The Bankruptcy court of California has entrusted the estate of NorthPoint Communications to E. Lynn Schoenmann, a U.S. Trustee. It is Schoenmann's fiduciary duty to maximize the value NorthPoint's estate for creditors and shareholders. By accepting Verizon's paltry 175M settlement offer behind closed doors, in the litigation where NorthPoint is suing Verizon for Breach of Contract, Misrepresentation and Fraud, Schoenmann will collect 3% or 5.25M. The settlement she is accepting leaves creditors with only 20 cents on the dollar and shareholders nothing. NorthPoint's estate is being harmed by Schoenmann's inherent conflict of interest - maximizing her estate

NorthPoint Communication's lawsuit against Verizon was scheduled for jury trial on July 29th, 2002, but was scuttled by Schoenmann on July 23rd, when, in a mandatory mediation, Schoenmann agreed to a settlement for 175M.. Schoenmann will receive 5.25 million dollars on the deal while the estate of Nortpoint is made nowhere near whole.

Just 9 business day prior Schoenmann's accepting the settlement an order denying defendant Verizon's motion for summary adjudication on the charges of Misrepresentation and Fraud was handed down by Judge McBride of the San Francisco Superior Court. (July 12, 2002)

Even if Verizon were to have been successful on their summary adjudication motion, the trial was still set to go forward on Breach of contract where the demanded damages exceed a billion dollars. .

From the beginning, the Trustee, through the media and personally to shareholders, espoused the strength of the case and stated that NorthPoint's lawsuit against Verizon was valued in the range of 4 billion dollars

The upper limits of a jury award may be substantially larger than 4 billion if punitive damages, litigation costs, interest, etc. are also awarded.

Background

The Verizon - NorthPoint binding merger agreement, signed August 8th, 2000, was to create a new company coined the "new NorthPoint" in which Verizon was to own 55%. For this controlling stake, Verizon was to contribute $800m in cash, as well as Verizon's entire DSL operation, employees, customer base, network equipment, back office systems, etc. The merger made provisions for NorthPoint's existing shareholders to receive $2.50 cash and one full share in the "new NorthPoint for each share of the "old NorthPoint".

Verizon's sole justification for terminating the merger on November 29, 2000 was citing that a Material Adverse Effect or MAE had occurred on NorthPoint's business after Northpoint had to restate their 3rd quarter earnings due to failing ISP's (an external event) that were unable to pay on time for the wholesale services they received. This restatement was approximately 6 million dollars, a mere .003% of what Verizon itself stated Northpoint's value was, which was 2.15 Billion

The contract specifically excluded from the MAE clause, "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". Data industry problems and the NASDAQ drop were a major part of NorthPoint's problems. Several other clauses bound Verizon as well, and the personal word a the top Verizon executive, Mr. Babbio, had told NorthPoint's CEO Liz Fetter that the cancellation clauses would only apply if something remarkable happened, like "DSL causing cancer".

Liz Fetter retained Folger, Levin, and Kahn (FLK) and filed a suit to force completion of the merger on December 8th, 2000. However, Verizon's timing in terminating the agreement left NorthPoint without funds to continue operations. NorthPoint was therefore forced into chapter 11 bankruptcy on January 16, 2001.

Unable to find additional funding or a new backing partner during the ensuing months in which the telecom sector was clearly in free fall, NorthPoint was forced to convert to a chapter 7 bankruptcy on July 12, 2001. The bankruptcy judge handling NorthPoint's case, Thomas E. Carlson, then appointed a US Trustee, E. Lynn Schoenmann. The Trustee then directed the law firm FLK, (who was initially hired by CEO Liz Fetter) to amend the lawsuit, dropping the request to force Verizon to comply with the merger agreement and proceed solely with the three causes of action detailed above.

Last year, 2001, there was another very similar breach of contract case, Tyson vs. IPB. This case set precedents regarding the interpretation of the MAE clause. The end result was that Judge Strine ruled that the MAE over a short term was not allowed and the Merger was ordered to go forward. The Judge also went on to say in his ruling that IBP was lulled into a sense of false security due to John Tyson's strong positive statements about the Tyson IBP merger. Similarly so, with NorthPoint executives listening to Verizon's Vice President, Mr. Babbio, tout the expectations for "The New NorthPoint". Today the combined Tyson/IBP company is profitable and strong.

NorthPoint vs Verizon has the opportunity to expand upon this case law for the benefit of all those who hold stock in corporate America.

Schoenmann's culpability

Schoenmann stated in e-mails and phone conversations with members of our NorthPoint shareholder group (NSG), that she responsible for representing the interests of creditors, and also other parties in interest, including shareholders. and that her obligation is to represent the bankruptcy estate as a whole, without regard to any particular interest.

Our shareholder group constantly updated our court appointed US Trustee, Ms. Schoenmann, and kept her and FLK abreast of all current events and matters that our members became aware of.

Schoenmann further encouraged shareholders to continue to send anything that could be useful.

Schoenmann privately and publicly stated on numerous occasions that NorthPoint had a "very strong" case against Verizon on all three counts, including fraud, and that she was "aggressively" pursuing it as such.

Schoenmann publicly stated she had a "comfortable war chest" and would have no problems obtaining additional funding if the need arose.

Schoenmann said she was looking forward with anticipation to the trial

Schoenmann encouraged shareholders to attend the trial.

Schoenmann broke her fiduciary duty to represent the entire estate of NorthPoint by accepting a settlement which did not make the estate whole.

Schoenmann's settlement amounts to only 4.23% (175m) of the 4 billion in damages that NorthPoint was seeking.

Schoenmann's settlement, 9 days after Judge McBride had given the green light to NorthPoint to proceed on all three counts against Verizon, stopped the trial that was to commence in 3 business days.

Schoenmann has denied all shareholders a fair and equitable chance for a jury to hear the complaints, unfair practices, and ill decisions that Verizon clearly made against NorthPoint, its creditors, bondholders, and shareholders.

Schoenmann misled, and clearly misrepresented facts and information to shareholders of NorthPoint, of which I have first hand knowledge. We are willing to support claims in this letter, as necessary, by affidavit or under oath.

Schoenmann made representations that she would pursue all claims, including shareholders, by aggressively pursuing NorthPoint's illegal termination, misrepresentation, and fraud lawsuit against Verizon.

Schoenmann contradicted her representations on July 24th, 2002 when she accepted an inadequate settlement that provided only pennies on the dollar for creditors and hence nothing for shareholders while she herself became a millionaire (5.25m or 3% of 175m.)

Schoenmann and the team of lawyers which she retained, won every motion Verizon filed to thwart the case over the prior 18 months. Then, Schoenmann did a totally unexpected 180 degree turn, abruptly abandoning all the costly hard work it took to prepare this case for trial before a jury so that an impartial decision could be rendered on the facts of this case.

Judge McBride indicated that there were "triable" Misrepresentation and Fraud issues, and ordered the causes of action to stand and be heard before a jury on the previously set date - July 29, 2002

Verizon, with all their discovery and depositions could not disprove the negligent Misrepresentation and Fraud charges to Judge McBride. Verizon did not attempt to have the breach of contract charges dropped.

Schoenmann was expected to uphold her fiduciary responsibilities and obligations in protecting the interests of NorthPoint's estate. In this excellent case (the Trustee's words), shareholders have an opportunity to have their damages redressed.

Schoenmann, who made the decision to settle for pennies in mediation, is now the direct cause of NorthPoint's estate being valueless to the ex-employees and other shareholders.

Schoenmann actions caused NorthPoint's stock to loose 94% of its value over night.

Schoenmann ruined stockholders chances of any compensation and payment for the shares of NorthPoint communications that we have held for years on the assumption we would have our day in court.

Schoenmann denied all interested parties the right to a fair and equitable trial in which justice could be rendered making NorthPoint's estate, it's creditors, and heirs whole.

Many of us, if not the majority of shareholders, purchased NorthPoint stock because the merger agreement was such good business news. The agreement made the "new NorthPoint" the largest, international high speed data carrier that provides direct customer access.

It is our opinion that Schoenmann placated shareholders to bolster her position and avoid any legal action by shareholders that would interfere with her plans in dealing with Verizon. She then agreed to an unfair settlement offer, completely shutting shareholders out.

We were invited by Schoenmann, the US Trustee, to attend the trial on 07/29/2002. Many shareholders feel absolutely betrayed by Schoenmann. Her actions were in no way consistent with her words. The United States Government put the financial lives and security of Northpoint shareholders into Schoenmann trust when she was made Trustee of the NorthPoint estate. In this light many feel her actions are similar to those of the Verizon executives who committed several crimes against NorthPoint.

Please contact us if you require any witnesses from our shareholder group. We would be honored and privileged to have the opportunity to see that justice prevails. In our opinion a jury trial is the only way to determine whether or not Verizon is guilty. Judge McBride has supported this by denying Verizon's request to dismiss.

At this time, both the trial and bankruptcy courts consider that the settlement mediated by Schoenmann stands. On December 17, 2002, all charges against Verizon for destroying the largest high speed data carrier will be dismissed, and all the records and evidences of Verizon's fraud sealed.

Justice has not been served by Schoenmann's settlement. Please use your influence, to put a stay on the current decision and allow the trial to continue.

You will find the entire history of this abandoned merger, court documents, e-mails from the Trustee to shareholders, media opinions and news stories with quotes from the Trustee and Verizon officials,... a wealth of information documenting the merger agreement, Verizon's walking away from the merger, NorthPoint's bankruptcies and NorthPoint's suit at http://www.stockskill.net

Frank Harding - member of
NorthPoint shareholder's group
Frank@stockskill.net