Bankrupt NorthPoint Communications Group Inc. has settled its $1 billion lawsuit against Verizon Communications Inc. less than a week before the case was scheduled to go to trial.

NorthPoint will receive $175 million in exchange for dropping its suit against the nation's largest local phone service provider.

NorthPoint accused Verizon of breach of contract and fraud for scrapping its acquisition of NorthPoint just before the San Francisco company sought bankruptcy protection last year.

The U.S. Bankruptcy Court in San Francisco is expected to rule on the settlement within 45 days.

Verizon said it settled the case to avoid the potentially high costs of what could have been a prolonged trial. Executives for the New York-based company "believe that a jury would have found that we were within our rights [to terminate the deal] under the terms of the contract," said Randal Milch, Verizon senior vice president and deputy general counsel.

Representatives for NorthPoint did not return calls for comment.

Had it gone to trial, the NorthPoint-Verizon case could have set a precedent. The lawsuit may have tested the protection offered by material adverse change, or MAC, provisions in acquisition agreements. Potential acquirers sometimes invoke the clause if they sense that a target's business is evaporating or other unexpected changes are severely hampering the company.

After scrapping its planned takeover of NorthPoint, Verizon charged that the broadband company had misrepresented the health of its business.

NorthPoint's case would have been difficult to prove, according to mergers and acquisitions attorneys. MAC provisions tend to be written broadly enough to allow acquirers latitude when backing out of a deal.

Additionally, NorthPoint would have had a tough time proving fraud, said Wesley Overson, a litigation partner with Morrison & Foerster in San Francisco. NorthPoint would have had to convince jurors that Verizon dealmakers knew during acquisition talks that they didn't intend to close the deal, he said. The context of the case also worked against NorthPoint.

"When you are in bankruptcy," Overson said, "it could appear you are thrashing about looking for assets."

The settlement marks another chapter in NorthPoint's rapid rise and fall. The company was founded in May 1997 by six former WorldCom Inc. executives to sell digital subscriber line services, high-speed Internet connections through existing phone lines. Before going public in 1999, NorthPoint raised nearly $100 million from financial backers that included Microsoft Corp., Tandy Corp. and Excite@Home Inc. The company also attracted top-flight venture capitalists such as Vulcan Ventures Inc., Accel Partners and Benchmark Capital.

The company, which would grow to more than 1,000 employees, spent millions building out its network, but never recouped costs through what it charged users. In August 2000, Verizon, having trouble operating its own DSL service, agreed to combine its high-speed Net business with NorthPoint. Verizon planned to turn over the management of its high-speed Net operation to NorthPoint in exchange for a 55 percent stake in the new company. Verizon also agreed to invest $800 million in the enterprise.

Verizon paid its first $150 million installment toward the merger in September 2000, but called off the deal two months later.

NorthPoint filed for Chapter 11 bankruptcy protection in January 2001, saying the scuttled Verizon deal created a cash shortfall that it could not overcome. NorthPoint later converted its bankruptcy filing to Chapter 7 liquidation, agreeing to sell its assets to AT&T Corp. in a deal valued at $135 million, $65 million less than it was seeking.

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