On August 7, 2000, NorthPoint Communications (Nasdaq: NPNT) and Verizon Communications (Nasdaq: VZ) were two big companies looking to share in the broadband pot of gold through a merger of their growing DSL businesses.

But shortly after San Francisco-based NorthPoint revised its third revenues in late November, reducing revenue for the quarter from 30-to-$24 million and boosting its EBITDA loss nearly 15% to $90.9 million, Verizon withdrew from the deal.

Now NorthPoint is suing Verizon, demanding the company either reinstate its merger agreement or cough up what could potentially amount to more than $1 billion in damages, including compensation for the 248 employees (19% of its workforce) NorthPoint says it was forced to lay off Thursday due to the failed merger.

"The contract between NorthPoint and Verizon gave the companies very limited right under which they could terminate the merger," says Douglas Sullivan a Partner at Folger Levin & Kahn, which is representing NorthPoint in the suit. "Verizon contends an alleged decline in the business at NorthPoint, but Northpiont does not agree that its overall business has deteriorated.

A spokesperson for NorthPoint says Verizon pulled out solely because NorthPoint's stock has seen a considerable decline since the August 7 agreement. But Verizon spokesman David Frail says stock price had nothing to do with the decision, despite the fact that NorthPoint was trading at only 41 cents a share after market close Friday, more than $34 off its 52-week high.

"In their restatement of their third quarter results NorthPoint noted that 31% of their installed access lines were associated with delinquent accounts," says Frail. "This has nothing to do with the stock price. It has to do with the deterioration of the business."

In a statement released today, NorthPoint CEO Liz Fetter says the lawsuit will be pursued to ensure that Verizon either closes the deal with NorthPoint or that NorthPoint "receives the full compensation and benefits to which it is entitled under law and the merger agreement."

According to Sullivan, that adds up to the over $800 million in cash and $500 million in assets Verizon was going to invest in the company.

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Verizon's response: Not our problem.

"We terminated the agreement and notified NorthPoint that we have no further obligation to provide them with interim financing," says Frail. "End of story."

Verizon's stock finished up the week down 1.688 to $56.188