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Case 1:04-cv-01494-JJF
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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. 04-1494
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(JJF)
MAGTEN ASSET MANAGEMENT CORPORATION and
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LAW DEBENTURE TRUST COMPANY OF NEW YORK,
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Plaintiffs, v. NORTHWESTERN CORPORATION, Defendant.
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---------------------------------------------------Civil Action No. C.A. No. 05-499 MAGTEN ASSET MANAGEMENT CORP., Plaintiff, v.
MICHAEL J. HANSON and ERNIE J. KINDT,
Defendants. DEPOSITION OF ERNIE KINDT (JJF)
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TAKEN ON:
6/28/2007
BY:
DANA ANDERSON
Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
Case 1:04-cv-01494-JJF
Document 262-3
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Page 2 I 2 APPEARANCES: FRIED, FRANK, HARRlS, SHRJVER & JACOBSON, LLP One New York Plaza 3 New York, New York \0004·1980 By: Gary L. Kaplan, Esq. Philip Kimball, Esq. 4 5 For the Plaintiffs 6 1 2 3 4 5
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Page 4 INDEX Examination by Mr. Kaplan, page 5 Examination by Mr. Kaleczyc, page 83 Further Examinution by Mr. Kaplan, page 81 INDEX OF EXHIBITS Exhibit Number I, NorthWestem Energy, u.c ResolUlion ofManaging Member dated November 5, 2002, page 13 Exhibit Number 2, November IS, 2002 Leller from Ernie Kindt to The Bank of New York, page 19 Exhibit Number 3, 1uly 31:2002 Memorandum from Eric Jacobsen 10 NorthWestern Board ofDirectors regarding Going Flat Resolution, page 21 Exhibit Number 4, Valuation Rep011 Prepared for NorthWestern Corporation, Valuation as of Deeember 31,2002, page 34 Exhibit Number 5, Mareh 18, 2002 Confidential Memol1lndurn from Erie Jaeobsen and Mike Hanson to Merle Lewis, Dick Hylland and 10hn Van Camp regarding MPC Compensation Proposlll, page 58 Exhibit Number 6, NOl1hWeslem Corporation Board of Directors Meeting, November 5·6, 2002, page 66 Exhibit Number 1, November 14, 2002 Leller from Michael Hanson to MaryBeth Lewicki regarding Economie Viability ofMilltown Dam Hydroelectric Facility Site, page 68
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CURTIS, MALLET·PREVOST, COLT & MOSLE ll1' 101 ParkAvenue New York, New York 10178-0061 By: Nancy E. Delaney, Esq. For NorthWestern Corporation
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BROWNING, KALECZYC, BERRY & HOVEN, PC 139 North Last Chance Gulch Helena, MT 59601 By: Stanley T. Kaleczyc, Esq. Kimberly A. Beatty, Esq. For Michael J. Hanson and Ernie J. Kindt
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Page 3 1 2 3 4 For Law Debenture Trust Company of New York 5 6 APPEARANCES: (Continued) NIXON PEABODY, LLP 100 Summer Street Boston, MA 02110-2131 By: John V. Snellings, Esq.
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THE DEPOSITION OF ERNIE KINDT is taken on this 28th day ofJune, 2007, at the Holiday Inn Sioux
" 1 Falls-City Centre Hotel in Sioux Falls, South
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~ pursuant to Notice.
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ERNIE KINDT,
called as a witness, being first duly sworn, was
examined and testi fied as follows:
EXAMINATION BY MR. KAPLAN: Q. Good aftemoon, Mr. Kindt. My name is Gary Kaplan. I'm from Fried, Frank, Hanis, Shriver and Jacobson we are counsel to Magten Asset Management in connection with th is litigation. Just a couple of things that [ am going to go Ihrough that are for the benefil of the court reporter. 1 have a tendency to speak fast. So ifl'm saying something that's too fast or you don'r understand my question, Jet me finish my question, and then you can ask me and ['11 try to repeat it, Iry to clarify it.
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2 (Pages 2 to 5) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
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MS. DELANEY: Objection, lack of foundation. TIIE WITNESS: That was my understanding. BY MR. KAPLAN: Q. That was your understanding. You were involved in the application process, if you will, in connection with NorthWestern's acquisition of Montana Power, correct? A. The application process to the -- to who? Q. To the Montana regulators. A. No. Q. Did you review any of the submissions that went to the regulators with respect to the acquisition? A. I would have reviewed _. I would have read the testimony of the -- of everybody. MS. DELANEY: Could we just get a timeframe, Gary? Are you talking about - MR. KAPLAN: rm talking in the original acquisition of Montana Power, not the going flat, the original acquisition by NorthWestern of Montana Power. BY MR. KAPLAN:
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a A. That's so long ago. 1 don't really remember. Q. Let me show you what we are marking as Kindt ~ Exhibit 3. It's a one-page document Bates j stamped NOR 066673. i. ~ A. (Reviews document.) ~ Q. For the record, it's a memo from Eric R. Jacobsen to the NorthWestern board of ~I directors dated July 31,2002. Have you ever seen this before? A. No. ~ :1 Q. Is this memo consistent with your understanding ~l of NorthWestern Corporation's intentions with ,I,ij respect to NorthWestern Energy LLC? ~ ~ A. No. Q. How does it differ? A. This indicates that they had always intended to J ~ go flat. That is different from my '1 understanding. ~ Q. And when Dave Monaghan had told you about the ~ ~ J going-flat transaction he never told you that .~ it was always their intention to do so, did he? '1 A. No. Q. Did anybody ever tell you that they had always intended to go flat? A. No.
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Q. Is that what you were answering? A. Yes. Q. Would you have read the testimony prior to it being submitted? A. I believe so, yes. Q. Would you have provided COmments on it? A. I don't believe I did. Q. To the extent that you thought anything was incorrect in the testimony, would you have commented on it? MR. KALECZYC: Objection. THE WITNESS: IfI thought something was incorrect in -- yeah, I would have commented. BY MR. KAPLAN: Q. But to the best of your recollection you didn't comment on anything? A. That's right. (Deposition Exhibit Number 3 marked for identification.) BY MR. KAPLAN: Q. Do you ever recall NorthWestern Corporation issuing any public release or public statement saying that they had been denied a PUCHA exemption?
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Q. Did anybody ever tell you that part and parcel ofNorthWestern's acquisition of Montana Power, that the last step would be to go flat? A. No. Q. Does this memo reflect your -- refresh your recollection at all as to the timeframe of when people started to discuss with you the going-flat transaction? A. No. Q. Do you recall whether it was during the summer of2002? A. No. It would have been later than that. Q. SO just to make sure I understand your perspective and what you knew at the time. It was your understanding at the outset when NorthWestern acquired Montana Power, that they would hold the Montana utility assets in a separate LLC if they could, correct? A. It was my understanding that if they could, they would hold it as a separate entity. Q. And then later on when they didn't get the exemption or at least when you were told they didn't have the exemption, that's when there was at least the first discussion with you about a going-flat structure?
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8 (Pages 26 to 29) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
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A. Yes. Q. SO it's not really accurate to say that this was one sort of step of one large transaction from - of the acquisition ofMontana Power, is it? MR. KALECZYC: Objection, calls for a legal conclusion. MS. DELANEY; Objection. THE WITNESS: It was always a possibility that ifthey could not hold it as a separate company, that they would have to merge them together. BY MR. KAPLAN: Q. They would have to do it at a subsequent date if certain things happened, correct? A. Correct. Q. But your understanding was, again, at the time it wasn't what they hoped to do or intended to do? MR. KALECZYC: Objection, asked and answered. THE WITNESS: It was -. it was not my understanding of their preferred method of holding the asset. BY MR, KAPLAN:
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statements of the other NorthWestern divisions or entities to see how they were performing? A. No, I did not. Q. Did you discuss with anyone at NorthWestern whether they would have the financial wherewithal to honor their obligations under the QUIPS? A. No, I did not. Q. Did you review NorthWestern's public financial statements, its SEC filings in connection with the going-flat transaction? A. Not specifically in conjunction with the going-flat. Q. Did you have any discussions with Mr. Hanson with respect to whether NorthWestern would be able to satisfy its obligations under the QUIPS? A. No, I did not. Q. Did you have any concerns with respect to whether NorthWestem would be able to satisfy its obligations under the QUIPS? A. No, I did not. Q. Did you have any views as to the val ue of the assets that were being transferred to NorthWestern?
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Q. In connection with the going-flat transaction,
did you review NorthWestern's -- when I say
NorthWestern, I mean the parent company's
financials?
A. As part of the going-flat structure, no, I did
not.
Q. Did you do any diligence to see whether
NorthWestern Corporation would be able to
satisfy obligations to the QUIPS holders?
A. NorthWestern owned the assets subject to the liabilities that were outstanding. They were assuming those liabilities. To the best of my knowledge, they had the financial wherewithal to continue to service the debt. Q. What was that knowledge based on? A. The cash flow was there. They were managing the cash flow on a corporate basis at the time. Whenever the utility needed cash, it was available. Q. Did you review projections to see whether the cash flow would still be there? A. No, I did not. MS. DELANEY: Objection to form. BY MR. KAPLAN: Q. Did you _. did you review the financial
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MR. KALECZYC: Objection, vague. 11IE WITNESS: The assets that were being merged in with NorthWestern were -. the book value less the liabilities was the amount that the company carried on its books as equity in the company. That was basically NorthWestern's ownership interest in the assets. That net was positive. I don't know what more you -BY MR. KAPLAN: Q. Do you recall what that book value was, I guess the net book value? A. At that date, no. Q. Did you request that any valuation be done of the assets being transferred up to NorthWestern? MR. KALECZYC: Objection to time. BY MR. KAPLAN:
Q. Prior to .· I'll say around the same time as the going-flat transaction? A. I didn't. But I do believe that there was an update to the appraisal that was done at the time that NOlthWestem bought the assets. Q. Do you recall what the value .- what the appraisal said the value was when NorthWestern
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9 (Pages 30 to 33) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY loon
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first acquired the assets? A. Well, what the appraisal did was allocate the value that NorthWestern paid for the assets and arrived at a goodwill. Q. Do you recall what that number was? A. Not off the top of my head. (Deposition Exhibit Number 4 marked for identification.) BY MR.. KAPLAN: Q. I'll mark as Kindt Exhibit 4 a lengthy document that is Bates stamped NOR 266670 through NOR 266724. A. (Reviews document.) Q. And it says on the front Valuation Report Prepared for NorthWestern Corporation, and its a valuation as of December 31,2002. Have you ever seen this document before? A. Yes, I have. Q. When did you first see this document? A. This is the report that I referred to that was updated from the initial purchase. So I would have seen it, probably drafts before it was issued. Q. Did you comment on the drafts before it was
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Q. Why was this valuation done? MR. KALECZYC: Objection, foundation.
THE WITNESS: I don't know all of the reasons that the valuation was done. But from an accounting perspective, a valuation was needed in order to set the goodwill on the books. BY MR.. KAPLAN: Q. Do you recall whether this valuation is higher or lower than the initial valuation? A. At this point I could not accurately answer that. Q. Do you recall whether this was substantially different than the previous valuation? MR. KALECZYC: Objection, vague. MS. DELANEY: Objection. THE WITNESS: I don't believe it's substantially different. BY MR. KAPLAN: Q. Did the valuation conclusion of the $1.5 billion sUlprise you? A. No. Q. Fair to say that it was generally consistent with your views in the value of the assets? A. It was generally consistent with my views of
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issued? A. I don't remember if! had any issues with it or not. Q. Did you have discussions with Bearing Point with respect to the valuation? A. With the initial valuation, I do remember conversations with the update. I don't remember if there were any specific conversations. Q. If you recall, what was the nature of the conversations that you had with Bearing Point? A. There was discussion of the -- they came in and spent several weeks preparing the initial report going over all the assets. So there would have been discussion of the nature of the assets, how they should be valucd, what was subject to utility regulation, what wasn't. Q, If you look on page 3, says that their rounded grand total is $1.5 billion? A. Uh-huh. Q. Did you have any reason to disagree with that valuation? A. No, I wouldn't. Q. Do you believe that the valuation is correct? A. I wouldn't have any reason to doubt it.
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the gross assets. Q. Now, you said earlier that in connection with the going-flat transaction, NorthWestern assumed certain liabilities, correct? A. Correct. Q. Do you recall the value of the -. or the total liabilities that were assumed? A. Off the top of my head, no, Q. When the going-flat transaction was occurring, did you look at whether there was a difference between the value of the assets being transferred and the liabilities being assumed? :MR. KALECZYC: Objection. MS. DELANEY: Objection. THE WI1NESS: As I stated before, the - NorthWestern owned the LLC what's meant that they owned the assets subject to the liabilities, the difference between the value of the assets and the value of the liabilities was NorthWestern's ownership interest. BY MR. KAPLAN: Q. But NorthWestern owned the equity, in essence, of the ll.C? A. Yes.
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10 (Pages 34 to 37) Elisa Dreier Reporting Corp. (212) 557-5558 780 Third Avenue, New York, NY 10017
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Q. They didn't own the assets themselves?
A. Well, when you are dealing with an LLC, effectively they own the assets. Q. Perhaps for tax purposes - I mean, but there is a difference between effectively owning the assets and owning the assets? MR. KALECZYC: Objection to the extent it calls for a legal conclusion. MS. DELANEY: I'll join in the objection. THE WITNESS: I would think that that's a legal issue. I'm not a lawyer. BY MR. KAPLAN: Q. Let's put it this way: If NorthWestern already owned the assets, what was the purpose of the going-flat transaction? MR. KALECZYC: Objection. MS. DELANEY: Objection. THE WITNESS: My understanding was the going-flat transaction was to comply with the PUCHA law. BY MR. KAPLAN: Q. But if NorthWestern already owned the assets, why would it have any problem with PUCHA? MR. KALECZYC: Objection.
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MR. KALECZYC: Objection. MS. DELANEY: Objection, foundation. THE WITNESS; Like I previously indicated, my understanding was that NorthWestern owned the LLC and effectively owned the net assets and that all they were doing was converting their ownership interest into ownership of the actual assets and that there was no actual sale. BY MR. KAPLAN: Q. You were an executive officer of NorthWestern Energy LLC prior to November 15,2002, correct? A. Correct. Q. You weren't an officer of NorthWestern Corporation prior to that point, were you? A. That's correct. Q. And as ·· and you took direction from Mike Hanson, correct? MR. KALECZYC: Objection. vague. BY MR. KAPLAN: Q. You reported -. A. I took direction through Dave Monaghan who reported to Mike Hanson. Q. And Mike Hanson was the CEO of NorthWestern
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MS. DELANEY; Objection. THE WITNESS; There is a lot of times that the structure of a company has to meet certain requirements. BY MR. KAPLAN: Q. As a technical matter, putting aside effectively owning, as a technical matter, prior to thc going-flat transaction, NorthWestern's ownership interest was ownership of the LLC interest? A. That's correct. Q. And following the going-flat transaction, NorthWestern actually owned the assets themselves? A. That's correct. Q. Okay. Now in connection with the going-flat transaction, did you look at the value of the assets being transfened and the amount of liabilities that were being assumed by NOithWestern? MR. KALECZYC: Objection, vague. THE WlTNESS: No. BY MR. KAPLAN: Q. Did you look to ensure that the LLC was receiving fair value from NorthWestern?
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Energy LLC, correct? A. Correct. Q. You didn't report to anyone at NorthWestern Corporation, did you? A. Not directly. Q. And when you say "not directly," how did you report indirectly, if you did? A. Well, when you work for a subsidiary of a company, there is always an indirect responsibility to the parent. Q. In connection with the transfer, NorthWestern Energy LLC didn't receive any cash from NorthWestern, did it? A. No, they did not. Q. The only thing that they received - the only thing received, if you will, was that NorthWestern assumed certain liabilities, correct? A. That's correct. Q. You mentioned earlier that certain assets were not transferred, correct? A. Correct. Q. Do you recall which - the most significant of those assets was the Milltown Dam, correct? A. Correct.
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.
IN THE UNITED STATES DISTRlCf COURT
FOR THE DISTRICT OF DELAWARE
MAGlEN ASSET MANAGEMENT CORPORATION and LAW DEBEN1URE TRUST COMPANY OF NEW YORK. Plaintiffs,
v.
NORTHWESTERN CORPORATION,
C.A. No. 04.1494-JJF
Defendant.
RESPONSES AND OBJECTIONS OF NORTHWESTERN CORPORATION TO
PLAINTIFFS' MAGTEN ASSET MANAGEMENT CORPORATION AND LAW
DEBENTURE TRUST COMPANY OF NEW YORK'S FIRST SET OF
INTERROGATORIES FOR DEFENDANT NORTHWESTERN CORPORATION
Pursuant to Rule 33 of the Federal Rules of Civil Procedure, NorthWestern Corporation ("NorthWestern") through its undersigned counsel, hereby submits the following responses and objections to Plaintiffs' Magten Asset Management Corporation ("Magten") and Law Debenture Trust Company OfNew York ("Law Debenture" and collectively with Magten "Plaintiffs") First Set ofInterrogatories for Defendant NorthWestern Corporation, dated February 28, 2007 ("Interrogatories").
GENERAL OBJECI10NS
The following general objections are incorporated into each of NorthWestem's responses and objections to the Interrogatories, as if set forth fully therein. The stated objections shall be deemed continuous throughout the responses and objections to the specific Interrogatories that follow, even though such objections are not specifically referred to therein.
1.
NorthWestern's responses and objections are based upon infonnation presently
known to NorthWestern. These are made without prejudice to producing during discovery or at
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trial information, documents or data that are (a) subsequently discovered or determined to be
relevant for any purpose, or (b) produced as a result of ongoing investigations, or (c)
subsequently determined to have been omitted from these disclosures.
2. NorthWestern reserves the right at any time to revise and/or supplement these
responses and objections.
3. In each and every response to the Interrogatories where an objection is interposed,
such objection shall be construed to preserve all rights to enter similar objections as to any future supplemental answer to such requests. Moreover. a failure to object herein shall not constitute a waiver ofany objection that may be interposed as to future supplemental answers. 4. Failure to object to any Interrogatory on a particular ground or grounds shall not
be construed as any type of waiver ofthe right to object on any additional ground. 5. NorthWestern objects to the Interrogatories including, without limitation. the
"Definitions," and "Instructions" to the extent that they are inconsistent with the Federal Rules of Civil Procedure or the Local Rules ofthe United States District Court for the District of Delaware ("Local Rules") or impose burdens or duties that exceed the scope of reasonable and pennissible discovery under the Federal Rules of Civil Procedure or the Local Rules. 6. NorthWestern objects to the Interrogatories to the extent that they seek
infonnation subject to any privilege, including without limitation. the attorney-client privilege, the work product doctrine, and/or any other applicable privilege. Any disclosure of such information is inadvertent and does not waive any applicable privilege. 7. NorthWestern objects to the Interrogatories on the grounds that they are vague,
ambiguous, overly broad, unduly burdensome, duplicative. cumulative, irrelevant. andlor that
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plaintiffs have failed to establish that the requested material is reasonably calculated to lead to the discovery ofadmissible evidence. 8. NorthWestern objects to the defmition of "Transfer" insofar as it implies that the
November 15,2002 transfer ofthe Transferred Assets can be viewed in any respect as a discreet transaction rather than as the last step in NorthWestern's acquisition of the Transferred Assets commencing with the Unit Purchase Agreement between NorthWestern and Montana Power Company dated September 29, 2000. 9. The production of any infonnation when the production of such infonnation is
objected to herein shall not constitute a waiver of any applicable objections and is without prejudice to NorthWestern's right to object later that the production ofany such infonnation was inadvertent. 10. No objection or limitation, or lack thereof, made in these responses and objections
shall be deemed an admission by NorthWestern as to the existence or nonexistence ofdocwnents or information. 11. NorthWestern's objections and/or responses to the Interrogatories, and its
production of any documents or infonnation shall not be construed as an admission ofthe relevance, materiality, or admissibility of any such docwnents or of the subject matter of any such documents, or as a waiver or abridgment ofany applicaQle privilege or of any applicable objection set forth above or below, or as an agreement that requests for similar documents will be treated in a similar manner. The fact that NorthWestern responds to a particular interrogatory shall not be interpreted as implying that NorthWestern acknowledges the propriety of that request. NorthWestern submits these General Objections without conceding the competency, relevancy, materiality, or admissibility of the subject matter of any document or infonnation
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requested by the Interrogatories. NorthWestern reserves the right, without limitation, (i) to supplement, amend, or correct all or any part of its objections or eventual responses; and (ii) to object to the admissibility of the information ultimately provided in response to the Interrogatories.
SPECIFIC RESPONSES AND OBJECTIONS
Each ofthe foregoing general objections is expressly incorporated into each ofthe specific responses and objections set forth below.
INTERROGATORY NO.1.
SpecifY the nature and dollar amount of all Value received by Clark Fork in exchange for the Transfer ofthe Transferred Assets.
INTERROGATORY RESPONSE TO NO. 1.
NorthWestern objects to this Interrogatory insofar as it uses the definition of"Transfer" to imply that the transfer of Transferred Assets in November of 2002 can be viewed as a discreet transaction. NorthWestern paid for and acquired the Transferred Assets in February 2002 when it acquired the membership interests in The Montana Power LLC ("MPLLC") pursuant to the tenns ofa Unit Purchase Agreement entered into with Touch America Holdings, Inc. ("Touch America") and The Montana Power Company on September 29, 2000. NorthWestern paid approximately $1.1 billion in cash and the assumption of liabilities of the seller for the Transferred Assets. The ''Transfer,'' as defined in the Interrogatories, was simply the last step in a multi-step process in the overall transaction pursuant to which the Transferred Assets, already paid for by NorthWestern, were brought up into NorthWestern as the parent of MPLLC, which
was renamed NorthWestern Energy LLC and then Clark Fork.
INTERROGATORY NO.2.
Identify all current or fonner directors, officers or employees ofNorthWestem or any subsidiary and/or affiliate thereof who knew that any ofthe Prior Financials were materially false and misleading at the time(s) they were issued.
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INTERROGATORY RESPONSE TO NO.2.
NorthWestern objects to this Interrogatory in that it contains within it the false premise
that the Prior Financials, as defined, were materially false and misleading. NorthWestern further objects to this Interrogatory in that it calls upon NorthWestern to ascertain or divine the state of mind of any individual or individuals.
INTERROGATORY NO.3.
Identify all current or former directors. officers or employees of NorthWestem or any subsidiary andlor affiliate thereof who are the subject of any Wells notice issued by the Securities and Exchange Commission, including but not limited to those Wells notices referenced in NorthWestern's lOoK dated March 3. 2006 and 10Q's dated May 4,2006, August 3, 2006, and November 2,2006 and describe the possible violations oflaw referenced in those Wells Notices as to each individual identified.
INTERROGATORY RESPONSE TO NO.3.
Bart Thielbar. Cary Griswold, Keith Beachler. David Monahan. Jana Quam, Merle Lewis, Richard Hylland, Kipp Onne, Kurt Whitesel, Eric Jacobson. Richard Fresia. John Charters.
NorthWestern has not received the Wells Notices and does not know the contents of those docwnents.
INTERROGATORY NO.4.
State the date on which NorthWestern decided to cause Clark Fork to transfer the Transferred Assets to it, rather than control those assets indirectly through its equity ownership of Clark Fork.
INTERROGATORY RESPONSE TO NO.4.
Consideration was given to holding the Transferred Assets at the parent company level at least as early as January 11,2001 which is the date ofthe applications for regulatory approval of NorthWestern's acquisition of the membership interests in MPLLC pursuant to the tenns ofa Unit Purchase Agreement entered into with Touch America and The Montana Power Company on September 29, 2000. NorthWestern made clear in those applications that the Transferred
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Assets would be held either in a subsidiary or at the parent company level. The final Board resolution approving the Transfer of the Transferred Assets to NorthWestern was dated August 7, 2002.
INTERROGATORY NO.5.
State whether and when CSFB advised NorthWestern that it would not make the 2003
Loan or otherwise refinance the Bridge Loan unless the Transfer occurred.
INTERROGATORY RESPONSE TO NO.5.
NorthWestern objects to this Interrogatory on the grounds that it is vague and ambiguous. Subject to this objection and the general objections contained herein, NorthWestern states that a term ofthe 2003 Loan that was negotiated by NorthWestern with CSFB was that the 2003 Loan would be secured by the First Mortgage Bonds issued pursuant to the Mortgage and Deed of Trust dated October 1, 1945 from The Montana Power Company to the trustee named therein, and pursuant to the General Mortgage Indenture and Deed ofTrust dated as ofAugust 1, 1993 between NorthWestern and The Chase Manhattan Bank, as trustee.
INTERROGATORY NO.6.
State the date on which NorthWestern became Insolvent.
INTERROGATORY RESPONSE TO NO.6.
NorthWestern objects to this Interrogatory on the grounds that it is vague, ambiguous and calls for a legal conclusion. Subject to this objection and the general objections contained herein, the date upon which NorthWestern became insolvent was September 14,2003.
INTERROGATORY NO.7.
State the date on which NorthWestern became aware that it was Insolvent.
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I· i
INTERROGATORY RESPONSE TO NO.7.
NorthWestern objects to this Interrogatory on the grounds that it is vague, ambiguous and calls for a legal conclusion. Subject to this objection and the general objections contained herein, NorthWestern became aware it was insolvent on September 14.2003.
INTERROGATORY NO.8.
State the date on which NorthWestern first began to consider the possibility of non-cash charges relating to goodwill and/or other intangible assets, as referenced in its 8-K dated December 13, 2002.
INTERROGATORY RESPONSE TO NO.8.
NorthWestern objects to this Interrogatory on the groWlds that it is vague. ambiguous and incomprehensible. Subject to this objection and the general objections contained herein. NorthWestern's consideration ofthe possibility ofmaking material non-cash changes relating to goodwill is best reflected in the 8-K dated December 13, 2002.
INTERROGATORY NO.9.
State the date on which NorthWestern first began to consider the possibility that it would miss previously disclosed earnings estimates, as referenced in its 8-K dated December 13,2002.
INTERROGATORY RESPONSE TO NO.9.
NorthWestern objects to this Interrogatory on the grounds that it is vague and incomprehensible. Subject to this objection and the general objections contained herein, NorthWestern's consideration ofthe possibility that it would miss previously disclosed earnings estimates on a consolidated basis is best reflected in its 8-K dated December 13,2002.
INTERROGATORY NO. 10.
State the date on which NorthWestern first began to consider the possibility ofrestating any ofthe Prior FinanciaJs.
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INTERROGATORY RESPONSE TO NO. 10.
NorthWestern objects to this Interrogatory on the grounds that it is vague, ambiguous and incomprehensible. Subject to this objection and the general objections contained herein, the decision to restate certain financial statements for the first three quarters of 2002 was made on or about February 19, 2003.
INTERROGATORY NO. 11.
State the date on which NorthWestern first began to consider the possible need or desirability of reducing or suspending the payment of dividends on its common stock, as it ultimately did during 2003.
INTERROGATORY RESPONSE TO NO. 11.
NorthWestern objects to this Interrogatory on the grounds that it is vague, ambiguous and incomprehensible. Subject to this objection and the general objections contained herein, the decision to suspend the payment of dividends on its cornmon stock was made on or about February 19, 2003.
INTERROGATORY NO. 12.
State the date on which NorthWestern first began to consider the possible need or desirability of failing to make timely payments of interest on any debt securities (including those included in the Assumed Liabilities), as it ultimately did during 2003.
INTERROGATORY RESPONSE TO NO. 12.
NorthWestern objects to this Interrogatory on the grounds that it is vague, ambiguous and incomprehensible. NorthWestern further objects to the use oftbe term "debt securities" as vague and ambiguous. Subject to this objection and the general objections contained herein, NorthWestern did not fail to make required payments of interest on any Assumed Li~i1ities prior to September 14, 2003.
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INTERROGATORY NO. 13.
State the total dollar amoWlt of Clark Fork's property (at a fair valuation within the meaning of Montana Code Annotated § 31-2-329) and liabilities immediately following the
Transfer.
INTERROGATORY RESPONSE TO NO. 13.
NorthWestern objects t6 this Interrogatory on the groWlds that it is vague, ambiguous, incomprehensible, incapable of an answer WId calls for a legal conclusion. Furthermore, at the present time NorthWestern has insufficient information to determine the precise fair valuation of Clark Fork's property immediately after the Transfer. However, the fair value of Clark Fork's assets was greater than its reasonably probable liabilities. Subject to this qualification WId specific and general objections contained herein, NorthWestern states that the balance sheet of Clark Fork reflected total assets of$11,005,407 and totalliabiJities of$11,005,407 as of December 31, 2002. Dated: Wilmington, Delaware March 30, 2007
GREENBERG TRAURIG LLP
/~C~
Victoria W. Counihan (No. 3488) Dennis A. Meloro (No. 4435) The Nemours Building 1007 North Orange Street, Suite 1200 Wilmington, DE 19801 Tel: (302) 661·7000
-
CURTIS, MALLET·PREVOST, COLT & MOSLE LLP
Joseph D. Pizzurro Steven J. Reisman Nancy E. Delaney 101 Park Avenue New York, NY 10178 Telephone: (212) 696-6000 Facsimile: (212) 697-1559 Attorneys for NorthWestern Corporation
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON. D.C. 20549
FORMIO-Q
(Mark One)
lEI
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30.2002 or
o
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES ACT OF 1934
For Ihe transition period from Commission File No. G-692 to _
c o R P o
Delaware . (State of Incorporation) .
R A T
o
N
46-0172280
ms Employer Identification No.
125 South Dakota Avenue · Sioux FaUs, South Dakota 57104 . (Address of principal office)
Indicate by check mark whether Ihe registrant (1) has filed all repcrts required to be filed by Section 13 or 15 (D) of the Securities Exchange ACl of 1934 during the preceding 12 months (or for such shorter period that the registrant was required 10 file such reports). and (2)'has been subject to such fiUng requirements for the past 90 days. Yes ® No 0 Indicate the number of shares outstanding of each of the registrant's classes of common stock, as of the latest practicable d~te: Conunon Stock. Par Value $1.75 37,396,762 sbarl'S outstanding at November 11,2002
Source: NORTHWESTERN CORP. 10-0. November 14. 2002
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Summary financial information for CornerStone is as follows (in lliousands):
Seplember 30, 2002
December 31, 2001
*~~Wp.t,fr~~\Y~~!~'if~f:;;C?;t;,.~;Ti,"~.\· Ollier cWTent assets
,"",
Other noncurrent l i a b i l i t i e s '
~u:[ti~~_ffit4t.ja~~~fNt;i.:;~i({n£'iit~T!;'i4i;j},i~!-:f1t~i~1tW'f.~t.~~£~i&~~\¥.W~"f~t-i!~:tt~:.tm5;tl~~W,t'3;!!~21~~"~~t:;';1}~~;'¥l~~~ti~ 27,556
$
Partners' capita1 of disconlinucd operations
(7;811)
$
41,449
Thne monlbs ended September 30, 2002 Dtc::ember 31, 2001
NjDt DlODlbs ended
September 30,
2002
September 30.
2001
9
,Source: NORTHWESTERN CORP. 10-0. November 14, 2002
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The Corporation had provided a gnaranty of CornerStone's $50.0 million credit facility. CornerStone'breached its covenants under this facility and through an amendment executed lanuary 18, 2002,lhe facility was continued but CornerStone's ability to pay minimum quarterly distributions 10 its common unil holders was suspended for lbe remaining tenn of the facility. On August S, 2002, CornerStone announced that it had elected not to make aD interest payment aggregating approximately $5.6 million on three classes of its senior secured noleS, which was due on luly 31, 2002, and was continuing to review fmancial restructuring and strategic options, incloding the potential commencement of a Chapter II case under the United Stales Ban1uuptcy Code. SYN, Inc., a majority owned subsidiary of lhe Corporation, extended a $9.0 million loan to CornerStone for immediate financing needs. On August 20, 2002, the Corporation purchased the lenders' interest in approximately $19.9 million of short-term deb!, together with approximately $6.1 million in leners of credit, of ComerStone outstanding under CornerStone's credit facility, which Ihe Corporatioo had previously guaranteed. No further drawings may be made under this facility. The financial exposures related 10 these events have been considered as of September 30, 2002, which resulled in lhe third quaner charge disclosed above. The foregoing summary financial information with respeclto CornerStone is unaudited and is subject to year-end audit adjustments by CornerStone. CornerStone adopled Statement of Financial Accounting Standards No. 142 during its fiscal year ended June 30,2002. As noted in CornerStone's Current Report on Form 8-K dated September 11,2002, filed with the Securities and Exchange Commission on September 12, 2002, CornerStone's preliminary evaluation of the impact of its adoption of SFAS No. 142 indicates that CornerStone is likely 10 have a material write-off of its goodwill and intangibles during such period. A provision for loss on discontinued operations as of September 30,2002 has been recorded based on managemenrs best estimates as of September 30,2002 of the amounts expected to be realized on the disposition of its investment in CornerStone. The amount the Corporation will ultimately realize could differ from the assumptions currently used in aniving at this anticipated loss.
(5) Supplemental Guarantor FinanciallnIonnation
The $65 million of 8.45% Cumulative Quanerly Income Preferred Securities, Series A (QUIPS) of Montana Power Capital I, which were assumed as pan of the Montana Power acquisition;have been gU3l1lllteed by the Corporation. As guarantor, we provide an unCCllditionai guarantee, on an unsecured junior subordinated basis, of payment on these securities. NorthWestern Energy LLC is in !he process of transferring substantially all of its assets and liabilities to tbe Corporation, including all of the NorthWestern Energy LLC QUIPS obligations. Upon completion of these transfers, anticipated by the end of 2002, the Corporation will no longer be required to include tile following information in the footnotes to its financial Statements. The following presents cOMensed . consolidating financial statements as of September 30.2002 and for the quarters then ended. . 10
j
I
)
"'>'
Source: NORTHWESTERN CORP. 10-0, November 14,2002
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Ineome Statement Consolidating Schedule Three Months Ended September 30, 2002 (in thousands)
Pare-nland eoasolldated SubsIdlaries
NarthWtSleru
llGergy LLC
Elimioations
Total
Jii~~i@i~~~@t~3{(~~~~~~~l~t;&}~jr:~\{{~~~:):i~;{:~it~~~,~,~{~~·n~·~~:~r~~tI~i;~~i~~~~[:i~~mt?~~!iltR~£~lj~fttf@~'t;H ~~~~~~~~~;·:.;~·i~~fJ.~I:n{~~l~~
~i5.~f~.Qb.i~~~~rtl;~~;.~·~~gf$.~r(:U#t!~}'J~~{f.~;:~;:;~\~::\:".~;: ::.;;~/.~~ "·'~~~~~'~{~·~;~~.~.~;i~f~~~t~tQ~1.tJ.~~1i2:~~~~~}N~~jf~Ttti ~~;k~~~~J:~~f.t;·~~:;?:. 9~f.~;.;~ rq:~~0ij.¥[~~~i~~~~
11
Source: NORTHWESTERN CORP, 10-0, November 14, 2002
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Income Statement Consolidating Schedule Nine Months Ended September 30, 2002 (in thousands)
,
PareDtaEld
NorthWesttrn
Consolidal.d Subsidiariu
Entrer LLC
j
EliminatiDDS
Total
\~
jjp'er~~I!i:~~re;ju~~',),;,';;" Cost of Sales
.' $: :;:'\';,'·,~:~1i}(~;~o$A:i'$.\,;/~;:;P~ :#pi;5_~O';i':~(~(',~ := S
651,383
140,744
:',::'",':;:"" ~.> $? j-)\:;~;;ltS,6~~~:0j
792,127
. p.~~~t~iJ{~Qmf.~~~~:~;:~~}~,·t::~:r:~?5~~;t·~.t~it~~1~r:~:·P;:~??~::' :;' '..~. ,-.:": . ':'..:;..~~·.~~'~i:~~~·-t~~t~?~'$r4~:i;'~~~;!'*~i~~~:ti;~2~~~$A~t~~.
!t\~~~~l1)!it~~iilii;ii!,!i,q;~~~,~~~t!;\ii~~0~';:i1;~~,;t~\i::;J;~>\'~~~'ai:#;iiitt~t~i;k('i;f*:\¥.1t~iil'i~1~;~B'1\!f.~~~t<¥~,:i;:tf;~~£~~r;t!~~;:k~4li'J.~~tJ(;J~
~~~~~\~~~?1i~;~::·~~.::~+:~~:'~~';~~~::{J~;~?;g;i:;.1~91 j:£
.)
12
.Source: NORTHWESTERN CORP, 10-0, November 14, 2002
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125 S. Dakota Avenue
.."...l ·.·o·...
l1lr..i-lL-iWesterri
Energy
Hanson President & CEO 605-978-1903 [email protected]
Mjch~et J.
Sioux Falls, SD .57104-6403
Telephone: 605·978·2960'
Facsimile: 605-978-2963 . www.northwe5ternenergy.com
VIA FACSIMILE & OVERNIGHT COURIER
November 14,2002
MaryBeth Lewicki .Vice-President, Corporate Trust Administration
Bank of New York
1010 BarcleyStreet - 8W
New York, New York 10286
Re: Economic Viability of Milltown Dam Hydroelectric Facili~Sjte Dear Ms. Lewicki: Pursuant to the request of William Leet and Robert Pedersen, member.s of the Bryan Cave law fiml; I am providing this letter to you on behalf of NorthWestern Corporation ("NorthWestern") and NorthWestern Energy, L.L.C. ("NorthWestern Energy") to substantiate our position to the effect that - from a pure economic standpoint - the Milltown Darn site (the "Dam Site") has no value when its perfomlance is evaluated based on the state qfthe electricity market in Montana. The Milltown Dam is an integral part of an on.going CERCLA irrvestigation involving the u.s. EPA and the State of Montana. While we believe that the Dam Site has no 'value or only a negative value solely based upon its involvement in the CERCLA matter, our economic analysis set forth below does not factor in any of the costs associated with the environmental remediation of the Dam Site reservoir. Instead, the analysis below assumes that there is no CERCLA problem. involving the Dam Site and its owner. Further, we have considered the possibility of partitioning the Dam Site, but have concluded that any stich partitioning could have a material adverse impact on NorthWeste~ Energy's current operations ofthe" Dam Site and would not generate significant value - particularly when weighed against the below described ongoing costs and liabilitiys. . Dam Site Revenue Stream: The Dam Site's current· maximum generating capacity is 2 megawattS. On a conservative basis, assuming the Dam Site generates its maximum capacity (2 megawatts) for each hour in the year, the maximum . arumal revenue stream generated by the Dam Site under the applicable contract pri<;e is $573,780.00. This amount is .determined as follows: ((365 days per year X 24 hours per day) x 2 megawatts x $32.75 per ~egawatt-hourJ.
NOR000803
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Dam
Sit~·Cost
Strucmre:
We have reviewed our current Dam Site operating budget fOr the years 2002 through 2010. Todd Williams, an engineer witb ELM Consulting, LLC (NorthWestern's consultant working on numerous Dam Site structural and biological issues), working closely with certain NorthWestern Energy operations .employees: prepared this operating budget. Based upon these operating bUdget estimates, during .this eight-year period, the cost to operate the Dam Site ranges from a low 0[$1,273,799.00 to a higb of $2,293,980.00. Based on this cosl range, during. the next eight years, the Dam Site is projected to lose a minimum of $700,019.00 ($573,780.00 - $1,273,799.00) and a maximum of SI,720,200.00 ($573,780.00' - $2,293,980.00). Conclusion: On the basis of the above analysis, the Dam Site's fixed revenue str~am is riot sufficient to cover the projected cost to operate tbe generation facility'. As a reSUlt, absent ownership by a vertically integrated utility under a traditional regulated utility environment, the Dam Site basno value as a stand·alone.. ecol)omic operating unit. In light of this fact, the· Dam Site's adds no value to the overall bond indenture collateral package. This conclusion is reached·without Ulking into account ihe environmental exposure " and othe~. current actual or future contingent liabilities associated with the Dam Site.
Sincerely,
~~::'::L-. presidentl1f~i
Cc: Todd Williams James McCarrick, Esq.
NOR000804
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Page 1
GARY DROOK April 25, 2007 IN THE UNITED STATES DISTRICT COURT FOR THE DISTRICT OF DELAWARE
MAGTEN ASSET MANAGEMENT CORPORATION and LAW DEBENTURE TRUST COMPANY OF NEW YORK,
) ) )
)
Plaintiffs, )
}
-vs-
)
)
C.A. 04-1494 (JJF)
NORTHWESTERN CORPORATION,
)
)
Defendants. )
-------------------------------MAGTEN ASSET MANAGEMENT CORP., )
)
plaintiff,
)
)
-vs
)
)
C.A. 05-499 (JFF)
MICHAEL J. HANSON and ERNIE J. KINDT,
) )
)
Defendants. )
Deposition of GARY DROOK taken before CAROL CONNOLLY, CSR, CRR, and Notary public, pursuant to the Federal Rules of Civil Procedure for the United States District Courts pertaining to the taking of depositions, at Suite 2018, O'Hare Hilton, chicago, Illinois, commencing at 10:51 a.m. on the 25th day of April, A.D., 2007.
MERRILL LEGAL SOLUTIONS (800) 325-3376 www.MerrillCorp.com
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2 (Pages 2 to 5)
Page 2
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t
~
GARY DROOK April 25, 2007
111cre wen: pr~Scllt at the lakhlg of Ihjs
deposition t1,e following counsel:
FRIED. FRANK. HARRIS.
4 SHRIVER & JACOBSON. LLP by
MS. BONNIESTEINGARTand
5
MS. SABITA KR1SHNAN
One New York PJaza
6 New York, New York 10004-1980
7
B
9
1 2 3
4
GARY DROOK April 25, 2007 INDEX DEPOSITION OF GARY DROOK TAKEN April 25, 2007 EXAMINATION BY Ms, Steingart PAGE
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\
(212) 859·8004
10 11
12
appeared on behalf of tlle Ploindff
Maglen Asset Milnagerncnl Corporalion~
NIXON, PEABODY, LLP by
MR. CHRiSTOPHER M. DESIDERJO
437 Madison Avenue
New York. New York 10022·7001
(212) 940-3000
13
14
appeared on bell,lf of (he Plainliff
Law Debemure Trust Company of New York; LA1llAM & WATKINS, LLl' by
MS. MICHELE r. KYROUZ
505 MomgomC1)' Streel
15 16 17 18
Suite 1900
S'Ul Fronei.
(415) 391·0600
appeared on beh,lf of 'n,e v,r,mess;
19
20
21
CURTIS. MALLET·PREVOST. COLT & MOSLE. LLP by
MR. JOSEPH D. I'IZZURRO and
MS. NANCY E, DELANEY
101 Park Avenue
New York. New York 10178·0061
(212)696·6196
22 23
24
25
apJ'C'l"'d on behalf of Ihe Defendant
Nortllweslcm Corpomlion;
5
6 7 8
9
10
11
12 13 14 15 16 17 18 19 20 21 22 23
24
25
Page 3
5
EXHIBITS MARKED
PAGE
5
Deposition Exhibit No. 1 16
Deposition Exhibit No, 2 22
Deposition Exhibit No.3 40
Deposition Exhibit No.4 47
Deposition Exhibit No.5 85
Deposition Exhibit No.6 95
Deposition Exhibit No.7 97
Deposition Exhibit No.8 142
Deposition Exhibit No.9
1 2
3
GARY DROOK April 25, 2007 BROWNING, KALECZYC, BERRY & HOVEN, P,C. by MR. STANLEY T. KALECZYC and MS. KIMBERLY A. BEATTY
139 North Last Chance Gulch
Helena, Montana 59624
(406) 443- 6820
1
2
3
5
6
7
appeared on behalf of the Defendants
Miclme[ J. Hanson and Emie J. KindL
4 5 6 7 8 9
8
9
10
11
10
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GARY DROOK April 25,2007
GARYDROOK,
called as a witness herein, having been first duly
sworn, was examined upon oral interrogatories and
testified as follows:
EXAMINAnON
By Mr. Steingart:
Q Good morning, Mr. Drook.
A Good morning, Bonnie.
(Exhibit 1 marked as requested)
Q Sir, I'm placing before you what we will mark
as Exhibit 1. and the question is, are you appearing for
testimony here pursuant to that subpoena?
A Yes, I am. I think. Right?
MS. KYROUZ: Uh-huh.
THE WITNESS: Yes.
MS. STEINGART: Q Mr. Drook, when did you first
become involved with NorthWestern?
MS. KYROUZ: Objection, vague. In what capacity?
MS. STEINGART: Q In any capacity.
A Well, I joined the board at some point in time,
but I really don't recall the date.
Q Was your first involvement in a professional
way with NorthWestern?
A Yes.
MERRILL LEGAL SOLUTIONS (800) 325-3376 www.MerrillCorp.com
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GARY DROOK April 25, 2007 THE WITNESS: Say it again, Bonnie. MS. STEINGART: Q Do you remember why in 2002 it was neces.<;ary for the board to have a series of meetings about raising money? A I'mjust kind of thinking back over this timeframe. Q If you want to thumb through, you know, the September minutes and then I can ask you the question again, that's fine. I'm not trying to, you know -- test your recollection jf you want to look at the other things. A Well, I kind of recall these series of meetings, but your question was -- state your question again. Q Why was it was necessary during September of 2002 to have a series of meetings about raising cash? A There were as I recall two reasons. One, the operati ng uni ts had not performed as well as had been forecast and there was just a need for a general influx of cash; and, number 2, that the debt equity ratio was higher on the debt side than we would look, and one of the alternatives -- I mean you can lower debt or raise equity and one of the areas being considered was an equity infusion.
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GARY DROOK April 25,2007 Boston, that one I recall. And the Cornerstone credit _ i ~ facility and the equipment purchase, nonrecourse equipment purchase noted, I recall those three. ~ Q So during September there was a need for cash as you said before because there was not cash was not < being generated by the SUbsidiaries. A Uh-huh. ~
!
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Q And there was a -- I think you said a debt to equity ratio problem and would you agree that raising '- < cash was an issue in September also because the debt ~ instruments were coming due? ., A Well, I can't specifically say that. I'm sure that was part of the equation, but r think at the time it .~ was considered more of a normal capital structure ·· , ~ discussion by the board. ft Q Now, during these series of meetings in September when the board was talking about raising cash. ¥ did anyone talk about the fact that $19 I million had been
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21 A I don't recall that specifically. 22 Q Is it your recollection that in September of 23 2002 that NorthWestern's - that NorthWestern was 24 considered an attractive entity for lenders? 25 MS. KYROUZ: Objection, vague.
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Q Wasn't it also the case that during this period
of time a number of the debt instruments of NorthWestern was -- were maturing'] MS. KYROUZ: Object to form. THE "vrTNESS: I don't recall that specifically. MS. STElNGART: Q If you could tum to your June 30th, 2002 JO-Q. It should be before the other one. A Got an August, 2002. Q That's fortheJune period. I apologize. If you look at page 36. A This was issued in June. Q It's issued in August and covers the period through June. TIle numbers are at the bottom. A Sometimes. 35,36. Q And -MS. KYROUZ: Can you give us a minute, Counsel. TIffi WITNESS: This is risk factors I suppose, subject to risk. MS. STEINGART: Q You know, ask you to look at the bullet point in the top third of page 36 and ask whether that refreshes your recollection that some of the debt of NorthWestern was coming due during September of 2002. A I certainly recall I think the 150 aggregate principal amount was a floating note from CS First
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GARY DROOK April 25, 2007 THE WITNESS: Now what do you mean by that - MS. STEINGART: Q Were the banks eager to provide you unsecured debt in September of 2002'1 MS. KYROUZ: I'm sorry. September or November? MS. STEINGART: Q September of 2002. A In September -- so the question is in September of 2002 - Q Were banks eager to provide NortllWestern with unsecured debt'! MS. KYROUZ: Objection, vague, lacks foundation. THE WITNESS: I'm not sure banks ever give you unsecured debt. I mean would it be -- is the question is it fair to say in the question would the market -- were the markets anxious to give us unsecured debt? MS. STEINGART: Q Uh-huh. A The markets always give you debt at the right interest rate. Q Well, did NorthWestern hire Bear Steams to try to raise capital for it? A J think. MS. KYROUZ: Objection, vague. TIffi WITNESS: Did- MS. STEINGART: Q Did NorthWestern retain Bear Steams to try to raise capital for NorthWestern?
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GARY DROOK April 25, 2007 1 GARY DROOK April 25, 2007 A The board was informed that the corporation had 2 Q And why did the board interject itself as far _ 3 hired Bear Stearns to help them think through several 3 as you understand it? . 4 strategic options. 4 A Well, I think dlere was a growing concern on ~ 5 Q Was Bear Stearns also thinking ahout the 5 the board about the strategic direction that the company § 6 company's liquidity issues in September of 2002? 6 and the leader had. ~ 7 A I don't recall a discussion about that in 7 Q What was that concern based o n ? ! 8 particular. 8 A Operating performance. ~ 9 Q Did NorthWestern prepare reports for the board 9 Q What about the operating performance led the 10 that talked about the liquidity problems that the company 10 board to have these concerns? ,.· 11 was having? 11 A Well, we just covered that earlier. I mean the ~ 12 MS. KYROUZ: Object to fornl. 12 operating units were not meeting their operational K 13 THE WITNESS: I don't know. 13 targets -- operational targets they had established for 14 MS. STEINGART: Why don't we look at the Bear 14 the year. i 15 Steams binder. 15 MS. KYROUZ: You said we just covered that earlier? ·. ~ ~.'. 16 Q Generally do you recall chat NorthWestern 16 TIfE WITNESS: Yes. Sorry. ~ 17 updated the board on September 12, September 20th, 17 MS. STEINGART: Q Bya lot or by a little in your 18 September 23rd, September 27th and November 6th of 2002? 18 view? i 19 A On what? On financing? 19 MS. KYROUZ: Objection, vague. 20 Q On various financial issues. 20 THE WITNESS: That seems kind of broad. By more 21 A I know we had a series of meetings in September 21 than we thought it should be. ~ 22 dealing with several dlings that Bear Steams and the 22 MS. STEINGART: Q Have you served on other boards ~ 23 executive committee had been looking at. 23 besides NorthWestern? _.'- ~ 24 Q Itwasn'ttypicalfortheboardatNorthWestern 24 A Yes. j 25 to have meetings so often within one 1110nth, was it? 25 Q And what level of concern would you I---~-------------------T--------------------------i~ Page 59 Page 61
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GARY DROOK April 25,2007 A No. Q And during this period of time did the board understand that there were critical liquidity issues that were facing NorthWestern? MS. K\'ROUZ: Object to form. TIfE WITNESS: I don't personally recall us considering -- considering this to be kind of a critical emergency sort of thing. I mean that's not my recollection. MS. STEINGART: Q If it wa,n't an emergency why did the board meet so often during September about these issues? MS. KYROUZ: Objection, argumentative, lacks foundation, THE WITNESS: Restate it. MS. STEINGART: Q If there wasn't a pressing need why did the board meet so often in each week to review the liquidity options? A I think the board had injected itself in the September timeframe into management discussions about various options that were being presented to the company and wanted to be involved in looking at and better understanding what all the different options were that the company might pursue.
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GARY DROOK April 25, 2007
characterize it to take for a board to come in, step in
in the manner you've just described? MS. KYROUZ: Object to form. THE WITNESS: Well, I don't kllOW. I never -- that's a hard question for me to answer.
MS. STEfNGART: Q You've never been on a board that did it before, were you?
A Probably not.
Q Could we look at page 1 of the September 12 Bear Stearns report. A Uh-huh.
Q According to Bear Stearns due to a confluence of a number of events NorthWestern is facing an important strategic decisiOn critical to the liquidity and capital
structure of the company. Do you see that? A Yes. Q And on that page they list a number of potential capital sources. Do you see that? A Yes. Q Now that handwriting on the page is not yours, is it? A No. Q Do you recall Bear Steams walking through each
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Case 1:04-cv-01494-JJF
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GARY DROOK April 25. 2007 of these items and talking about the pros and COIlS? A Yes. Q Do you recall them saying when it got down to bank facility refinancing it was virtually impossible today? A I do not recall that. Q What do you recall them saying about that? A I don't recall anything to be honest with you. I don't know who wrote this, virtually impossible today in there, but I thought in reality we did refinance the CSFB bonds after this date. Q In 2003? A Dh-huh. Q I'm sorry? A Yes. Q And in 2003 after the Montana Power assets had been moved up to NortbWestern? A That would be correct, yes. Q And by using the Montana Power assets as security for such a facility, right? A Well, that would not be this one. One of the areas that we pursued were the first mortgage notes, the $250 million, the second bullet point, and those first mortgage bonds were backed up with the asset utilities of
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GARY DROOK April 25, 2007 it, but to force them to live up to their ;lsset purchase agreement. Q Right. So by that time NorthWestern knew that there was a lack of interest in the purchaser of Colstrip? MR. KALECZYC: Objection, form. THE WTINESS: I don't know if we knew that. I think they always wanted these asscts. TIley were trying to basically renegotiate the price. MS. STEINGART: Q Well, they never really bought the assets, did they? A I don't know what eventually happened here. Q Let's look at page 2 MR. PIZZURRQ; Could we get a range of Bates numbers, please? MS. STEINGART: The Bates numbers for the September 12 Bear Stearns report are NOR 349336 through 374. TIlank you, Jim. Q Let's look at page 2. Certainly feel free to look at as much as you would Iike of the page ·. A Are we on 9343? Q Yes, sir. I was looking at the section - I would like to direct your attention to the section concerning working capital issues.
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South Dakota and Montana.
Q That was one of dle possibilities that was
being discussed by Bear Steams?
A Yes.
Q But the CSFB notes lhat you were talking about
were in 2003 and secured by the Montana Power assets,
correct?
A I don't know what they were -- Tdon't know
what that was secured by, that wa~ a bridge loan that bad been provided by CSFB. Q We'll get to that. Now it talks here about an asset sale of Colstrip, C-O-L-S-T-R-I-P? A Yes. Q By that time did the board know that Colstrip was not a sale that was happening? A No, we thought it was going to happen every day. We kept waiting for that to conclude. Q Did you know that by that point a complaint had beenfiledagainstColstripbyNOlthWestem? MR. KALECZYC: Objection, fornl. THE WITNESS: What do you mean a complaint? MS. STEINGART: Q A lawsuit had been filed. A Yes, we had filed a lawsuit against PPL Montana, yes, to force the - I don't know what you call
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GARY DROOK April 25, 2007 A Working capital. Okay. Q Did the board discuss the issues with the j collection or the Expanets receivables? :.~ A Yes. Q And do you recall what that discussion was? ~ A That we still had a large and abnornlUl amount ~ of account receivables outstanding and additional people had been hired at Expanets, were working through the hacklog and we're going to get it fixed. . Q Did the company vicw the issues with the collection of Expanets' receivables as something that made it more difficult to obtain new financing or capital from out~ide sources? ~ MS. KYROUZ: Objection, vague, lacks foundation. - :.' THE WlTNESS: I don't recall that discussion. ~ MS. STEINGART: Q During this period of time there was an equity investor that was looking at NorthWestern, ~ wasn't there? : A Yes. Q And at the end of the day they decided not to makes the investment, correct? 1 MS. KYRQUZ: Objection, vague. $. THE WITNESS: Well, which investor are you referring to? I
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GARY DROOK April 25, 2007 MS. STEINGART: Q Evercore. A Evercore. I believe that the board elected not to move forward with Evercore, that's my recollection. Q We'll get to that in a minute. If we could look down to the asset sale bullet point. A Asset issues, company debt, are you on another page? Q The asset issues it's right under working capital. It says the Colstrip sale has been repeatedLy delayed.
A That's correct.
Q And at this point at the board discussion was
there any date at
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