I was the lead engineer for a DSL company. In that capacity I had the opportunity to build a network that used equipment identical to NorthPoint's. I also worked with NorthPoint as a customer, as our company resold NorthPoint DSL.

In both of our networks, the piece of equipment in the telephone office that connected to the wires, that supplied DSL service to the customer, was manufactured by Copper Mountain Networks (ticker CMTN). The graph of Copper Mountains stock price was readily available to Verizon's executives, purchasing agents, etc.

As an engineer, when I select products to place into the field, I research the company that produces the product. I meet with their management, and check on their financial stability. That's part of due diligence, as the products warranty and ongoing technical support depend upon the continued operation of the company. I would expect no less of Verizon. Copper Mountain was a major supplier of DSL equipment to NorthPoint. Copper Mountain's main competitor was Lucent Technologies (ticker LU).

The share price of equipment manufacturers is a leading indicator of the business sector they produce for. Orders for equipment increase the earnings of these producers before the end users can implement this new equipment, bringing marketable systems online to produce their own cash flow. Thus the equipment manufactures are leading indicators to the health of the industry (DSL, ISP)

When a market declines, the accounts receivable of equipment manufactures grow and orders decline. Hence, depressing manufacturers cash flow as the effects of a maturing industry begin to reduce network infrastructure growth. The associated equipment orders dwindle as the end users turn towards sales of the available network products.

The following graphs are striking. These visual tools clearly demonstrate -- especially to a jury -- that there was a significant decline in the NASDAQ Telecommunications Index and specifically in the share price of DSL equipment provider, Copper Mountain prior to November 29, 2000 when Verizon, without warning, unilaterally terminated the merger.

It does not take experience with the markets or mathematical skills to see from these charts that:

• Prior to the Merger agreement, Verizon had information that is fall-off-a-stump simple to evaluate that pointed to an industry downturn in both voice and data networking.
• The downturn was industry wide.
• The downturn was clearly obvious before November 29, 2000.

Considering the magnitude of the losses in equity values of each of these companies, the $6M, one-time revenue adjustment made by NorthPoint is insignificant. At a minimum, NorthPoint valuation was worth $800M, what Verizon was paying for its 55% stake in the New NorthPoint. This makes the $6M adjustment a mere three-quarters of one percent of NorthPoint's valuation. If this amount were to be illustrated on any of the following graphs, it would be imperceptible, even from the jury box.

Lawrence T. Babbio - Verizon's vice chairman and president - after making nothing but glowing statements^[1] such as: "the new NorthPoint will hit the ground running as a broadband industry leader" throughout the months following the signing of the merger, suddenly cries Material Adverse Effect 8.3(g)^[2].

In doing so, Verizon showed blatant disregard for the contract's definition of Material Adverse Effect as stated in Section 10.4(k)(i)(A),(B),&(C)^[3] in the Merger Agreement And without regard for the contract provisions outlined in Section 9.1(d)(ii)(A)(1)^[4] regarding time to remedy a problem, (if one actually existed).

Judge Strine ruled^[5] that Tyson Foods , the country's largest poultry producer, had breached the contract it signed on January 1 to acquire IBP, the country's largest meat packer, for $3.2 billion in cash and stock. Tyson argued that IBP had suffered a material adverse change (MAC) in that IBP's operations have been hurt by the slowing U.S. economy: Both sales and earnings were down significantly in the first two quarters of 2001. However, Judge Strine ruled that this did not qualify as a MAC. Further stating that when an acquirer seeks to purchase a company as part of a long-term strategy a short term MAC is not sufficient grounds for terminating a merger agreement.

Judge Strine went on to say^[6] 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 Mr. Babbio tout the exaltations of "The New NorthPoint".

Lucent
(Copper Mountain's main competition)

Sprint
(the 3rd largest long distance company)

Aug 14, 2000 Instead of cash, Verizon will get an infusion of energy for its DSL roll out, which has been blasted with criticism for being too slow. Verizon vice chairman and president Lawrence Babbio characterized its new NorthPoint effort as "entrepreneurial" and said Verizon was about to break free of the service and support issues that have plagued its roll out

Aug 14, 2000 The NorthPoint deal vaults Verizon into the No. 2 DSL spot. More importantly, NorthPoint's fast-moving, entrepreneurial reputation could give Verizon's DSL initiative a much- needed shot in the arm in the race to win market share from high-speed cable-modem services.

Sept 6, 2000 "The new NorthPoint will provide a much-needed alternative to cable in delivering data and entertainment over the Internet," said Lawrence T. Babbio, Verizon vice chairman and president. "Our investment today will enable NorthPoint to fund its network expansion and continue to enhance its service delivery, support systems and product suite so that the new NorthPoint will hit the ground running as a broadband industry leader."

(g) Material Adverse Effect. There shall not have occurred any Material Adverse Effect on NorthPoint.

(i) in the case of NorthPoint or Parent, any fact, event, change or effect having, or which will have, a material adverse effect on the business, operations, properties (including intangible properties), financial condition, assets or liabilities of NorthPoint or Parent, as the case may be, and its Subsidiaries taken as a whole, but 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, nor shall it include any fact, event, change or effect caused predominantly by Verizon's involvement in the transactions contemplated by this Agreement.

Broadcom, which makes computer chips that go into a variety of communications gear like modems, has watched its shares get whipped since late October. Dragging down the shares is the rampant fear that telecom-spending expectations were completely inflated, and that thus so were valuations. Talk about a correction: Shares have plummeted from about $250 in August to about $90 in November source

This was the same time frame in which NorthPoint revenues and stock price falling. NorthPoint management was not responsible for this downturn - it was industry wide.

(d)

(ii) by Verizon,

(A) if NorthPoint shall have breached or failed to perform in any material respect any of its representations, warranties, covenants or other agreements contained in this Agreement, which breach or failure to perform

(l) is incapable of being cured by NorthPoint prior to the Termination Date^[7] and
(2) renders any condition under Section 8.1 or 8.3 hereof incapable of being satisfied prior to the Termination Date

"... These negotiating realities bear on the interpretation of §5.10 and suggest that the contractual language must be read in the larger context in which the parties were transacting. To a short-term speculator, the failure of a company to meet analysts’ projected earnings for a quarter could be highly material. Such a failure is less important to an acquirer who seeks to purchase the company as part of a long-term strategy. To such an acquirer, the important thing is whether the company has suffered a Material Adverse Effect in its business or results of operations that is consequential to the company’s earnings power over a commercially reasonable period, which one would think would be measured in years rather than months. ..." pg 109

"... Merger contracts are heavily negotiated and cover a large number of specific risks explicitly. As a result, even where a Material Adverse Effect condition is as broadly written as the one in the Merger Agreement, that provision is best read as a backstop protecting the acquirer from the occurrence of unknown events that substantially threaten the overall earnings potential of the target in a durational-significant manner.¹⁵⁵ A short-term hiccup in earnings should not suffice; rather the Material Adverse Effect should be material when viewed from the longer-term perspective of a reasonable acquirer. ..." pg 111

"... As a result of this conclusion, my merits determination is that Tyson is in breach of the Merger Agreement because it improperly terminated in late March, 2001. That is, it is in breach of its obligation to close the Cash Election Merger on or before May 15, 2000 ..." pg 141

CA18373, In re IBP,Memorandum opinion, 6/18/2001,
see pages 104 - 119

"... Indeed, on February 2 1,200 1, John Tyson publicly reiterated that Tyson was "going to buy IBP," that it was "a unique point in time and opportunity to create the world’s largest marketer of these proteins," and that "IBP is a strong company."¹⁹⁹ As a result, IBP says it was lulled into a sense of false security that led it to refrain from demanding that Tyson speed up its efforts to close the Cash Offer. Had Tyson disclosed its real motives, IBP would have acted differently. IBP’s public indication that Tyson’s termination of the Cash Offer comported with the Agreement must be understood in context: IBP was expressing its reliance on the good faith of a merger partner who it thought was exercising best efforts. ..." pg 138