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Seeking $1 billion in damages, U.S. high speed Internet access provider NorthPoint Communications Inc. filed a lawsuit Dec. 8 charging that Verizon Communications, the nation’s largest telecommunications company, unjustly broke off its merger agreement late last month. San Francisco-based NorthPoint, which filed the suit in California Superior Court, alleged that “Verizon’s purported termination of the pending merger was without legal or factual basis under the binding merger agreement.” Verizon had agreed Aug. 7 to merge its high-speed Internet businesses with NorthPoint, a 3-year-old startup, in a transaction valued at $800 million. For NorthPoint, and its CEO Elizabeth Fetter, the deal catapulted the company over industry leader Covad Communications Inc., promising to make it the country’s largest provider of digital subscriber line technology, known as DSL. Particularly important for NorthPoint, which had spent much of this year searching for new financing, was Verizon’s pledge to hand the company $200 million on Jan. 1 to meet its immediate needs. But late last month, Verizon, charging that NorthPoint’s business had sufficiently deteriorated to trigger a so-called material adverse change clause in the original merger agreement, called off the deal. Verizon’s decision to terminate the merger placed NorthPoint’s survival in doubt. Verizon charged that a NorthPoint announcement Nov. 20 revealed the company’s third-quarter revenue was $24 million rather than the $30 million reported Oct. 26. In addition, NorthPoint also said its Ebitda loss for the third quarter had grown to $90.9 million instead of the $79.2 million reported a month earlier. “We were well within our rights to terminate the merger agreement due to the deterioration in NorthPoint’s business,” Verizon spokesman David Frail said. “Therefore we were under no obligation to provide NorthPoint with further financing.” In the suit filed by the San Francisco law firm Folger Levin & Kahn, NorthPoint contends Verizon attempted to terminate the merger to avoid its contractual agreement and “increase its near-term stock price.” On news of the agreement’s termination, Verizon’s stock rose 1.5% Nov. 29 to close at $55.81 a share. Verizon’s stock fell 2.92% Friday to end the trading day at $56.18. At the announcement of the deal, Verizon, the name the former Bell Atlantic Corp. adopted in July following its $65 billion merger with GTE Corp., heaped praise on NorthPoint as a can-do startup that could turn around its lagging DSL operations. NorthPoint, which had struggled to find new financing, was overjoyed to have attracted an investor with deep pockets and a customer base of 95 million local access lines extending from Maine to Virginia. The agreement was to give Verizon a controlling 55% stake in NorthPoint. Of the $800 million cash investment by Verizon, $450 million was to be used to finance the new company’s capital expenditures and DSL expansion plans. The remaining $350 million in cash would be distributed to NorthPoint shareholders. Copyright (c)2000 TDD, LLC. All rights reserved.

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