Document 262-4
Filed 01/04/2008
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Case 1:04-cv-01494-JJF
Document 262-4
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IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
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Civil Action No. C.A. No.
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04-1494
(JJF)
MAGTEN ASSET MANAGEMENT CORPORATION and
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LAW DEBENTURE TRUST COMPANY OF NEW YORK, Plaintiffs,
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NORTHWESTERN CORPORATION,
Defendant.
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Civil Action No. C.A. No. 05-499 (JJF) MAGTEN ASSET MANAGEMENT CORP., Plaintiff,
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v.
MICHAEL J. HANSON and ERNIE J. Defendants.
KINDT,
DEPOSITION OF ERIC JACOBSEN
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TAKEN ON:
6/19/2007
Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 3 of 36
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APPEARANCES: FRIED,FRANK, HARRIS,.SHRIVER & JACOBSON LLP One New YOlk Plaza New Yode, New York 10004-1980 By: Bonnie Steingal!, Esq. Sabita K,dshnan, Esq. Forthe
Plajnliff.~
INDEX
Examination by Ms. SleiDgart, JXIge 8
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INDEX OF EXHIBITS
Exluuil Nmnber I, Slipul,ted Prot«I;v< Oroor,
""go 7 Exhibil Nmnber2, Nol1hlVestcmCorpornl;on S.. tr
M~linliExC(.utivc
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Conunittce Meeting Minulcs, Ji'lnu.,tY
28,2002, I',so 14
Exllibil Number 3, Febru:'tC)' 25. 2002 E·m3i1 irom
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9 B'rborn forinash 10 Koren Smook wilh NOR StalUExc:c
Colrnni\tc~Ma(crialsauaellluenfS. page
IS
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E.:(hibit Number 4, Manag.ement" financial and
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CURTIS, MALLET-PREVOST, COLT & MOSLE LLP 101 Park Avenue New York, New York 10178-D061 By; Joseph PiZZW1'O, Esq. Nancy E. Delancy, Esq. For NOithWeslcn, Corporation
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Infonnalion Repon Mwing 2002 C~I.noor, pago J6'
Mike HOInson i1nd Eric Jacobsen to TIle Doon! or Directors rego1rding Update ou MOlII.m" Power Acquisitior1. page 20
ExhibiL Number
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.s. ];luuary 2&,2002 MCl1lol1lndum from
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Exlubil Number G, M""'h 18.2002 Confiden'i,,1
MCJl1ol-arKhlln fi"Olll Eric J~cobsl::n alld Mike Hanson 10 Merle Lewis, Did; B)1land llad Jolm Vi1n C:llnp
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15 16 17 18 \9 20 2\ 22 23 24 25 WILMER, CUTLER. PICKERING, HALE & DORR 1875 Pennsylvania Avenue, NW Washington, DC 20006 By: Joseph K. Brenner, Esq. For lhe Witness
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IS
n:Jl'lrding MPC Compen,:nion Propo",l. ""go 27 Exhibil Number 7, M.1y28, 2002 Memornndulll (rolll Kipp Onna to Merte Lewis, Diek H)il'nd and Eric Jacobsen
rc&;trdillg Finnncing Pli\ns and Considerations.
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Exhibi. Numbcr 8, fonn IC-Q, NollhWcs,em COIJl, d.lIed May IS, 2002, p.18c 47 Exllibil NUlllber9,luly 3,2002 E·mail from Ko",n
Smook 10 multiple recipients reg.:udins 05-31-02 For Th. Montl. E"d
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2002, I"g< 52
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APPEARANCES
(c(llllinu~):
INDEX OF EXlillllTS (colII;u'k:dl 2002, !,.yo S5
Exhibit Numh::r I J. NorthWc't~m ManagclI"'-"nt FiIl311c:i:l1 and I'lfonniltioll Report forllll~ Month Ended Jw\C 30,
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BROWNING, KALECZYC, BERRY & HOVEN, PC 139 Nor1h u.sl Chance Gulch Heleml, MT 59624 By. Slanley Knleczye, Esq. Kjmberly A. Beatty, Esq. For Michael J. I-Janson nnd Emie 1. Kjndl
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Exhibit Number 120 Fonn IO-Q. NorthWcstcm Corp.
dated AUCUSl 14, 2002. pa~c 57
MCIl'lOli\ndUIl1
Exhibil Number I3, Jul)' 9, 2001 Confldcnli:11
from Eric Jacobsen tlnd Mike Honson
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Morle Lewi" Diok Hylland nod John Von C,mp
regarding NorthWC:Slcm Energy 1..1'11', I);IG~ 65
I!xhibi' Number 14, July 30,2002 Mcmor.1ndum frolll
Mike Hal1$On 10 n~ 60ilrd orDircctors re~arding Upd.,'lt.: on NorthWCSlem Elle'\;)' )mcgTilIiOll, page 69
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NlXON PEABODY, LLP
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Exhibil Number IS, July31, 2002 MClllornndwll from
Ene Jacob;l;clllO NOr1bWesICfJ) Doard ofDircc10rs. regilrding Going flat Resolution. JXl~e 77 Exhibil Number 16, NonhW~stcm Mana~cmcl1t Financial and Infonnmion Report VorThc Month Ended July31.
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437'Madison Avenue New York, NY 10022-7039 By: Clu;stopher M. Desiderio, Esq. For Law Debenture Tlust Company of New York
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2002, ",'gc 83
J:xh.ibil Numbc'r 17, All{!,llSt 16, 2002 Letter from WiIli.1l11 Schwiuer 10 Slephcll Hc:.1mc ;md Frtd ffi\nk. p:1gc 89 alnuil Number 18. SCplembcr 6, 2002 Lonor from William Scbwitter (0 Stephen Hearne :md Fred F'r.mk. p.lee 9'~ E:'l.hibil Number 19, Novclnb:r S, 2002 Memorandum from Eric Ja<:ol>scll, Kipp On11<: 10 OllIe Memhers of II Ie.
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COllulliucc arid c..1ch Disclosure
Sub-Comlll;""". ",'g0 120
Ex.hibit Nwnbcr 20, November 12, 2002 r:~m3il frolll Tim Alkinson 10 Kun WhilcscI, KippOnnc and Eric J3CO~1l willi iluached Mcmolimduln, p.1ge 120 Ex.hibirNumbc:r 21, Oeto~r 30,2002 MCJnOJ"3ndulI1 froll1 Kipp Onne 10 NOl1hWestem Board ofDireetors regilrding R~ ... i5Cd Proposed 2003 Opcr.ning Pliln. P.lgC 130
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2 (Pages 2 to 5) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 100 l7
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 4 of 36
Page 78 A. I don't have specific recollections of that, no, Q. In any case, the board at the meeting in August voted on resolutions concerning the going-flat transaction, correct? 5 A. I bel ieve that's correct. 6 7 Q. Did you draft the resolutions? A. I believe they were prepared by outside 8 counsel. 9 10. Q. Did you review them before they were presented to the boards? 11 A. I would assume that I did. 1don't have a 12 specific recollection. 13 14 Q. I-lave you had a chance to look at that part of the minutes, and it begins on page 00145? 15 16 A. There's two different numbers, okay. Q. Do I have the wrong number? 17 A. We were using NOR numbers, now- 18 Q. I'm sorry. NOR 9570. 19 A. Okay. Here. (Reviews document.) 20 Q. Do you see the first whereas, it says "Whereas 21 NorthWestern Corporation believes it advisable 22 for rating agency purposes to move the assets." 23 Do you see that? 24 A. Yes, r do. 25
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acquire assets. It's my recollection that we then had to seek approval to be in that holding company structure. And as I testified earlier, it was our belief that that structure was not compatible with NorthWestern's business plan, And so we had requested authority to go ahead and close on that basis but then transition to a flat structure so that we would not be forCed to become a registered holding company. Q. Now, was there any r~qllirement that this occur at or around November of 2002? A. It's my recollection that we' had year or so. But I don't have a specific recollection. Q. Now, at the time that you received pennission to do this from the Montana Public Service Commission, was the Montana Public Service Commission provided with updated financial reporti ng concemi ng the ad vances to Expanets? A. It's my recollection that the approval from the Montana Public Service Commission was given as part of the original approval of the transaction which was in, r believe, JanualY of 2002. Q. And after that initial approval was sought and obtained, was updated financial information
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Q. Why was it advisable for rating agency PllJl'0scs to move the assets? A. I don't reca II. Q. Was there any discussion of that with thc board? A. I don't recall. Q. As you sit here today and review the resolution that was prcscnted to the board, is it your understanding that this is tile rationale that the board used in approving the going-flat transaction? A. No. My recollection is that in the very late stages of the acquisition process, Montana Power or Touch America made a change in the structure of their own entity and dropped all of their utility assets into an LLC, a limited liability company. It changed our acquisition from that of assets to the interest in this LLC, so the transaction changed in the last days, month or so, I can't recall the exacl timing of that. That resulted in us, after consummating the acquisition, being in a holding company structure which was not tile original plan. The original plan was to
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conceming the liquidity of NorthWestem provided to Montana l'lIblic"Service Commission? A. r don'l recall. Q. There were a series of board me.etings ill September of 2002, correct? A. 1 believe so. Q. And those senes of board meetings concemed the difllculties that NOlihWestem was having in raising additional capital, correct? A. I would have to look at tile agendas to sec all the items that were discussed. Financing would typically be something that the board discussed at every meeting. Q, In September of2002, did anyone update the Montana Public Service COITImission about the issues that NorthWestern was facing concerning liquidity? A. I don't rccall. Q. Did anyone update the Montana Public Service Commission about the risks that would be posed to the utility company assets if they were owned directly by NorthWestem? MR. PIZZURRO: Objection. THE '.\fITNESS: I don't recall. BY MS. STEINGART:
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2 I (Pages 78 to 81) Elisa Dreier Reporting Corp. (2 I 2) 557-5558 780 Third Avenue, New York, NY roo I 7
Case 1:04-cv-01494-JJF
Document 262-4
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Page 5 of 36
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Q. Now, when you presented this resolution to the board of directors conceming the going-flat transaction, was there any financial analysis presented with respect to the assets and liabilities being transferred in connection with the going-flat transaction? A. I don't recall. Q. Was the board of directors informed about the value of the assets and the value of the liabilities being transfem:d in connection with the going-flat transaction? A. I don't recall. Q. Was there any discussion about whether NorthWestem could pay the liabilities being assumed fro111 the Montana Power Company in connection with the going-flat transaction? A. I don't remember any such discussions. Q. SO at the time the board approved the going-flat transaction, the board talked about th.e advisability for rating agency purposes of transferring the assets but did not discuss NorthWestern's ability to make payment on Montana Power Company liabilities, cOlTect'? MR. BRENNER: Object to the fonn. MR. prZZURRO: Objection.
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increasing? A. I don't recall. Q. And was it also your understanding that these predictions of Expanets' ability to repay were also becoming gloomier? A. I see that the forecast as indicated here is changi ng. It is still prospective. Q. Now, at some point in 2002 you learned that Expanets would not repay any of the monies that were advanced to it dUring 2002, correct? A. I believe late in the year that 5ecome more clear, yes. Q. Did anyone, after receiving the MFffi for July, either during the operational meetings or any other meetings, discuss the cOJU1ection between Expanets' continued cash flow problems, its borrowings and the Expert system? A. I don't recall. Q. Did anyone discuss at any of these operational meetings that you attended the increasing liquidity pressures that Expanets was creating for NorthWestern? A. I did not attend the -- what I understand to be the operating meetings which were the subsidiary specific meetings. The meetings to
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THE WITNESS: r don't recall.
(Deposition Exhibit Number 16 marked
for identification.)
BY MS. STEINGART:
Q. Sir, do you recognize this to be the
NorthWestern MFIR for July 2002?
A. (Reviews document.) It appears to be that,
yes.
Q. And you received this in the course of your
employment at NorthWestel1l? A. ] would assume that I did. Q. I'd like to direct your attention to page 9 of 14 or NOR 362075. A. (Reviews document.) Q: And I'll ask you to look at the paragraph at the bottom of the page that begins with "Cash collections..." A. All right. Q. And was it your understanding at the end of July 2002 that 100 percent of the customers would not receive accurate bills until October? A. I see that's what's indicated here in the report. Q. Was it your understanding that the incrementa) borrowings had or were -- had and were
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discuss these MFIR.~. I did pm1icipate in. And
I believe that it's my recollection that
somewhere in this report is a liquidity report
thars on NOR 362079, r believe.
And so that inforn1ation, I believe,
was a standard portion of these reports.
Q. Now, is the number there that's listed for
Montana First Megawatts a cash availability or
a cash need?
A. I don't know where you are Oil this report. Q. I'm looking at the page that you referenced and the line concerning Montana First Megawatts. MR. BRENNER: Under the heading Potential Cash - THE WITNESS: Oh, 1see it now. I see it 110W. BY MS. STElNGART: Q. Yes. So was the company going to have somc payment obligation with respect to MFM? A. It appears to be unclear at this point if 1 read the footnote. Q. Now, during 2002 NorthWestern was not able to sell MFM, was it? A. I don't recall when the actual assets were sold.
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22 (Pages 82 to 85) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 100 17
Case 1:04-cv-01494-JJF
Document 262-4
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Page 86
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Q. There is future cash needs that are noted for
Expanets.
Do you see that?
A. Yes.
Q. Expanets working capital, I think it's
25 million?
A. Yes.
Q. Did NorthWestern advance an additional
25 million to Expanets?
A. I don't recall the -- I do recall that the AVAYA credit agreement was restrtlctllred, and it ultimately -- resolution of the relationship with AVAYA was negotiated. I do not recall whether this specific advance was made or not. Q. Now, it says "Funds availability." Do you see that? A. Yes. Q. And facilities? A. Yes. Q. And it says "ExpanelS." And is that 80 million? A. It appears to be, yes. Q. And did NorthWestern ever receive that $80 million? A. I don't know.
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to pay part of that down, correct?
A. It was extended and renegotiated.
Q. And how much did that cost? How much did it
cost to extend it and renegotiate it?
A. In teons of expenses of lawyers to do it?
Q. Or to redo the facility, in fees and expenses.
A. I don't recall any fee being charged by the~ to
do it at all.
Q. And was that part of an overall negotiation
with AVAYA? < A. There were ongoing negotiations with them over various matters, yes. Q. And was any other new lender other than AVAYA willing to provide any money to Expanets? A. Not that I recall. Q. Was AVAYA willing to provide enough so that Expanets could repay NorthWestern $80 million? A. 1 don't recall. I don't believe so. Q. And AVAYA wasn't even asked to do that, were' they? A. Not that I'm aware. Q. They were just asked to roll over the amount thnt was outstanding at that time, is that com:ct? A. I believe that's con·ccl.
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Q. And then do you know what that number is based
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on? A. No, J don't. Q. Now, the cbart that we were looking at before on page 9 talks about there being $160 million in borrowings by Expanets from NorthWestern. Do you see thal'? A. (Reviews document.) That appears to be a forecasted number. Q. Did lhat number get even higher than that? A. I don't know. Q. Did anyone discuss in connection with this MFIR and the liquidity section that you've referenced us to, did anyone ask where Exranets was getting the 80 million? A. I don't recall. Q. Do you know of any lender at the end of July 2002 or August 2002 who was willing to lend Expanets any money whatsoever? A. AVAYA. Q. Did AVAYA lend tbe money? A. AVAYA bad an existing credit agreement which stayed outstanding. Q. Other than the AVA YA existing agreement -- and tbis liquidity analysis shows there is a need
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Q. Are you aware of whether additional new money' 1 was sought for Expanets during August and September? A. I generally recall thal Expanets was looking to obtain financing to replace the AVAYA facility .j
which had a maturity date. Q. Were they looking to obtain any financing to ~
repay NorthWestern?
A. I don't remember.
(Deposition Exhibit Number 17 marked ~ for i d e n t i f i c a t i o n . ) ; BY MS. STErNGART: ' Q. We'll do this document then we'll break for ~ lunch. ~ MS. STElNGART: You have a call, don't i you? ~ MR. BRENNER: I'm flexible so we can ~ break whenever you want to. ~ BY MS. STElNGART: Q. Have you seen Jacobsen 17 before? ~ A. (Reviews document.) I believe I have. i Q. And what do you understand this to be? ~ A. It appears to be NorthWestern's response to SEC ~ comments in connection with the S-4 ~ l registration statement that was filed. ffi
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Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 7 of 36
Page 142
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Q. And D is the sale leaseback of assets, what's
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that? A. I'm not sure. Q. Did the board specify whether one or two or all of these items were necessary. A. I don't recall that. Q. Were management directed to pursue all of them? A. It appears that the instruction was to continue to explore them. Q. Now, let's look at cost savings. Were steps taken to sell the plane? A. I don't recall. Q. Was there more than one plane? A. I believe there were two. Q. SO one was being kept and one was being sold? A. I don't know. One was a jet and one was a prop plane. Q. Were steps taken to reduce corporate events and contri butions? A. I don't know. Q. Were steps taken to reduce corporate personnel? A. r don't recall. Q. Were senior management compensation plans reduced? A. 1 don't recall.
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~ developed with respect to Expanets? A. I don't have a specific recollection. I believe it was a pretty open-ended assignment ~ to consider all available opportunities from ~ sale to partnership to continued investment. ~ Q. Are you aware -- strike that. During the years that you were at . NorthWestem. had any directives such as this ~ (indicating) been imposed by the board on management? , A. Not in writing. Many times instructions were ~ given, but not ill \vriting in this type of presentation. ij Q. Why do you think this was done in writing in ~ this kind of presentation? A. I don't Imow. l Q. Do you think Mr. Drook and the board had concems about the stability of NorthWestem? A. J don't Imow. Q. Do you think Mr. Drook and the board had ~ concems about the options of NorthWestem going forward? A. I don't know. Q. III this period inunediately before the closing ofthe going-flat transaction, were these ~
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Q. And do you recall what other items were identified in the board materials on tlie 5th and the 6th? A. No, r do not. Q. Did you consider nothing as sacred? A. Is that a trick question? Q. Well- A. I see tllat Mr. Drook Ilas used that term, "I hold many things sacred." Q. That's right. So did you or other members of management add items, cost-saving items to the list pursuing the directive that, quote, Nothing is sacred, close quote? A. I don't recall. Q. Is it fair to say that Mr. Drook had ,1 sense of urgency about these measures? A. That would seem to be indicated by the document. Q. Number 8 talks about Expanets. And prepare -- says "Prepare an evaluation of strategic alternatives involving Expanets no later than tile next board meeting." Do you see that? A. Yes, I do. Q. Do you recall what strategic alternatives were
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liquidity coneems and the urgency 10 raise capital disclosed to the Montana Pub! ie Service Commission? A. J don't know. Q. Did the r-,'!ontana Public Service Commission know that the assets of the Montana utility would be used to raise capital 10 benefitlhe non-utility assets? MR. KALECZYC: Objection. THE WITNESS: I don't know. They knew that the acquisition debt was maturing because they had seen that debt when it was originally put in place and were familiar with the maturity dates. I don't know 1 don't know if they knew at this particular time. BY MS. STEINGART: Q. And part of the cash flow needs of NorthWestem atlhis particular time was not only because of the acquisition debt but was because of the hundreds ofmillions of dollars being spent on the non-utility assets, correct? A. I'm not sure of that statement. The primary focus was the maturity of the deb\'. At this time ofYCllr you are moving into the most
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37 (Pages 142 to 145) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 8 of 36
Page 146 1 2 3 4 5 sizable season for an energy company. And actually cash flows are higher during this and the next several months than they are at any other time during the year. So a signi ficant amount of cash was being generated from a cash flow standpoint. So I believe the real target was the fact that there was maturing debt obligations. Q. There was a cash flow issue because there was $190 million advanced to Expanets, correct? MR. PIZZURRO: Objection. THE WI1NESS; That cash had already been advanced prior to moving into this seasonal area which would be the highest cash flow period of the company. BY MS. STEINGART: Q. During the highest cash flow period of the company, Mr. Drook told you that nothing was sacred, didn't he? A. He has indicated that in this letter. Q. SO he had concerns about liquidity in addition to cash flow, didn't he? MR. PIZZURRO: Objection. THE WI1NESS: I'm not sure tbat follows directly from this so much as it's
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modeling of the NorthWestern enterprise that
the creditors would look at.
Q. But the lender who was providing this fmancing was going to be senior to the indebtedness that
was being transferred with the assets from
Montana Power, correct?
A. I believe that's correct.
Q. And the assets of Montana Power were going to
be used to secure that indebtedness, correct?
A. Together with other assets.
Q. Together with other assets. '
So by the time that this lender was
paid, there wouldn't be much for other
indebtedness, would there be?
MR. PIZZURRO: Objection.
THE WITNESS: You can't teJ] that,
there could be plenty.
BY MS. STEINGART:
Q. But there wasn't, was there?
A. 1believe that's not true. I don't know. I
think that most of these - I don't know what
the ultimate payout or retum was for
creditors, and I believe your client, the issue
is still open. Q. Right. And so as far as you know the QUIPS
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an instruction to be very clinical and objective in the assignment. BY MS. STEINGART: Q. What impact did the advilnce of$190 million to Expanet5 have on NorthWestcm's tinanci,ll situation on Novcmber IS, 2002'! A. That money had alrcudy been advanced and 50 the most telling impact was the interest cost Ihat NorthWestem had to the extent that any funds advanced came from credit arrangements. I belicve some of it came frOIll cash (Jow and that wouldn't have an interest component. Q. And Oil November 15, 2002 what was the prospect that Expanets was going to repay the $190 million? A. I don't kllow. Q. As NorthWestem was adding indebtedness at the level of NorthWestem, what aSSessment was done of the cash flow available to pay for not only the new indebtedness but the liabilities being assumed from the going-flat? A. Well, in every financing, the overall
obligations ofNorthWcstelll were considered by
the lenders. sometimes there would be covenants
addressing those. So it was part of the
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weren't repaid, were they?
A. 1 don't know.
Q. And ifnot for the going-flat, those assets
would have stayed at Montana Power Company.
correct?
MR. KALECZYC: Objection.
THE WITNESS: 11lere is no guarantee in
how those assets would have been treated
because had NorthWestern not done it at the
going-flat transaction, it might have put additional debt at that subsidiary level and issued secured bonds on the Montana assets. And then did separate secured bonds on Nebraska and South Dakota, didn't bave to do it all at one level, you could do it at each of tile individual levels, more complex, more work, same result. BY MS. STEINGART: Q. But that's not what happened? A. No, that's not what happened. Q. Now. was there any discussion of getting a fairness opinion with respect to the going-flat transaction? A. Not that I recall. Q. Was there any assessment done of the assets
38 (Pages 146 to 149) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
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Page 9 of 36
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received and the liabilities assumed? A. Not that J recall. Q. Was there a valuation perfonned in order to obtain financing by NOlthWestern? Was a valuation done of the assets of the Montana Power Company that NorthWestern used to obtain financing? A. If the question is in connection \vith Ule financing that was done in Februaly of2003, there was a review by the creditors of the assets, the answer to that would be yes. (Deposition Exhibit Number 23 marked for identification.) BY MS. STEINGART: Q. After the 11/15 directive, there was additional infonnation Ulat Expanets was not going to meet its lowered earnings expectations, correct? A. Yes. Q. SO the news that was given to the board in the Octobcr 30th memo wc just looked at was updated On November 21st, correct? A. Sometime in late November, yes. Q. SO we had the October 30th earnings memo. We had the -- then you had meetings with respect to the third qual1er 10-Q, correct?
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Q. Did it close immediately before this? A. J don't know. Q. Did anyone ask why this infonnation was
provided at a point in time that it could not
be taken into account in connection \vith the
going-flat transaction? A. I think it was provided by Expanets. They seemed to have made Some deternunation ~fter continuing to review their numbers and it was a complete surprise. , Q. It was a complete surprise to Expanets? A. To NorthWestern -- to me. Q. What explanation did you receive from those you asked at Expanets about why tltis came on November 21 st? A. Again, we instituted -- [ instituted a process to advise the audit committee and the audit committee had, J believe, Rick Fresia and John Charters participate in preparation of materials and answer questions to try to explain what was happening. And [ believe some of their explanation is embodied in !Jus (indicating) e-mail, but [ believe there was additional information prepared for the audit committee.
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A. Yes. Q. And also during that period o(time you had the directive from the board that money needed to be raised and notlling was sacred, cOITect? A. Yes. Q. Then you received the 11/21 memo from KiPI' Orme, light? A. (Reviews document.) Yes. Q. At this poillt did you or anyone else ask KipI' Onnc about why these facts should be communicated days after the third quarter 10-Q was filed? A. Yes. Q. Who did you ask about that? A. J asked KipI' about starting a Ijrocess to inunediately advise our audit committee to examine and had the audit committee begin to look into the issues and ask questions a~ well as it seemed incredibly surprising that we could have an infonnation delta or difference of this SOli so soon after we had filed II 10.Q. Q. And how long did you receive.this information after the going-flat transaction? A. r don't know when the going-flat transaction closed.
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Q. Did anyone suggest in words or substance that the process was being manipulated? A. I don't recall that. Q. Did the board or others at NOithWestem determine that they had been misled? A. At the time I did no.! have that understanding. Q. Given the amount and (he consistency of the bad news that came from Expanets during 2002, could people say on a basic level that they were really surprised about this? MR. PIZZURRO; Objection. BY MS. STElNOART: Q. Well·· I mean, could ·. A. [believe that, at least myself, I believe that I was very surprised at this answer and was beginning to have questions about the competence of the people at Expanets. I can't testify as to Kipp Orme, Dick I-1ylland's, other people's view on whether they were surprised or not. Q. Do people think that it was just a coincidence that the bad news from ExpanclS emerged after the close of the equity offering, the $720 million bond registration and the going-flat transaction?
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39 (Pages 150 to 153) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 10 of 36
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MR. PIZZURRO: Objection. TIill WITNESS: That's a broad question with several aspects to it. The bond registration, that money was already out and it 'was just merely an exchange. So that financing had been already done and it was merely an exchange of one instrument for another. So that wasn't new money that came as a result of that transaction. 111is happened well after the equity offering, a couple of months, I guess, and there was never any discussion of manipulation, it was a complete surplise on my part. BY MS. STEINGART: Q. It wasn't a couple of months after the equity offering, it was right on the heels ofthe equity offering, wasn't it? A. This was late November and the equity offering was the first couple days of October, so that's closer to two months rather than right on the heels. Q. In connection with the equity offering, didn't NorthWestem make the representation in the underwriting agreement that the rating would not be lowered during -- plior to the offering,
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Expanets in relation to these other capital events that I've just listed? A. It's my recollection that the board -- as I was vel)' surprised by this, and I believe at some point there was a discussion of was there potential liability with respect to the equity offering. Q. But no one considered what the potential exposure would be with respect to going flat, correct? · A. I don't recall. Q. How did the 11121 memO impact the activities that you were undertaking in connection with the 11/15 board directive, ifat aU? A. I'm not sure -- I mean, we continued to -- 1 believe that the management team continued to work on those instructions. The receipt of this infom1ation initiated another and separate process by the audit committee to tl)' to understand what was behind this new infolmation. (Deposition Exhibit Number 24 marked for identification.) BY MS. STEINGART: Q. I'd like to show you what we've marked as
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correct'? A. (No resl>onse.) Q. We looked at that together, do you recall? A. That is not what it said. It said that the rating -- maintenance of the rating was a condition of the financing. NorthWestem did not make a representation that the rating wouldn't be changed. Those are different things. Q. SO if the rating changed prior to the equity offering then the underwriter could have walked away, correct? A. They would have that election, they mayor may not have walked away. Q: SO to the extent NorthWestern wanted to close on the equity offering, it was impOltant for the rating not to change, correct? A. That's one factor, yes. Q. Do you think Mr. Hylland knew that? A. Knew what? Q. That it was important for the rating not to change in order to close the equity offering? A. 1 don't know. Q. Did the board, to your knowledge, discuss the substance of the timing of the disclosures by
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Jacobsen 24. A. (Reviews document.) All right. Q. Did you see this memo written by Mr. Lewis and , Mr. Hylland 10 the board of directors on or ~ around December 7, 2002? ~ j A. 1 don't have a specific recollection. I ~ believe that I saw it at that time. ~ Q. And you were participating in trying to obtain ~ ~ financing dUling that time, weren't you? A. I participated in meetings, yes. Q. Who was taking the lead on getting the facility · from Credit Suisse First Boston? A. Economics of those kinds of transactions would generally be discussions amongst Dick HylJand ~ ~ and Kipp Omle from the finance side. And then i 1 would have the lead in executing the ~ transaction from the legal documentation side , and all of the many steps that would be I i required, in particular. for a secured ~ facility. Q. Do you know what Mr. Hylland an9 Mr. Lewis ~ , meant when they say here that "Two additional factors over this timeframe have now also come j to light that greatly impact the urgency of ~ ~ executing an FMB or other secured transaction"?
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40 (Pages 154 to 157)
Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 11 of 36
Page 158
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Do you see that?
A. Yes, I do.
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Q. How do ihese factors impact the urgency? A. Well, I believe we had looked previously at the new information from Expanets and so the board was concerned about what the real situation was at Expanets and was surprised by that revelation of that information. And around this time we're still in the process of investigating that, so it was an unknown. In number 2, it seems to refer to a covenant, but I can't recall the specifics. Q. SO to the extent that the existing debt would have had covenant defaults, getting new debt which didn't have those defaults would be important, correct? A. I believe the existing debt had the ability to be rolled over if you were in compliance with certain covenants. And so if you did not comply·- were not in compliance with a particular covenant, you would not have tile election to roll, you would need tbe Consent of the lender or have to get altemate financing. Q. And typically needing to restate your financi als 1V0uld be a covenant defaul t,
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Q. Now, if there were covenant def.1ults, would it cause an acceleration of tile debt?
A. It could. Typically lenders work with a
company, they don't want to default either. Q. Now, at that point, there's knowledge, was there not, that there were serious finance accounting issues at Expanets? A. I believe as 1 testified that process was
undergoing at this point. The audit committee was beginning to look!nto that and asking questions and demanding answers from the Expanets management team. Q. And there was the expectation at that point that financials would have to be restated, wasn't there?
A. r don't believe that that decision had been made yet. Q. Under consideration at that point though, wasn't it? A. I don't recall.
Q. Were there disclosure recolllmendations that were
talked about in connection with this memo that you recall? A. r don't have n recollection in connection with this memornndum. [do recall that my advice to
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1V0uldn't it? A. I don't know. Q. In your experience, isn't there a covenant usually that the financials that you publicly file lire not misleading 01'-A. Yes. Q. -- accurate? Do you recall -- there is a reference further down on the page to ·· highlighting to ·· an agenda that highlighted NorthWestern's liquidity requirements. "These altcmatives will be reviewed with the board." Do you see that? A. Yes, I do. Q. In connection with the agenda -- the attached agenda also highlightingNorthWestem's liquidity requirements, what were the liquidity requiremenls at that time, if you recall? A. I don't recall. It might just primarily be talking about the maturity date. Q. Well, whether the maturity would, w\Jat, be accelerated by covenant ~efault? A. No, 1 believe the discussions were about rolling that over or refinancing that at its scheduled maturity date.
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the audit committee was that once we llad this
information from Expanets, the audit committee should undertake a process to ask questions, determine for itself what the situation was.
And then based on that infonnation, make any corrective disclosures required. And I believe a new press release was issued sometime within a couple of days of this date, is my recollection.
Q. Did you participate in obtaining a valuation report for Credit Suisse First Boston to assist
in the financing refelTcd to in the
December 7th memo?
A. I'm not sure what you mean by "evaluation repolt." . 1\i1R. BRENNER: Did you say evaluation or valuation? MS. STEINGART: A valuation of... (Deposition Exhibit Number 25 marked for identification.) BY MS. STEINGART: Q. Okay. We brought this, 25, it's a cover memo with a valuation rCpolt .- an appraisal. Not evaluation. An appraisal. Did you participate in arranging for
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4] (Pages 158 to 161) Elisa Dreier Reporting Corp. (212) 557 -5558 780 Third Avenue, New York, NY lOO]7
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 12 of 36
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an appraisal for CSFB in connection with thc financing that was being discussed with CSFB in Dccember? A. (Reviews document.) No. Kipp anne would have bcen the interfnce with this bearing point finn or Mike Hanson. Q. Do you recall bcing provided a copy of the final appraisal? A. I don't recall. Q. If you look at the e-mail on the cover, you see
that it was provided to you?
A. Yes, I do.
Q. Did you understand that the appraisal
detcrmined -- it is called a valuation report,
but the appraisal detennined that as of
December 31, 2002 that thc assets of the
Montana Power Company were valued at
$1.5 billion?
A. I don't have a recollection of that. I see
that on page 3 as, one, I believe they use
typically several different methods of
valuation. So J don't know if that's un
average or if that's one of severalthUlthey
chose. I don't know.
Q, Was that the valuation repoll that was provided
1 2 3 4 5
Q. SO it's not your recollection that it closed in
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or around the middle of November of2002? A. It's my recollection it closed sometime in October or November, but I don't have a date. Q. SO this valuation, as far as your recollection goes, was done shortly after the closing of the going-flat? A. That I do not know. Let me see the date of this. Q. It says "As of 12/3112002." A. I see that. But the e-mail is January 30th and oftentimes appraisals are as of a date but the work is conducted well after that date but delivered with a reference date. So the fact that it's December 31st doesn't mean it was done as of that date. And in fact, it could have been finished sometime in January and then delivered. Q. But it values Ihe assets at an as-of dale, correct? A. That's correct. Q. SO what the report says is as of the end of 2002 this was the value of the asset, correct? A. That's correct. TI1at \Vas different than the question tben when it was prepared.
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by the company to CSFB?
I don't know. 1assume it was.
If you look at the last page, 56.
(Reviews document.)
Do you see that it says "Conclusion of. fair
value"?
A. Yes, I do.
Q. Now, did you undcrstand the amount of
liabilities that were assumed by NorthWestem
in connection with the going-flat transaction?
A. I don't understand the question. Did I
understand the amount of the liabilities?
Q. Did you have an understanding of the amount of
the liabilities assumed by NorthWestern in
connection with the going-flat transaction?
A. Originally?
Q. In November of2002.
A. Oh, no, I don't have a recollection.
Q. Now, this valuation as of 12/3012002 was
several weeks after the going-flat transaction,
correct?
MR. BRENNER: He's already said
several times he'doesn't remcmberwhen it
closed.
BY MS. STEfNGART:
A. Q. A. Q.
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Q. As general counsel of N011hWestem, did you do
an assessment of the value of the assets being
transferred and lhe liabilities nssumed by
NOl1hWestcm in connection with the going-flat
transaction?
A. J did not.
Q. Was any detcnnination made about whether there
was a disparity in value with respect to the
assets transferred and the liabilities assumed?
A. I don't recall.
Q. Did anyone ask for such an assessment to be
made?
A. I don't rccall.
Q. Did anyone on behalf of Montana Power indicate
that in order to protect the creditors of
Montana Power, that an assessment of the assets
transfetTed and liabilities assumed should bc
made?
MR. KALECZYC: Objection.
THE WITNESS: By Montana Power, do you
mean the trust or the QUIP structu.re,
because Montana Power was no longer around?
BY MS. STEINGART:
Q. NorthWestem, it had a different name at the
time of the going-flat transaction, com~ct?
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42 (Pages 162 to 165) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
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A. Right. Q. It was called NorthWestem Energy, I think. I don't remember. Can we agree that when we talk about tile Montana Power Company we are talking about the company thm was acquired in Febl1Jary of2002? A. All right. Q. And whose assets werc transfen'cd in connection with the going-flat transaction? A. Yes. Q. SO at the time of that transaction, did anyone who was an officcr or director of the Montana Powcr Company or its successor raise issues with rcspectto thc valuc of the assets being transferred and thc liabilitics bcing assumed? MR. K,ALECZYC: Objcction. MR. PIZZURRO: I'm going to make an objection. I think the record is really getting muddy as to what entities we are talking about. J know they have similar names, but my best recollection is Montana Power Company'was one of the entities that was on -- sold the unit interests in Montana Power, LLC whicb was acquired by NorthWestern in that transaction, closed in
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based on what our understanding was of the structure of part of NorthWest before the acquisition of Montana Power, after the acquisition of Montana Power which would be page 2, and page 3 is after the going-flat. Now, I guess my question is: Looking at page 2, is it your understanding that the assets of the Montana Powcr Company w~re held by or held in thc fonn of NorthWestern Energy Montana after the acq\!isition of the Montana Powcr Company? A. Immediately -- again, I'm not familiar with this chart. Q. Uh-huh. A. I see that it shows South Dakota and Nebraska operations down a couple of tiers and, in fact, those were an unincorporated division of the parent. Q. 1see, okay. A. So right away there is a disconnect there. But 1 can testify that immediately following the acquisition, NorthWestern Corporation acquired all of the outstanding ownership interests of a limited liability company and the assets of the limited liability
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February of2002 which tben was renamed, if I can rccall correctly, NOlthWestem Energy, LLC subsequently was renamed Clark fork and Blackfoot. BY MS. STEINGART: Q. And at the time oCthe going-flat transaction, the successor to the Montana Power Company was NOl1hWestem Energy, LLC? MR. KALECZYC: Objection. MR. PIZZURRO: I'm going to objcct and I'm not going to testify, but t1lat's not my undcrstandi ng. MR. KALECZYC: It's successor is vague and ambiguous. MS. STEINGART: Montana Power, LLC! Let's see if we can hcl p. (Off the record.) (Deposition Exhibit Number 26 marked for identification.) BY MS. STEINGART: Q. Let's see if we can be clearer. A. (Reviews documenl.) Q. Now, I guess the question, you know, there are three org charts here that are not NorthWestern documents, okay, that we have put together
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~ company with the utility operations of the , ; Montana Power Company. I Q. Were they placed in a subsidiary of ~ ~ NorthWestel1l Energy? ~ A. By virtue of acquiring all of the limited ~ liability company interests, you in effect had ~ the subsidiary. ~ Q. At the time of the going-flat transaction or ~ there.lfter when this appraisal was prepared, ~ a the appraisal was of certain underlying assets J acquired from Montana Power, is tbat conect'? ~ j A. I believe so. ~ Q. And these were tbe assets that were transferred ! ; ., to NortllWestern in connection witb the G going-flat transaction, correct? A. I believe that's correct. I 1 .1 Q. Okay. At the time of the going-flat I ! transaction, did any of the officers or j directors of the entity that held the Montana Power assets question, to your knowledge, the I disparity in value oflhe assets transferred J and the liabilities assumed by NorthWestem in ~ the going-nat? I l MR. PlZZURRO: Objection. , MR. KALECZYC: Objection. l
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Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 14 of 36
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THE WITNESS: Several aspects of that question I'm not commenting 011 any disparity or lack thereof, I don't know. BY MS. STEINGART: Q. Okay. A. The entity was a wholly owned limited liability company. a single member LLC, there is not a board of directors. There is a managing member, I believe that that was NorthWestem corporation although I don't specifically recall. So there was not a body, a board that was part of that entity. Q. Did anyone -- so no one on behalf of either the creditors or shareholders of any entity that had an interest in those assets questioned the legitimacy of the going-flat transaction? MR. PIZZURRO: Objection. MR. KALECZYC: Objection. THE WITNESS: The only shareholder with an equity interest was NorthWestern. I don't know what creditors undertook in terms of the process. BY MS. STEINGART: Q. Now, were there in cOlmection with the going-flat transactions documents signed by the
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BY MS. STElNGART: Q. Now, were you involved in the restatement of the NorthWestern financials for Q-I, Q-2 and Q-3 that took place in 2003? A. Yes. Q. And these were restatements of the Q-I. Q-2, Q·3 for 2002? A. Correct. Q. That were done in 2003? A. Yes, in connection with filing the 10-K. Q. And at that time were you still'chair of the disclosure committee? A. 1 believe so. Q. At what point did you leave NorthWestern? A. I believe I left in or around December of2004. Q. What were the circumstances of your separation from NorthWestern? A. In connection with the filing oftlJe bankruptcy proceedings, I and other executives were retained in cOlmection with that process and provided incentives to assist NorthWestern in exiting that process and stayed on through the exiting of the bankruptcy. And then following that closing of that proceeding then left NorthWestem.
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entity that held those assets, tile Montana Power Company assets? A. I believe so. Q. And who had the authority to sign those documents? A. I don't recall specifically. There was signature auihority guidelines at Nortl1Westem for signing documents. Q. To the extent that there were creditors of the successor to the Montana Power. LLC, who reviewed the transaction on their behalf? MR. PIZZURRO: Objection. MR.. KALECZYC: Objection. 'IRE WITNESS: I don't know. NOl1hWestern would have reviewed the terms of its credit agreements and to comply with those, I don't know what work was done on behalf of the creditors. BY MS. STEINGART: Q. And certainly there was no faimess opinion done that the going-flat transaction was fair from a financial point of view to the creditors of the successor to the Montana Power, LLC? MR. PIZZURRO: Objection. THE WITNESS: Not that I recall.
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~ Q. What did you do to prepare for today's dcpositiotl? , A. I met with counsel last night. ~ Q. Okay. Did you meet with or talk with anyone on ; behalf of -- who was representing NorthWestern? ~ ~ A. I did not. Q. Did you speak with or talk with anyone who i ~ represented Mr. Hanson, Mr. Kindt? ; A. I did not. Q. Did you speak to anyone other than your counsel ~ about this deposition, I mean other than 1 telling people where you were going to be? A. I did not. Q. Were you aware that NorthWestel11 Corporation entered into a consent decree with respect to n cease and desist proceeding that the SEC had cOlllmenced against NorthWestern'? A. Yes. Q. How were you aware of that? A. There was a press release to that effect. Q. Did you participate in the -- sttike that. Had the SEC commenced its . investigation that led up to that cease and desist before your separation from NorthWestern?
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44 (Pages 170 to 173) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 15 of 36
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A. Yes. Q. In your capacity as general counsel, did you participate in -- on behalf of NorthWestem in that investigation? A. Yes.
Q. What was the status of that investigation at the time that you left NorthWestem? A. It had not concluded. Q. Have you had an oppoltunity to review the actual cease and desist order that was entered? A. I have. (Deposition Exhibit Number 27 marked for identification.) BY MS. STEINGART: Q. I'd like to show you what we've marked as Jacobsen 27 and ask you if you recognize this to be the Order instituting cease and desist proceedings, making findings and imposing a cease and desist order in connection with the SEC's investigation of NorthWestem? A. (Reviews document.) Yes. Q. Now, having participated in the restatement of the 2002 financials and in the preparation of the year-end 2002 10-K, is it your understanding that during the first three
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Page 176 ~ ~
second qUalter 10-Qs, I believe. And in those restatements headed the disclosure that we
looked at in the comment letter.
Q. SO at the initial time that you restated the
.. 10-Qs, there were no additional disclosures about the functionality of Expert, correct? A. Correct. Q. SO in the restatement of the 10-Q in 2003 for
~ the first quarter, there was a -- an adjustment ~
~ .~ with respect to functi~mality of Expert, correct? A. I don't know -- by "adjustment," do you mean a financial adjustment, or do you mean additional r~ disclosure text? · Q. It was additional disclosure text. A. I don't recall. Q. Is it your understanding that the text was changed to indicate that dUling the first quarter of 2002, that Expert was not fully operational? A. I don't recall. ~ Q. As you sit here today, though, you know that !. that's the case. don't you? That Expert -- you i know aside from the disclosure, you know that it was the case that during the first qual1er
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quarters of2002 NOlthWeslcrn tiled quartcrly and cun'ent reports with the Commission that matcrially misstated NOlthWcstcnJ's financial position at lhat limc'! A. Thal's clearly the tinding of the Commission. Q. And is that something that you understood as a result of the n,:statcmcn[s that you prepared on behalf of NorthWcslem? A. Thc restatcments had many different aspects to them, some were quite smull in amount, some larger. So some were material, others I did nol vicw as Inaterial. Q. Was -- you know, is it your understanding thaI any of the restatements for Q-I, Q-2 or Q-3, as a whole, were not matel;al? A. I don't know. Q. Do you recall the substancc of the matters that wcre restated in the first quMer of2002? A. No. Q. [s it your understanding that it included advances from NorthWestem to ExpandS? A. The company had more than one restatement. And so as a result of the $-4 registration process and the SEC comment letter process, we -- or NorthWestern, r believe. restated the first and
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0[2002 E.xpeI1 was not fully operational? A. As I sit here today, I do know that ExpeI1 was not performing to the dcsired level. Q. As you sit here today. do you have an undcrstanding that there were also adjustmcnts with respect to eamings that wcre reported in the first quarter 10-Q? A. I don't recall. Q. Why did NOltbWestem dccide to file an amended first quarter 10-Q in 2003? A. As a result of the information that NOithWestem received at the end of November, which we looked at conceming Expanets, and the review by the audit committee and then later in connection with valuations of the investment in both Blue Dot and Expanets, it became clear that there would be substantial wnte-offs of the investment in those two entities. And then in connection with filing a 10-K, the desire was to absolutely -- and the instruction from the board was to absolutely address any open issue or make any kind of disclosure that it thought to be appropriate to try to address any potential issue out there so that you could set a clean starting point with
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45 (Pages I 74 to 177) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 16 of 36
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. the 1O-K that was filed in, I believe, April of 2003. Q. SO wharprocess did you use internally to decide what material in the first quarter 10-K needed to be restated? A. There was extensive work done by the outside accountants with people on-site at all of the operating companies. There were third-party financial consultants brought in, both financial advisory and operational consultants. And thcre was additional counsel retained, all of whom participated. Q. And was the conclusion of all of those participants that the first qualler lO-Q for 2002 should be restated? A. We filed a restated I O-Q, yes. I don't know what the conclusion of each individual pal1icipant was in the process, but it resulted in us fi Iing a 10-Q that was restated. Q. And when you say "it was decided," was it a decision that you pallicipated in or that was communicated to you by somebody else? A. r believe the process was primarily driven by the accountants because in that situation the company will do whatever the accountants tell
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2002 was materially misleading? A. No. Q. Do you have any reason, as you sit here today, to dispute the SEC's conclusion that the 10-K filed by NorthWestern for the second quarter of 2002 wasQn?lateriall Y misleading? A. The 10 . Q. Do you have any reason, as you sit here today, to dispute the SEC's conclusion that the I O-Q for the second quarter of 2002 was materially misleading? , A. 1do not. Q. Same question with respect to the third quarter 100Q. A. I do not. Q. The SEC also concluded that in its filings after the effective taxes, NonhWestern overstated its income from continuing operations for the first three quarters of 2002. by approximately 176 percent, 618 percent and 109 percent, respectively. l\.1R. BRENNER: Can you tell us where you are reading from? MS. STEINGART: I'm reading from page 2, summary.
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them to do in order to get them to sign orr on the 10"K which required audited financial statements. Q. SO is il your testimony that you restated the first qual1er 10-Q for 2002 because you needed to do that in order for the auditors to sign off on 'the year-end lO-K for 2002? A. It's my recollection that there was not a compl ete consensus on whether aJ I of the proposed restatements were necessary. And it was a discussion amongst the financial group and the auditors. And I believe that in the context of NortllWestem at the time which was the public release on this new infol111ation from Expanets and (he likelihood of a substantial write down of the investment which then ultimately was reflected in the IO-K that the company should follow whatever reconuncndation was made by the auditors in that respect as opposed to try to argue for a new result. That's my recollection of the financial discussion. Q. Do you have any reason, as you sit here today, to dispute the conclusion ofthe SEC that the first qU311er 10-K filed by NorthWestem ill
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BY MS. STEINGART: ~ Q. Do you have any reason to believe that the SEC is incon'ect in lhat conclusion? A. I have 110 idea how those Ilumbers were calculated. So. no comment. 1 Q. The SEC also concluded that NorthWestern i overstated its income during tbe tirst three ~ ~ <]ual1ers of2002 due to the company's improper , l accounting for accounts receivable, adjustments to customers' bills, allocation oflosses to -- and allocation of losses to minority interests. Do you have any reason to dispute that ~ conclusion? A. No. Q. The SEC also concluded that NorthWestern also misrepresented or did not disclose, among other things, the effects of significant problems with Expanets' new infonnation teclmology system, the material impact of Expanets' reserve reductions and its receipt of non-compete payments on Expanets' income, large company advances to NorthWestern, advances NorthWestern made to SUppOrl Expanets and Blue Dot and the timing of anticipated payments
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46 (Pages 178 to 181) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-4
Filed 01/04/2008
Page 17 of 36
Page 182
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from the sale of certain utility assets. Do Y?U have any reason to disagree with that conclusion? A. No. Q. The SEC also concluded that through its financial statements, misrepresentations and omissions, NorthWestern obscured the continuing poor perfonnance of its subsidiaries. Do you have any reason to disagree with that conclusion?
A. No.
Q. Now' the SEC looked at a number of items that
contribllted to the conclusions that
NorthWestem had materially misstated its
qualierly reports during 2002.
Are the items in the Consent Decree
that the SEC has mentioned items that you dealt
with in connection with your restatement of the
quarterly reports?
A. I don't recall.
Q. Should we take a short break so that you can
look at this and refresh yourself because I'm
going to ask you about it.
THE WITNESS: Let's take a guick bio
break and keep going.
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botll Expanets and Blue Dot would achieve 2002 targeted eanlings and begin providing cash to the Nort
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