effective Date.

     (f From and after the Effective Date, (a) the Assignee shall be a party to
the Loan Agreement and, to the extent provided in this Assignment and
Acceptance, have the rights and obligations of a Lender thereunder and under the
other Loan Documents and shall be bound by the provisions thereof and (b) the
Assignor shall, to the extent provided in this Assignment and Acceptance,
relinquish its rights and be released from its obligations under the Loan
Agreement.

     (g This Assignment and Acceptance and the rights and obligations of the
parties under this Assignment and Acceptance shall be governed by, and construed
and interpreted in accordance with, the law of the State of New York.

     IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed as of the date first above written by their respective
duly authorized officers on Schedule 1 hereto.

                                       2
<PAGE>

                                   Schedule 1
                          to Assignment and Acceptance

Name of Assignor:

Name of Assignee:

Effective Date of Assignment:

------------------------------------- -------------------------------------

               Loan                               Principal
          Facility Assigned                    Amount Assigned

               Loan                                   $
------------------------------------- -------------------------------------

[Name of Assignee]                    [Name of Assignor]

By:                                   By:
Name:                                 Name:
Title:                                Title:
                                      ------------------------------------

                                      Acknowledged:

                                      BLUESTAR COMMUNICATIONS
                                      GROUP, INC.

                                      By:
                                      Name:
                                      Title:

<PAGE>

                                                                         ANNEX B

                      [Form of Opinion of Irell & Manella]

     1. The Company (a) has been duly incorporated and is validly existing and
in good standing as a corporation under the laws of the jurisdiction of its
incorporation, and (b) has the corporate power and authority to own, lease and
operate its properties and conduct its business as presently operated.

     2. The Company (a) has the corporate power and authority to execute,
deliver and perform its obligations under the Agreement and to consummate the
transactions contemplated thereby (including, without limitation, its
obligations in respect of the Company Shares and the issuance and delivery of
Company Shares upon exercise of the Put Option or in connection with a Resale
True-Up or Interim True-Up as contemplated by the Agreement) and (b) has duly
authorized, executed and delivered the Agreement.

     3. Neither the execution, delivery or performance by the Company of the
Agreement nor the consummation of the transactions contemplated thereby
(including, without limitation, its obligations in respect of the Company Shares
and the issuance and delivery of Company Shares upon exercise of the Put Option
or in connection with a Resale True-Up or Interim True-Up as contemplated by the
Agreement) violates, conflicts with or constitutes a breach of any of the terms
or provisions of, or a default under (or an event that with notice or the lapse
of time, or both, would constitute a default), or require consent or waiver
under, or result in the imposition of a lien or encumbrance on any properties of
the Company, or an acceleration of any indebtedness of the Company pursuant to,
(a) the charter or bylaws of the Company, (b) any agreement or instrument filed
with the SEC as an exhibit, or incorporated by reference as an exhibit, pursuant
to subparagraphs (b)(4) or (b)(10) of Item 601 of Regulation S-K, as part of the
Company's annual, quarterly or current reports on Forms 10K, 10Q or 8K
(including, for the avoidance of doubt, the Indentures), (c) the Delaware
General Corporation Law or any federal or New York statute, rule or regulation
applicable to the Company (other than federal or state securities laws) or (d)
to our knowledge, any judgment, order or decree of any court of governmental
agency or authority having jurisdiction over the Company or its assets or
properties, except in the case of clauses (b), (c) and (d) of this paragraph,
for such violations, conflicts, breaches, defaults, consents, impositions or
liens which would not, to our knowledge, reasonably be expected to have a
Material Adverse Effect.

     4. Assuming that the Agreement is a valid and legally binding obligation of
Bear Stearns, the Agreement constitutes the valid and legally binding obligation
of the Company, enforceable against the Company in accordance with its terms.

     5. Assuming compliance with applicable state securities and Blue Sky laws,
as to which we express no opinion, and except for the filing of one or more
registration statements under the Securities Act in connection with the sale of
the Company Shares contemplated by the Agreement, no consent, approval,
authorization or order of, or filing, registration, qualification,

<PAGE>

license or permit of or with, any court or governmental agency, body or
administrative agency is required for the execution, delivery and performance by
the Company of the Agreement or the consummation of the transactions
contemplated thereby (including, without limitation, its obligations in respect
of the Company Shares and the issuance and delivery of Company Shares upon
exercise of the Put Option or in connection with a Resale True-Up or Interim
True-Up as contemplated by the Agreement.

     6. To our knowledge, there is no action, suit or proceeding before or by
any court, arbitrator or governmental agency, body or official, now pending, to
which the Company is a party or to which the business, assets or property of the
Company is subject, and, to our knowledge, no such action, suit or proceeding is
threatened to which the Company or its business, assets or property would be
subject that in either case questions the validity of the Agreement.

     7. Assuming that the Company has invested all or substantially all of the
proceeds of its recent debt and equity securities offerings in its operations or
in United States Treasury obligations, the Company is not an "investment
company" within the meaning of and subject to regulation under the Investment
Company Act of 1940, as amended, or a "holding company," or a "subsidiary
company" of a "holding company," within the meaning of the Public Utility
Holding Company Act of 1935, as amended.

     8. Any Company Shares issued and delivered upon exercise of the Put Option
or as required as a Resale True-Up or Interim True-Up, in each case, conducted
in accordance with the terms of the Put/Call Option Agreement, will be duly
authorized and if issued on the date hereof would be, upon their delivery,
validly issued, fully paid and nonassessable.

     The foregoing opinions will be subject to customary exceptions,
qualifications, limitations and assumptions.

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