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In the wake of its aborted $800 million merger with Verizon Communications, NorthPoint Communications Group Inc., the San Francisco-based DSL-provider, filed for Chapter 11 protection with the U.S. Bankruptcy Court for the Northern District of California in San Francisco. The filing was announced Jan. 16 after the close of trading. NorthPoint shares, which trade on the Nasdaq, were frozen at $1.41 a share. Although NorthPoint also announced it had secured a commitment for up to $38 million in debtor-in-possession financing, the company’s greatest asset may be the $1 billion lawsuit the company filed against Verizon on Dec. 8. in California Superior Court in San Francisco. The suit, filed by the San Francisco law firm Folger Levin & Kahn, charges Verizon improperly severed the companies’ Aug. 7 merger agreement. Verizon, the nation’s largest telecommunications company, broke off the agreement on Nov. 29, charging that NorthPoint’s business had sufficiently deteriorated to trigger a so-called material adverse change clause in the original merger agreement. In a statement, NorthPoint President and CEO Elizabeth Fetter said the company plans to sell much of its business and assets. Northpoint spokesman Marvin Wamble acknowledged that the best and most likely outcome for the company is to find an acquirer interested in DSL. “We are going through a structured sale process,” he said. “We’d like to find a partner similar to the arrangement we had with Verizon, but this could become an outright purchase. It’s not really our call.” The company currently provides DSL access through Internet service providers that operate in 109 U.S. metropolitan areas. NorthPoint’s decision to seek bankruptcy protection comes as the company plans to appear Jan. 17 in Delaware Superior Court in response to a declaratory judgment action filed by Verizon seeking judicial approval to withdraw from the agreement. Shortly after informing NorthPoint that it was pulling out of the merger, Verizon, through its lawyers at Kirkland & Ellis, asked the Wilmington court to officially void the merger. Attorneys for NorthPoint plan to ask the Delaware court to allow the California court to hear the case. Verizon has also asked the California court to let the Delaware case proceed. The bankruptcy filing marks a sharp reversal for a company whose prospects looked so bright a year ago. NorthPoint, headed by former US West executive Fetter, appeared poised to take advantage of the demand for low-cost, high-speed Internet access in both the workplace and home. When the deal was announced, 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 struggled during the spring and summer to find new financing, was overjoyed to have attracted an investor with deep pockets and a customer base that extends from the east coast into the midwest, areas GTE Corp. had covered. The agreement was to give Verizon a controlling 55 percent 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 have been distributed to NorthPoint shareholders. Particularly important for NorthPoint was Verizon’s pledge to hand the California company $200 million in short-term financing on Jan. 1 to meet immediate needs. To make matter worse, the merger breakup prompted other lenders to cancel financing worth $155 million. Copyright (c)2001 TDD, LLC. All rights reserved.

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