VERIZON AND NORTHPOINT - LOOKING BACK
REVISED: January 18, 2002



        By August 2000, the Bull-Market “Tech Bubble” had burst. In their brief existence as a Telecom Powerhouse, Verizon had made many acquisitions of, and investments in, Technology Companies. NorthPoint had already developed a reputation as a well-run, professional, customer-oriented DSL Provider and they were adding new customers at an impressive rate. Their success at signing up new customers was depleting their capital. When Verizon agreed to be an investor/partner, it was exactly what NorthPoint needed. The new company that the Merger would create was projected by at least one Analyst to become profitable by the end of 2001. Here is a look back at what has happened since 8/5/00.


Verizon and NorthPoint News & Events
From August 2000 thru January 18, 2002
August 5, 2000 About 1/3 of Verizon employees go on strike
August 8, 2000 Verizon reports bad 2nd quarter earnings and warns on 3rd quarter earnings
August 8, 2000 Verizon/NorthPoint Merger announced. Verizon has agreed to pay $800 million to NorthPoint and NorthPoint’s shareholders and Verizon will also contribute $513.5 million worth of DSL assets to the Merger
August 8, 2000 NorthPoint stock is up to $17.50 per share (after-hours) and Verizon’s stock falls $5 per share after the Merger announcement
August 8, 2000 CNN/FN reports lowered earnings estimates for Verizon in 2001 and 2002 and also states that Verizon’s Merger with NorthPoint could further lower Verizon’s earnings estimates
August 24, 2000 Verizon employees end their strike
September 7, 2000 Verizon pays NorthPoint $150 million of the Merger cash; promises to pay $200 million more in January 2001
September 13, 2000 CNBC “dumps” on the DSL industry. NorthPoint (NPNT) stock at $10 per share
September 15, 2000 NPNT stock at $8.75 per share
September 18, 2000 CNBC “dumping” on Technology in general
September 27, 2000 NorthPoint announces that their DSL is now available through Microsoft at Radio Shack stores

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October 11, 2000 NPNT stock under $7 per share
October 18, 2000 NPNT stock under $5 per share
October 20, 2000 NorthPoint is named “Hottest Broadband Company”
October 22, 2000 Shareholders of the DSL Company Covad (COVD) file class-action lawsuit against COVD
November 6, 2000 COVD gets $150 million from SBC Communications (SBC)
November 13, 2000 NorthPoint’s business leadership earns Industry Standard’s coveted “Top 100” listing
November 15, 2000 During the past 3 days, the DSL sector got downgraded. Merrill Lynch downgraded RTHMS, COVD and NPNT. Four additional analysts downgraded COVD. Five analysts downgraded DSL equipment company CMTN
November 20, 2000 NPNT restates 3rd quarter earnings. NorthPoint now expects $24 million, down from $30 million
November 22, 2000 CNBC says that Verizon will likely “rework” the Merger Agreement because of NorthPoint’s restated earnings
November 29, 2000 NPNT closes at $2 per share. An hour later, there is a news report that Verizon has terminated their Merger Agreement with NorthPoint, citing NorthPoint’s deteriorating financial condition (notification of Verizon’s termination of the Merger came while NorthPoint and Verizon Management were in a meeting about the Merger).
November 30, 2000 The morning after terminating their Merger Agreement with NorthPoint, Verizon issues a press release about their earnings outlook being better without NorthPoint. NPNT stock trades as low as $0.36 per share
December 7, 2000 NorthPoint reduces its workforce by 19%, cites Verizon Termination
December 8, 2000 NorthPoint sues Verizon for $3 billion plus 8 additional items of relief
December 29, 2000 NorthPoint sells its stake in Versa Point DSL to raise cash

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January 10, 2000 NorthPoint sells its stake in its Canadian DSL Joint Venture to raise cash and reduce operating expenses
January 16, 2001 After 4 weeks of volatility, NPNT stock price gains 409% to $1.406 over the past 3 trading days on volume of 36,513,000 shares. Trading halted. NorthPoint announces that it has sought protection from Creditors under Chapter 11 of the Bankruptcy Code. NorthPoint announces plans to re-organize its business
February 8, 2001 NorthPoint’s stock resumes trading. Trading is now on Pink Sheets with a new symbol, NPNTQ (Q indicates bankruptcy). Trading opens @ $0.50 per share and goes as low as $0.16 per share.
February 15, 2001 PR Newswire reported that Judge Thomas Carlson ruled that a jury in San Francisco Superior Court would try NorthPoint’s lawsuit against Verizon, in spite of opposition from Verizon,
March 23, 2001 The Wall Street Journal says that AT&T will buy virtually all of NorthPoint’s assets for $135 million. The article also noted that NorthPoint did not sell their major asset - the lawsuit against Verizon.
March 23, 2001 NPNTQ shareholder “Saigon_2” posts an Email on NPNTQ Raging Bull (RB) Message Board and Yahoo! /NPNTQ “rrigters” posts an identical message on NPNTQ Yahoo! Message Board, both reported to be from Terry McGovern, of NorthPoint Investor Relations. The Email essentially says that shareholder’s greatest hope is that NorthPoint prevails in the lawsuit against Verizon
March 28, 2001 NorthPoint starts shutting off service to DSL subscribers
March 29, 2001 NorthPoint shareholder RB/NPNTQ “techstar2001” launches an informal NPNTQ Shareholder’s Organization that begins efforts to find a law firm to represent shareholders in NorthPoint’s lawsuit against Verizon
March 30, 2001 Verizon states that they will leave all of NorthPoint’s customer DSL connections in service at no charge for the time being
March 30, 2001 California PUC issues an order telling NorthPoint that they have to continue providing DSL service. NorthPoint lays off 700 employees and announces that they are trying to put together a financing package to pay the cost of continuing service to their customers (they were not able to put the financing package together)

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May 1, 2001 Verizon cuts a deal to sell telecommunications products in 7,000 Radio Shack stores. NorthPoint had the deal through Microsoft to sell DSL at Radio Shack before being forced into Bankruptcy
May 3, 2001 Verizon raises DSL prices 25%
May 17, 2001 Bloomberg reports that some NorthPoint shareholders have announced a class-action lawsuit against Verizon over losses they suffered as a result of Verizon terminating the Merger Agreement
June 12, 2001 NorthPoint’s Chapter 11 Bankruptcy (reorganization) is changed to Chapter 7 Bankruptcy (liquidation). Ms. E. Lynn Schoenmann is appointed U.S. Trustee for NorthPoint
June 15, 2001 The Chancellor in a Delaware Court rules that Tyson Foods breached it’s Merger Agreement with IBP because of “buyer’s regret” and orders Tyson to complete the Merger. The IBP vs. Tyson lawsuit is very similar to the NorthPoint vs. Verizon lawsuit. NorthPoint shareholders recognize the similarity and rejoice at the likelihood that IBP vs. Tyson will be regarded as a compelling Precedent in the NorthPoint vs. Verizon lawsuit
June 19, 2001 RB/NPNTQ shareholder “anne_elk” posts an Email on NPNTQ Raging Bull message board that is reportedly from the San Francisco law firm Folger, Levin & Kahn. The Email states, in essence, that Folger, Levin & Kahn represents the NorthPoint Company, but does not represent NorthPoint shareholders in the lawsuit against Verizon
July 12, 2001 NorthPoint files the 1st Amended Complaint against Verizon. This document indicates that NorthPoint either has or is aware of documents that show that Verizon was interested in seeing NorthPoint go bankrupt or get into financial trouble
July 20, 2001 Bloomberg reports that NorthPoint’s lawsuit against Verizon received $7.5 million in backing from an Investment Banking Firm and NorthPoint Bondholder
July 20, 2001 Ms. E. Lynn Schoenmann, NorthPoint’s Federal Trustee, stated that NorthPoint had filed an Amended Complaint against Verizon, and stated that the Lawsuit now is potentially worth $4 billion
July 25, 2001 During a telephone conversation with RB/NPNTQ shareholder “wozdak”, Ms. E. Lynn Schoenmann, NorthPoint’s Federal Trustee, stated “There will have to be enough money from Verizon to pay Company obligations before shareholders will get anything”
July 31, 2001 Verizon takes a $3.1 billion charge for their failed Metromedia investment and other losses
August 3, 2001 The (informal) NorthPoint RB Online Shareholder’s Group has 104 members who have declared ownership of 3,783,031 shares of NPNTQ stock in support of any effort, by anyone, that will attempt to persuade the Legal Authorities in the NorthPoint vs. Verizon lawsuit to reject any settlement from Verizon that does not fully repair all damage (if any), including consequential damage, that Verizon caused by terminating the Merger with NorthPoint
August 3, 2001 The Status Conference on NorthPoint vs. Verizon lawsuit in Superior Court in San Francisco is postponed until 9/14/01

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August 7, 2001 Today is the “Termination Date” in the NorthPoint/Verizon Merger Agreement. By this date, either party was to have cured any “Material Adverse Effects”. Verizon negated the effect of this date when they terminated the Merger over 8 months ago
August 7, 2001 Angelo Gordon’s proposed loan of 7.5 million to finance the lawsuit against Verizon will cost NorthPoint 15% of a settlement and 20% of a jury award. A hearing will be held 8-17 to see if judge Carlson approves the deal.
August 7, 2001 Verizon’s Peter Thonis pooh-poohs the $7.5 million financing for NorthPoint’s lawsuit against Verizon. Thonis says Verizon will win.
August 9, 2001 NorthPoint (NPNTQ) stock price jumps 100% from $.042 to $.084 per share on volume of 2.8 million shares and holds up the following day on volume of 3.278 million shares.
August 31, 2001 Covad Chairman Chuck McMinn says Covad is adding 1,000 DSL customers per day and their DSL business grew 20% between 1st and 2nd quarter, 2001.
September 4, 2001 The NorthPoint (informal) Shareholders Group obtains and puts NorthPoint’s 7-12-01 Amended Complaint “online”. NorthPoint’s stock is at $.085 per share.
September 9, 2001 Verizon doubles the charge for making a local call from a pay phone
September 10, 2001 The enforcement bureau of the Federal Communications Commission announces that it hired five new attorneys to support the bureau’s competition-enforcement efforts
September 11, 2001 The World Trade Center and the Pentagon are targets of terrorist suicide/murderers
September 14, 2001 The Status Conference in superior court on the NorthPoint vs. Verizon lawsuit is postponed until 10-26-01 at 9:00am

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September 25, 2001 NorthPoint’s U.S. Trustee (Ms. E. Lynn Schoenmann) stated that there have been no negotiations with Verizon and no settlement offers from Verizon
September 28, 2001 IBP employees overwhelmingly approve the purchase of IBP by Tyson Foods. Tyson tried to back out of the merger with IBP, but the judge said “no” and ordered Tyson to complete the merger (see note at June 15, 2000 in this Diary)
October 10, 2001 The Court denies a motion by Verizon’s to have Causes of Action #2 and #3 thrown out of NorthPoint’s Amended Complaint
October 15, 2001 NorthPoint announces that Monarch Globe Capital Associates is the successful bidder, against 4 others, to finance NorthPoint’s lawsuit against Verizon. $7.5 million will be loaned to NorthPoint at 0% interest, plus 5.5% of a settlement or 6% of a judgment
October 19, 2001 The (informal) NorthPoint Shareholders Group, which now has 204 Members who collectively own 8.3 million shares of NPNTQ stock, starts talking with major NorthPoint shareholders in San Francisco about joining forces to set up an official, formal shareholders group with proxy authority and professional representation to promote and protect the interests of all NorthPoint shareholders
October 20, 2001 Ms. E. Lynn Schoenmann, U.S. Trustee for NorthPoint, sends an Email to RB Poster wewillwinsurely. Among other things Ms. Schoenmann stated that she represented the interests of NorthPoint shareholders
October 23, 2001 The Washington Times quotes Ivan Sendenberg, Verizon CEO, calling “this whole scheme of CLEC Interconnection a joke”.
October 26, 2001 Status hearing on NorthPoint vs. Verizon lawsuit postponed until 12-7-01 (Pearl Harbor Day).
October 30, 2001 Verizon forecasts 1.3 million DSL customers by the end of 2001 (Verizon press release)

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November 19, 2001 Appaloosa Management L.P. and Palomino Fund Ltd. filed SEC form 13-D, revealing that they bought 7,860,000 shares of NorthPoint stock during 45 days ending 11/14/01. They also stated that they intended to attempt to influence the outcome of NorthPoint’s lawsuit against Verizon. They further stated that they are “beneficial owners” of NorthPoint 12 7/8% Senior Notes
December 3, 2001 Judge Thomas Carlson dismissed the class-action lawsuit that was brought against Verizon by Pre-petition NorthPoint shareholders. Judge Carlson previously denied Verizon’s Motion to include this class-action suit in NorthPoint’s Company lawsuit against Verizon
December 11, 2001 In an Email reportedly from NorthPoint’s U.S. Trustee to Raging Bull Poster anne_elk, the date for the jury trial in NorthPoint’s lawsuit against Verizon is stated to be July 12, 2002 (Superior Court records show the trial date as June 3, 2002).
December 13, 2001 Jonathan Gallen, a Manhattan investor, beneficially owns 13,000,000 shares of NorthPoint stock as of 12/13/01. He possesses sole power to vote and direct the disposition of shares held by Pequod Investments, L.P. and Pequod International, Ltd., plus shares held individually by Mr. Gallen and/or by third parties for whom Mr. Gallen exercises sole voting and investment control with respect to such Shares. Mr. Gallen, like Appaloosa and Palomino (see November 19, 2001, above) stated that he will seek to use his substantial position to exert influence on the outcome of NorthPoint’s lawsuit against Verizon.
January 18, 2002 The (informal) NorthPoint Shareholder’s Group (iNSG) consists of 248 NorthPoint shareholders who have declared 9,432,702 shares of NorthPoint stock in support of the Purpose of iNSG. The “Purpose” and much more information on NorthPoint’s lawsuit against Verizon is at the iNSG website www.stockskill.net

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NorthPoint’s only asset is its $4 billion lawsuit against Verizon. In Verizon’s few public statements about the lawsuit and in it’s court Motions and Filings, Verizon indicates that it believes it acted in accordance with terms of the Merger Agreement when it terminated the Merger. NorthPoint states everywhere that it believes that Verizon’s termination of the Merger was a breach of the Merger Agreement. That is why NorthPoint filed the Complaint and subsequently, the Amended Complaint.

Since NorthPoint has recently received $7.5 million to finance prosecution of the lawsuit against Verizon, NorthPoint will not run out of cash, as often happens to a bankrupt company that is attempting to pursue a large lawsuit against a powerful and wealthy Defendant. Since the lawsuit has been declared to be a “Status 1”, “expedited” case, the outcome could occur very soon, either in the form of a settlement agreed upon by Verizon and NorthPoint, or the case may be scheduled for jury trial.

Ms. E. Lynn Schoenmann, NorthPoint’s Federal Trustee, stated on 7/20/01 that if the case goes to trial, it is desired that the trial should be within a year of the date the lawsuit was filed (by 12-8-01), which she said was “expedited” because of the “Status #1” designation of NorthPoint vs. Verizon. She elaborated by saying that “non-expedited” cases can take several years to come to trial.

Possible Explanations For “Why did Verizon terminate their Merger with NorthPoint?”

The following 4 Possible Explanations are various scenarios with enough facts and proof and/or evidence and plausibility that they seem to be worthy of consideration as possible avenues of Discovery and ultimately, Prosecution by NorthPoint’s lawyers.

Possible Explanation #1:

From the NorthPoint/Verizon history above and from many other sources, it can be seen that the Technology sector in general and DSL sector in particular were in decline before Verizon signed the Merger Agreement with NorthPoint. The decline in Technology and DSL has continued since the Merger and even today (10/30/01), there are no definite signs of recovery or even an end to the decline.

Some persons who are knowledgeable of the facts surrounding the NorthPoint/Verizon case believe that Verizon terminated the Merger simply because it was experiencing “buyer’s remorse” - a common reaction by a company that contracts to make a huge investment and then sees the value of that huge investment decreasing, decreasing. It’s likely that Verizon was already experiencing “buyer’s remorse” over their failing Metromedia investment. How much remorse can one company handle?

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Typically, a “remorseful” investor-company, under pressure by analysts, shareholders, investors and others, looks for a way - any way - to avoid paying the rest of the “loss” money for the declining investment.

Verizon has stated that NorthPoint’s deteriorating financial condition was the reason they (Verizon) terminated the Merger. Verizon cited the “Material Adverse Effect” portion of the Merger Agreement to justify their reasoning. Let’s see if the Merger Agreement allows Verizon to use that reasoning. Section 10.4 (k) and (k)(i) of the Merger Agreement defines “Material Adverse Effect”. It states, in part that: “Material Adverse Effect”…..shall not include facts, events, changes or effects that are generally applicable to (A) the data industry, (B) the United States economy or (C) the United States securities markets generally or the Nasdaq Technology Index in particular….”

Even if the “Material Adverse Effect” happened because of a situation not listed in (A), (B) or (C) in the above paragraph, the Merger Agreement gave NorthPoint until August 7, 2001 to correct whatever problem had occurred. Verizon did not give NorthPoint any time to correct anything. Verizon suddenly terminated the Merger more than 8 months before the 8/7/01 correction date.

Possible Explanation #2:

Another seemingly credible idea that has been advanced is that Verizon intentionally lured NorthPoint into the Merger with the premeditated purpose of destroying NorthPoint, because NorthPoint was a strong DSL competitor of Verizon. Whether Verizon’s actions were intentional & premeditated or not, NorthPoint did believe and trust Verizon and NorthPoint was destroyed as the result of events precipitated by Verizon terminating the Merger. Further, NorthPoint’s Amended Complaint indicates that NorthPoint has, or is aware of, written evidence that purportedly shows that Verizon committed fraud in their dealings with NorthPoint.

Possible Explanation #3:

There is possibly more to the failing Metromedia investment than the emotional “buyers remorse” aspect mentioned in Explanation #1. Consider the following real-world financial implications of Verizon’s Metromedia losses:

Verizon invested $1.3 billion in Metromedia in March 2000, just as the Technology bubble was about to burst. By the 3rd Quarter, it had to have been apparent to Verizon that the Metromedia and other investments were going sour and would result in Verizon having to take a large, dreaded “charge” against earnings, possibly as early as the 4th Quarter 2000.

Certainly, by the middle of the 4th Quarter 2000, Verizon was looking for ways to rein in spending and/or cut losses. Verizon’s Merger Agreement with NorthPoint was only 3 months old, but in those 3 months, the DSL sector had turned down and NorthPoint’s Market Capitalization had decreased by well over $1 billion. Furthermore, Verizon was obligated to pay NorthPoint another $200 million by January 1, 2001, plus an additional $450 million, (includes $2.50 per shareholder share), later in 2001.


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The rest of the story is well known: 9 days after NorthPoint restated their 3rd Quarter earnings, Verizon made an unexpected, shocking phone call to NorthPoint, terminating the Merger.

Possible Explanation #4:

Other well-documented and widely published data that could at least partially explain NorthPoint’s ruin are contained is a series of documents published by the New York Times, DSL Prime, New Networks and others, which persuasively present the notion that the major Telecommunication companies (including Verizon) repeatedly failed to comply with some provisions of the 1996 Telecommunications Act, and/or engaged in other detrimental actions that brought about the current depressed situation in the DSL Sector. (End of Possible Explanations)

If Verizon is guilty of breaching the Merger Agreement and they are therefore liable for the great damage that has occurred as a result of their actions, it seems likely that one or more of the four Possible Explanations above will provide the answer to “why did they do it?”

Notably, Verizon’s publicly stated justification for terminating the Merger seems very weak and questionable in light of publicly known facts and in the light of allegations in NorthPoint’s Amended Complaint.

Conclusion - If Verizon is Correct:

If Verizon did not breach the Merger Agreement, they should not consider paying any kind of settlement to NorthPoint. Verizon showed uncompromising conviction in terminating the Merger - no warning or notice to NorthPoint - one phone call - it’s over! If those strong convictions are companions of Verizon’s righteous conduct, they should welcome the opportunity to show a jury how they have been unjustly accused.

Terminating the Merger Agreement started a series of events that have caused grief, anxiety, discouragement and financial difficulties for tens of thousands of individuals and families, in addition to disruption and damage to many careers. Regardless of the extreme damage that has been suffered by NorthPoint and many others, if Verizon’s actions were justified, may God bless them with total exoneration and victory.

Conclusion - if Verizon is Wrong:

If Verizon terminated the Merger Agreement in violation of the terms of the Agreement, the minimum Verizon should pay is full restitution for all the damage they have caused. A “settlement” in the usual sense of the word is essentially a “financial plea bargain” and it should not be allowed. Verizon, by abruptly, forcefully and unilaterally terminating the Merger, completely foreclosed any option for compromise or arbitration. Likewise, settlement or compromise should not be considerations in arriving at whatever amount of money that Verizon may owe to NorthPoint.

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Disclaimer:



This document was written with the hope that it will be read by: E. Lynn Schoenmann, NorthPoint’s U.S. Trustee; Michael Kahn, Samuel Miller and Douglas Sullivan, NorthPoint’s attorneys; the Honorable Thomas E. Carlson, Judge of the U.S. Bankruptcy Court and the Honorable Ronald Evans Quidachay, Judge of the Superior Court in San Francisco. My hope is that this document will be a useful reference for them as they attend to their interests in this case.

Virtually all of the material in this document is from publicly available documents or sources. None of the above material was taken out of a context in a manner that changes the factual meaning or intent of the words. The person who assembled and wrote the above material is an owner of shares of NPNTQ (NorthPoint) common stock. His purchase of NPNTQ stock was made after he had knowledge of much of the available information. He purchased his stock because he believes that the available facts, evidence and inferences indicate that NorthPoint is right and Verizon is wrong in the matter of termination of the Merger Agreement and he expects that NorthPoint should prevail in their lawsuit against Verizon to the extent that all shareholders will benefit.

Any non-qualified statement herein reflects the knowledge, conclusion or opinion of the writer. The writer is not affiliated with any party in this lawsuit. The writer is not soliciting, recommending or discouraging any kind of investment decision. The writer has documentation for the majority of the material in this document. The writer believes that all statements and representations in this document are accurate or can be reasonably inferred to be accurate.

Anyone is hereby authorized to use this document in any manner, as long as the use is not manipulated in a manner to change the obvious intent or meaning of whatever portion is used.

The writer of this document is “WOZDAK”, a NPNTQ shareholder and Member of the Raging Bull (informal) NorthPoint Shareholder’s Group. The Internet message forum where the (informal) NorthPoint Shareholder’s Group meets can be accessed at ragingbull.lycos.com

The (informal) NorthPoint Shareholder’s Group website can be accessed at http://www.stockskill.net




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