UNITED STATES DISTRICT COURT

DISTRICT OF SOUTH DAKOTA

SOUTHERN DIVISION

FILED J U L 2 12003

d -2- i

CARPENTERS PENSION TRUST FOR ) SOUTHERN CALIFORNIA, OPPEN}IEIM INVESTMENT, LLC, RICHARD C. SLUMP, ) ALAN STEVENS, JOHN LAGALANTE, ) SAMUEL CHRISTEN, M.D., CAMAN ) INVESTMENTS INC., GRACE J. MITCHELL ) and STEVEN SZAFARA, on Behalf of ) Themselves and All Others Similarly Situated, ) )

Plaintiffs, ) ) VS. ) ) NORTHWESTERN CORPORATION, ) NORTHWESTERN CAPITAL FINANCING II,) NORTHWESTERN CAPITAL FINANCING ) III, EXPANETS, INC., BLUE DOT ) SERVICES, INC., WILMINGTON TRUST ) COMPANY, RICHARD R. HYLLAND, ) MERLE D. LEWIS, KIPP D. ORME, DANIEL) K. NEWELL, DAVID A. MONAGHAN, ) RANDY G. DARCY, GARY DROOK, JERRY) W. JOHNSON, LARRY F. NESS, BRUCE I. SMITH, KURT WHITESEL, MORGAN ) STANLEY & CO., INC., CREDIT SUISSE ) FIRST BOSTON CORPORATION, UBS ) WARBURG LLC, MERRILL LYNCH, ) PIERCE, FENNER & SMITH, INC., ) SALOMON SMITH BARNEY, INC. and ) PRUDENTIAL SECURITIES INC., ) )

Defendants. ) ) ) ARTHUR LAUFER, Individually and on Behalf) of All Others Similarly Situated, ) )

Plaintiff, ) ) vs. ) )

MERLE D. LEWIS, RICHARD HYLLAND, ) KIPP D. ORME, NORTHWESTERN ) CORPORATION, NORTHWESTERN ) CAPITAL FINANCING II, NORTHWESTERN)

No. CIV-03-4049

CLASS ACTION

CONSOLIDATED CLASS ACTION COMPLAINT FOR VIOLATIONS OF THE SECURITIES ACT OF 1933 AND THE SECURITIES EXCHANGE ACT OF 1934

DEMAND FOR JURY TRIAL

No. CIV03-4172

CAPITAL FINANCING III, MERRILL LYNCH, PIERCE, FENNER & SMITH, INC., MORGAN STANLEY & CO., INC., SALOMON SMITH BARNEY INC., CREDIT SUISSE FIRST BOSTON CORPORATION and PRUDENTIAL FINANCIAL, INC.,

Defendants.

In re NORTHWESTERN CORPORATION SECURITIES LITIGATION

This Document Relates To:

ALL ACTIONS. ) No. CIV-03-4049

INTRODUCTION

1. This is a securities class action brought on behalf of those persons who purchased the

securities of NorthWestern Corporation and its wholly-owned subsidiaries' (collectively,

"North Western" or the "Company") between August 2, 2000 and April 15, 2003 (the "Class Period"),

seeking to pursue remedies under the Securities Act of 1933 (the "Securities Act") and the Securities

Exchange Act of 1934 (the "Exchange Act") against the Company, its senior insiders and its

underwriters who worked with North Western to sell over $1 billion of newly issued North Western

securities at prices artificially inflated by defendants' false and misleading statements.

2. This action arises out of defendants' manipulation of NorthWestern's accounting

records and financial reports, and the issuance of a series of false and misleading statements

regarding NorthWestern's operations and prospects which certain NorthWestern senior insiders

disseminated to the market in order to obtain over $3 million of unearned "compensation" via a

"private equity company" established solely for the Company's elite executives to raise more than

$1 billion of capital from unsuspecting investors via the sale of newly issued common stock,

preferred securities and debt securities.

3. Beginning in mid-2000 and continuing well into 2003, North Western and certain of

its senior insiders engaged in a campaign to conceal serious problems at two of NorthWestern

Corporation's most important subsidiaries: Blue Dot and Expanets. Defendants prepared and

disseminated false statements about the status and strength of NorthWestern's operating

performance, including false financial statements in the Company's quarterly reports filed with the

United States Securities and Exchange Commission ("SEC") for 1Q02, 2Q02 and 3Q02 which

filings defendants have now admitted are materially false. As part of their scheme, defendants

employed a series of sophisticated financial manipulations that caused the Company to report

materially false and misleading financial results in violation of accounting and SEC rules and

North Western Corporation is comprised of various subsidiaries including Blue Dot Services, Inc. ("Blue Dot"), Expanets, Inc. ("Expanets"), as well as several financing subsidiaries including: NorthWestern Growth Corporation ("NorthWestern Growth"), North Western Capital Financing I ("NWCF I"), NorthWestern Capital Financing II ("NWCF II"), NorthWestern Capital Financing III ("NWCF III"), NorthWestern Energy, LLC ("NorthWestern Energy") and NorthWestern Public Services ("NPS").

-1-

regulations. At the same time, the Company issued a series of false forecasts that defendants knew

could not be met absent the continued use of financial fraud by the Company. Defendants' fraud

pervaded North Western's operations:

Most of North Western's acquisitions were paid for with a combination of cash and stock, including preferred and common shares in the subsidiary which the sellers of acquired businesses had the right to convert to cash if the subsidiary did not go public within a set timeframe. To dissuade them from exercising their conversion rights, as well as to inflate its own balance sheet with phantom investment income, North Western made sure that the subsidiaries paid dividends to its preferred shareholders (including North Western itself) by loaning them the money to do so. For example, at the end of every quarter in 2000 and 2001, Blue Dot made a dividend payment to North Western which was then immediately reimbursed through a wire transfer from North Western back to Blue Dot in the same amount of the dividend payment that had just been received.

While these payments delayed the exercise of conversion rights, they did not prevent it. In September and October of 2001, 22 former owners of companies that had been acquired by Blue Dot exercised their conversion rights, and demanded that their Blue Dot shares be redeemed for cash. Although defendants initially tried to exercise an option to pay them off in NorthWestern stock, the owners (who knew more about the true condition of the Company than public investors) refused, threatening to exercise a block trade of converted stock if it were issued. Fearing this would cause the price of NorthWestern stock to drop, defendants acquiesced to the demand, paying the former owners $30 million for their Blue Dot shares. To raise the money to do so, North Western completed a $74.9 million Offering of new common stock on October 12, 2001. Following this payoff, at the end of 2001, the roundtrip reimbursement of dividends at Blue Dot suddenly stopped.

The common stock issued to sellers in connection with the acquisitions was being used by Blue Dot and Expanets to inflate the minority interest in NorthWestern's subsidiaries, so that continuing losses could be allocated to the sellers and kept off of NorthWestern's books. Because this practice kept diminishing the amount of minority basis against which losses could be allocated, Blue Dot continually acquired new companies for the sole purpose of increasing its minority basis, often overpaying for the acquired company to further inflate the amount of losses that could be allocated to the seller. For example, at the end of2001 Blue Dot rushed to acquire a Texas company, Aramendia Ltd ("Aramendia'), for $10 million, thereby increasing its minority interest basis for purposes of the FY01 financials. The following quarter, 1Q02, Blue Dot immediately sold Aramendia back to the original sellers, presumably because the transaction had already served its intended purpose.

In 2002, analysts began to ask questions regarding NorthWestern's accounting, as well as the millions of dollars that Merle Lewis, Richard Hylland and others had received through the private equity company, purportedly due to the stellar performance of Blue Dot and Expanets. To deflect these criticisms, defendants repeatedly issued false guidance claiming the Company was on track to meet its full year earnings per share ("EPS") target of $2.30 - $2.55. This guidance was repeated or reaffirmed in no less than 11 separate press releases issued throughout that year, and in numerous public statements made to analysts, in conference calls, and to the media. Defendants knew this was an unrealistic target that had been established by Hylland and Kipp Orme simply to meet market expectations, because

-2-

they had ordered the subsidiaries to come up with projections that would support it. Eleven months into the year, defendants finally admitted North Western would not hit this target, and substantially lowered their guidance to $1.50 to $1.60 per share. A month later, just as the fiscal year was coming to a close, they admitted the Company would not even hit those lowered targets. When FY02 earnings were announced at the end of the Class Period, NorthWestern reported a loss of $30.04 per share!

4. Defendants have now been forced to admit that NorthWestern did not have

"outstanding prospects for future growth" nor was it poised for "longer term accelerated growth."

Rather, the Company was heading for disaster. Not only have defendants Lewis and Hylland been

kicked out of North Western in connection with their involvement in this fraud, but North Western

has, in the aggregate, admitted that its previously reported financial results were overstated by more

than $50 million and has been forced to write-off $880 million due to the failure of the defendants

to accurately account for goodwill, as well as for Expanets' inventory, receivables and pre-paid

assets. Defendants' actions have also spawned investigations by both the IRS and the SEC. As

defendants' Enron-esque scheme has been exposed, class members have experienced hundreds of

millions of dollars in losses.

SUMMARY OF THE ACTION

5. This case arises from a massive fraud orchestrated byNorthWestern's Chief Operating

Officer ("COO"), Richard Hylland, with the knowledge and encouragement of its Chief Executive

Officer ("CEO"), Merle Lewis, and carried out by a small group of their most trusted advisers, all

senior executives at the Company. Using tricks he had learned at Arthur Andersen LLP

("Andersen"), Hylland and the other defendants misled investors about the true financial condition

of two subsidiaries in which North Western had invested nearly $1 billion, falsely stating that the

Company was on track to meet inflated earnings projections while simultaneously obscuring its true

financial condition through accounting that was so complicated even the Company's own financial

wizards could not understand it. Meanwhile, these executives looted the Company of millions of

dollars through a "private equity company" that had been set up by Andersen, purportedly to reward

them for the performance of the two failing subsidiaries.

6. For more than 50 years, NorthWestern had been a well-performing utility that paid

predictable dividends to its investors based on the stable revenues it generated by selling gas and

-3-

electricity in South Dakota and parts of Nebraska. During the 1990s, Hylland and one of his former

Andersen colleagues, Daniel Newell, built North Western into a member of the Fortune 500 through

a "roll-up" strategy of acquiring hundreds of companies in the propane, plumbing and

telecommunications industries and combining them into several subsidiaries including its Blue Dot

and Expanets subsidiaries. The Company paid for these acquisitions and loaned money to the

subsidiaries to pay their operating costs, such that by the end of the Class Period NorthWestern was

more than $2 billion in debt, while the subsidiaries themselves were virtually worthless.

Expanets

7. NorthWestern's acquisition ofa Lucent Technologies' ("Lucent") subsidiary in August

2000, that defendants asserted had transformed Expanets into the nation's leading mid-market

telecommunications provider, was, in fact, an utter failure. Difficulties in integrating it into

Expanets' operations, as well as flaws in a $40 million "EXPERT" software system purchased from

Andersen to integrate Expanets' billing, order and financial reporting systems, created additional

problems. Millions of dollars in revenues were delayed or lost between November 2001 and late

2002 because bills were not sent to customers on time, or because the same customer was billed two

or three times for the same services. During the Class Period, Expanets lost even the most basic

ability to track its accounts receivable, nearly half of which were more than 120 days past due. In

1Q02, a large group of delayed invoices were sent out, and defendants took advantage by falsely

claiming that Expanets had a "breakthrough" quarter. In fact, much of the revenue recognized from

the delayed invoices was improper. The delayed invoicing rendered NorthWestern incapable of

posting the operating performance claimed by defendants for FY02 and FY03, and led directly to the

$66 million in write-offs and reserves North Western took at the end of the Class Period for billing

adjustments and accounts receivable at Expanets.

Blue Dot

8. The operations at Blue Dot were in a similar state of disarray during the Class Period.

Blue Dot had created a national network of plumbing, heating, ventilation, and air conditioning

("HVAC") service providers via the rapid "roll-up" plan detailed herein of acquiring numerous small

operations in stock-and-cash transactions. Although few, if any, of these businesses met their

performance expectations, their losses were kept off of North Western's books by allocating them to

minority interests that had been created by the issuance of the common stock used to acquire the

companies. As the minority interest basis diminished, the Blue Dot "roll-up" became more and more

like a Ponzi scheme, with NorthWestern's senior insiders being forced to acquire more companies

for Blue Dot simply to increase the minority interest basis against which its continuing losses could

be allocated - and thereby improperly excluded from NorthWestern's books.

9. Another artifice used by defendants was to cause NorthWestern to repeatedly loan

Blue Dot the money to pay Blue Dot's preferred stock dividends back to North Western Corporation,

thereby making Blue Dot, and North Western, look like it was performing better than it actually was.

These sham round trip transactions were intended to: (i) create the appearance that Blue Dot was

performing according to plan; and (ii) dissuade other preferred shareholders, who had received

shares by selling HYAC companies to Blue Dot, from exercising their right to redeem their shares

for cash, which would have caused a downward spiral.

10. Defendants used a variety of accounting manipulations to conceal the problems at

Blue Dot and Expanets from investors, including allocating losses to minority interests and the

failure to write down of Blue Dot's and Expanets' goodwill. When the problems were revealed,

North Western took an $880 million write-off - almost $600 million of which was for overstated

goodwill - and restated its last three quarters of financial results. Lewis and Hylland were

ultimately forced out as a result of their role in the fraud, as were Expanets' CEO, John Charters, and

its Chief Financial Officer ("CFO"), Rick Fresia.

11. North Western's problems began to come to light on November 7, 2002, just one week

after defendants successfully raised over $88 million of badly needed cash via a common stock

offering. On that date NorthWestern announced, for the first time, that, due to problems at Blue Dot

and Expanets, the Company would not meet its prior EPS estimate. Defendants lowered the

Company's guidance by approximately 35% for FY02, to $1.50-$1.60. The market reacted

immediately, causing the price ofNorthWestern shares to fall, including NorthWestern Corporation

common stock, which fell over 13%.

-5-

12. On December 13, 2002, defendants again surprised the market, stating that

NorthWestern would not even be able to meet the revised guidance announced in November,

because the problems were much more serious than investors had been led to believe. In particular,

the Company announced that "significant increases" may be required for receivables and other

reserves at the subsidiaries, and "substantial" charges for the impairment of goodwill might need to

be taken. The price of NorthWestern's securities again tumbled upon these disclosures, with

North Western Corporation common stock falling to as low as $4.95 per share - a price it had not

traded at since December, 1984. Shortly thereafter, North Western's credit rating was downgraded

by both Moody's and Standard & Poor ("S&P"), and its debt securities were downgraded to junk

status.

13. On February 19,2003, defendants announced North Western would take at least $700

million in charges to write down the value of its subsidiary assets, and would suspend its common

stock dividend for the first time in 56 years. Although defendants admitted that the carrying value

of North Western's reported assets would have to be reevaluated and the carrying value of certain

assets reduced by at least $700 million, defendants still gave no indication that North Western's

reported net income from continuing operations for the interim periods of FY02 had been overstated

by as much as 2400%!

14. By April 1, 2003, defendants revealed the write-off had ballooned to $880 million,

including $591 million in charges for impairment of goodwill at Blue Dot and Expanets, and $66

million in charges for billing adjustments at Expanets. Then, on April 15, 2003, NorthWestern

issued its annual report and Report on Form 10-K for FY02, which included its restated financial

results for 1Q02, 2Q02, and 3Q02. In a letter to shareholders that accompanied the report, Gary

Drook, the newly appointed CEO (and a Board member throughout the Class Period) apologized to

shareholders for the fraud that had been perpetrated upon them:

The year 2002 was an extremely disappointing year for North Western Corporation. The company experienced a loss on common stock of $892.9 million and saw its market capitalization drop significantly. The majority of our challenges stemmed from the implementation ofa diversification strategy during the past several years. As a part of this strategy, NorthWestern compiled a significant amount of debt to finance acquisitions of three nonutility businesses: Blue Dot, a provider of heating, ventilation and air conditioning services; Expanets, a provider of networked

communications and data services; and CornerStone Propane, a retail propane company. Our experience with our nonutiity businesses has been very poor. They havefailed to meet ourperformance expectations, thereby adversely impacting our overall results in 2002.

* * *

BUILDING TRUST

Recognizing that past failure to meet performance expectations has damaged our credibility, we have made the commitment to reestablish confidence and trust in North Western and its leadership.

* * *

We are working to strengthen our internal accounting controls and procedures after we determined that our internal controls did not meet our expectations. We have retained outside professional advisors to evaluate the company's current financial controls and provide recommendations for improvements. We have hired a vice president of audit and controls, reporting directly to me, to further assess, implement and monitor internal controls. We are implementing enhanced disclosure controls and procedures to meet the requirements of the new Sarbanes-Oxley Act of2002.

JURISDICTION AND VENUE

15. The claims asserted herein arise under § § 10(b) and 20(a) of the Exchange Act [15

U.S.C. §78j(b) and 78t(a)] and Rule lOb-5 promulgated thereunder by the SEC [17 C.F.R.

§240.1Ob-5] and §1 1, 12(a)(2) and 15 of the Securities Act [15 U.S.C. §77k, 771(a)(2) and 77oJ.

16. This Court hasjurisdiction over the subject matter of this action pursuant to 28 U.S.C.

§1331 and 1337, and §27 of the Exchange Act [15 U.S.C. §78aa] and §22 of the Securities Act [15

U.S.C. §77v].

17. Venue is proper in this District pursuant to §22 of the Securities Act, §27 of the

Exchange Act and 28 U.S.C. §1391(b). NorthWestern maintains its principal place of business in

this District and many of the acts and practices complained of herein occurred in substantial part in

this District.

18. In connection with the acts alleged in this complaint, defendants, directly or

indirectly, used the means and instrumentalities of interstate commerce, including, but not limited

to, the mails, interstate telephone communications and the facilities of the national securities

markets.

-7-

PARTIES

Plaintiffs

19. Lead Plaintiff Carpenters Pension Trust for Southern California purchased 8.75%

North Western ten-year senior notes on March 8, 2002 as set forth in its certification previously filed

with the Court on May 23, 2003 and incorporated by reference herein, and exchanged these notes

for like registered notes on October 1, 2003, at artificially-inflated prices pursuant to and a false

registration statement and prospectus and has been damaged thereby.

20. Lead Plaintiff Oppenheim Investment Management, LLC purchased NorthWestern

common stock at artificially-inflated prices during the Class Period, as set forth in its certification

previously filed with the Court on May 23, 2003 and incorporated by reference herein, and has been

damaged thereby.

20. Lead Plaintiff Richard Slump purchased NorthWestern common stock at

artificially-inflated prices during the Class Period, as set forth in its certification previously filed with

the Court on May 23, 2003 and incorporated by reference herein, and has been damaged thereby.

21. Plaintiff Alan Stevens purchased NWCF 11 8.25% Trust Preferred Capital Securities

and common stock shares at artificially-inflated prices during the Class Period, including securities

purchased in connection with the December 2001 NWCF II Offcering (as defined later herein) and

as set forth in its certification previously filed with the Court on May 22, 2003 and incorporated by

reference herein, and has been damaged thereby.

22. Plaintiff John LaGalante purchased NWCF II 8.25% Trust Preferred Capital

Securities at artificially-inflated prices during the Class Period, including securities purchased in

connection with the December 2001 NWCF II Offering (as defined later herein) as set forth in his

certification previously filed with the Court on May 22, 2003 and incorporated by reference herein,

and has been damaged thereby.

23. Plaintiff Samuel Christen, M.D. purchased NWCF 1118. 10% Trust Preferred Capital

Securities at artificially-inflated prices including securities purchased in connection with the January

2002 NWCF III Offering (as defined later herein) set forth in his certification previously filed with

the Court on April 24, 2003 and incorporated by reference herein, and has been damaged thereby.

24. Named Plaintiff Caman Investments, Inc. purchased NorthWestern common stock

at artificially-inflated prices including securities purchased in connection with the October 2002

Common Stock Offering (as defined later herein) as set forth in its certification previously filed with

the Court on May 22, 2003 and incorporated by reference herein, and has been damaged thereby.

25. Plaintiff Grace J. Mitchell purchased NWCF II 8.25% Trust Preferred Capital

Securities and NWCF 1118. 10% Trust Preferred Capital Securities at artificially-inflated prices,

including securities purchased in connection with both the December 2001 NWCF II Offering and

the January 2002 NWCF III Offering (as defined later herein) as set forth in the attached certification

and has been damaged thereby.

26. Named Plaintiff Steven Szafara purchased North Western common stock shares at

artificially-inflated prices as set forth in the attached certification and has been damaged thereby.

Defendants

27. Defendant NorthWestern Corporation is a Delaware corporation formed in 1923 with

its principal place of business at 125 S. Dakota Avenue, Sioux Falls, South Dakota. NorthWestern

Corporation is a provider of energy and communications services. At all relevant times, Merle Lewis

or Gary Drook served as CEO; Richard Hylland served as President and COO; Daniel Newell served

as Senior Vice President; Eric Jacobsen served as Senior Vice President, General Counsel and Chief

Legal Officer ("CLO"); Kipp Orme served as Vice President and CFO. Together with NorthWestern

Corporation, North Western is comprised of North Western Energy, LLC ("NorthWestern Energy"),

NorthWestern Growth, Expanets, Blue Dot, NWCF 1, NWCF II, and NWCF III.

28. Defendant Expanets, founded in 1997, has its principal place of business in

Englewood, Colorado and purported to provide communication services to mid-sized businesses

across America. Lewis served as Chairman ofExpanets. Christopher Younger, Newell's son-in-law,

served as President of Expanets. Hylland served as Vice Chairman of Expanets. Hylland, Newell

and Orme served as Directors of Expanets.

29. Defendant Blue Dot, founded in 1997, has its principal place of business in Sunrise,

Florida and is purported to provide service and installation of cooling, heating, plumbing, ventilation

S

and related comfort systems in 27 states. Lewis is the Chairman of Blue Dot. Newell served as

President and CEO of Blue Dot. Hylland, Newell and Orme served as Directors of Blue Dot.

30. North Western Capital Financing I(also referred to herein as "NWCF I") is a Delaware

Statutory Business Trust and a wholly-owned subsidiary of NorthWestern. NWCF I issued 7.20%

Trust Preferred Capital Securities (the "Preferred B Securities"), which are listed and traded on the

New York Stock Exchange (the "NYSE"). At all relevant times, Wilmington Trust Company

("Wilmington Trust") served as Trustee of NWCF I. Hylland and Lewis served as Initial Regular

Trustees of NWCF I.

31. Defendant NorthWestern Capital Financing II (also referred to herein as "NWCF II")

is a Delaware Statutory Business Trust and a wholly-owned subsidiary of NorthWestern. NWCF

II registered and issued on or about December 21, 2001 approximately four million 8-1/4% Trust

Preferred Capital Securities (the "Preferred C Securities") which are listed and traded on the NYSE.

At all relevant times, Wilmington Trust served as Trustee of NWCF II. Hylland and Lewis served

as Initial Regular Trustees of NWCF II.

32. Defendant North Western Capital Financing Ill (also referred to herein as "NWCF III")

is a Delaware Statutory Business Trust and a wholly-owned subsidiary of NorthWestern. NWCF

III registered and issued on or about January 31, 2002 approximately four million 8.10% Trust

Preferred Capital Securities (the "Preferred D Securities") which are listed and traded on the NYSE.

33. Defendant Wilmington Trust functioned as a Trustee for NWCF I, NWCF II, and

NWCF III, along with Initial Regular Trustees Hylland and Lewis. Wilmington Trust signed the

Registration Statement used to issue the NWCF II and NWCF III preferred trust securities.

34. Defendant Richard R. Hylland was, at all times relevant hereto, President and COO

ofNorth Western Corporation as well as an Initial Regular Trustee ofNWCF I, NWCF II and NWCF

III. Hylland also served as Vice Chairman of NorthWestern Growth and as Director of Blue Dot.

He prepared and signed the Form 10-K financial reports and the Registration Statements used to

complete the 2001 and 2002 debt and equity Offerings. During the Class Period, Hylland gave final

approval to all SEC filings, and also approved and was responsible for the contents of all press

releases.

-10-

35. Defendant Merle D. Lewis was, at all times relevant hereto, CEO of NorthWestern

Corporation, Chairman of NorthWestern Growth, as well as an Initial Regular Trustee of NWCF I,

NWCF II and NWCF III. Defendant Lewis's resignation was announced by the Company on or

about January 7, 2003. Lewis prepared and signed the Form 10-K financial reports and the

Registration Statements used to complete the 2001 and 2002 debt and equity Offerings.

36. Defendant Kipp D. Orme was, at all times relevant hereto, CFO of NorthWestern

Corporation. Orme also served as Vice President and CFO of NorthWestern Growth, as well as

Director of Blue Dot and Expanets. He prepared and signed the Form 10-K financial reports and the

Registration Statements used to complete the 2001 and 2002 debt and equity Offerings.

37. Defendant Daniel K. Newell was, and at all times relevant hereto, Senior Vice

President of NorthWestern Corporation. Newell served as Senior Vice President since 1999 and

Vice President of Finance since 1995. He also served as CFO between 1996 and February 2001.

Newell has also been Managing Director and CEO of NorthWestern Growth since 1998, and

President and CEO of Blue Dot since 2001.

38. Kurt D. Whitesel was appointed Vice President - Finance, controller and treasurer of

NorthWestern Corporation. on September 5, 2001, where he had responsibilities for control,

treasury, tax, financial reporting, accounting and audit, cash management and risk management.

Defendant is named as a defendant herein only for the time period he served as an officer of

North Western Corporation for the 1934 Act claims.

39. The participation of defendants Lewis, Hylland, Orme, Whitesel and Newell

(collectively referred to herein as the "Management Defendants"), detailed herein occurred in

connection with and pursuant to their service as senior insiders of North Western Corporation and

North Western Growth, including Blue Dot and Expanets.

Securities Act Defendants

40. Defendants David A. Monaghan, Randy G. Darcy, Gary I. Drook, Jerry W. Johnson,

Larry F. Ness, Bruce I. Smith (collectively referred to herein as the "Director Defendants") were,

during some or all of the relevant time period, Directors of NorthWestern Corporation. Each of the

Director Defendants signed the Registration Statements and/or amendments thereto, which were filed

-11-

with the SEC during their tenures and were used to compute the 2001 and 2002 debt and equity

Offerings. Each of the Registration Statements, signed by the Director Defendants, was false and

misleading as it incorporated NorthWestern's false financial statements.

41. Defendant Morgan Stanley & Co. Inc. ("Morgan Stanley") acted as lead underwriter

in North Western's October 3, 2002 Offering often million shares of newly issued common stock (the

"October 2002 Offering"); as Joint Book-Running Manager of the NWCF II December 19, 2001

Offering ("December 2001 Offering") of four million preferred shares; and as Joint Book-Running

Manager of the January 24,2002 NWCF III Offering of four million preferred shares ("January 2002

Offering") and as lead underwriter of the March 2002 Notes Exchange ("Notes Exchange"). In

connection with these Offerings, defendant Morgan Stanley received substantial underwriting fees

and commissions and was responsible for conducting a reasonable due diligence review of the issues

prior to the Offerings.

42. Defendant Credit Suisse First Boston Corporation ("Credit Suisse") acted as

underwriter of the October 2002 Offering; as Joint Book-Running Manager of the December 2001

Offering of four million preferred shares; and as Joint Book-Running Manager of the January 2002

Offering of four million preferred shares. In connection with the Offerings, defendant Credit Suisse

received substantial underwriting fees and commissions and failed to conduct a reasonable due

diligence review of NorthWestern.

43. Defendant UBS Warburg LLC ("UBS") acted as lead underwriter of the October 2002

Offering, as Joint Book-Running Manager of the December 2001 Offering of four million preferred

shares; and as Joint Book-Running Manager of the January 2002 Offering of four million preferred

shares. in connection with the Offerings, defendant UBS received substantial underwriting fees and

commissions and failed to conduct a reasonable due diligence review of North Western.

44. Defendants Merrill Lynch, Pierce, Fenner & Smith Inc. ("Merrill Lynch"), Salomon

Smith Barney, Inc. ("Salomon") and Prudential Securities, Inc. ("Prudential") acted as Joint Book-

Running Managers of the December 2001 Offering of four million preferred shares and as Joint

Book-Running Managers of the January 2002 Offering of four million preferred shares. In

connection with the Offerings, defendants Merrill Lynch, Salomon and Prudential received

-12-

substantial underwriting fees and commissions and failed to conduct a reasonable due diligence

review of NorthWestern.

45. Defendants Morgan Stanley, Credit Suisse, UBS, Merrill Lynch, Salomon and

Prudential are collectively referred to as the "Underwriter Defendants." The Underwriter Defendants

are named herein only under Securities Act claims. The Underwriter Defendants received in excess

of$ 10 million for underwriting the October 2001, December 2001, January 2002, and October 2002

Offerings as detailed below.

DEFENDANTS' SCHEME AND WRONGFUL COURSE OF BUSINESS

46. North Western is an electric and gas utility which was formed in 1923. For years prior

to the Class Period, North Western was a relatively small, stable utility based in Huron, South Dakota

that generated and sold electricity and natural gas to customers in rural areas of eastern South Dakota

and parts of Nebraska. The Company experienced successful growth over the years, and regularly

paid quarterly dividends to its shareholders.

47. In 1989, Hylland joined the Company as its Controller. Beforej oining NorthWestern,

Hylland had been the Senior Audit and Financial Consulting Manager for Andersen, North Western's

outside auditor. By 1991, Hylland was the Vice President of Finance and Corporate Treasurer. In

1993, Hylland was also placed in charge of corporate development.

48. In September 1994, North Western formed North Western Growth, placing Hylland

in charge as its President and COO. NorthWestern Growth's primary mandate was to pursue

additional growth opportunities in non-utility areas of the energy, energy equipment, and energy

services industries.

49. In December 1996, North Western Growth, acting through a wholly-owned subsidiary,

acquired CGI Holdings, Inc., also known as Coast, a retail propane distributor. Immediately after

the acquisition, Hylland caused NorthWestern to combine Coast with several other recently-acquired

propane companies to form CornerStone Propane Partners, L.P. ("CornerStone"). On the same day,

CornerStone completed its IPO, leaving NorthWestern with a 41.4% effective interest in the

partnership. CornerStone evolved to become one of the leading retail distributors of propane. By

- 13 -

the time it was sold in 2002, CornerStone was contributing revenues of nearly $2.5 billion to the

Company, nearly half of its total revenues, and had propelled North Western to the Fortune 500 list.

50. Following the CornerStone model, in 1997 NorthWestern Growth, under Hylland's

direction, used Blue Dot, to begin acquiring or "rolling up" numerous small plumbing, heating and

air-conditioning service and installation shops. From its Florida headquarters, Blue Dot managed

a regional network of plumbing and HVAC companies, most of which had been acquired in

exchange for a combination of cash and Blue Dot stock.

51. Later that year, also using North Western Growth, Hylland formed Communications

Systems USA, a telecommunications company whose name was changed to Expanets in 1999. Like

CornerStone and Blue Dot, Expanets grew via "roll up" acquisitions - acquiring businesses and

branding them with the Expanets name. By the beginning of 2000, Expanets had completed at least

26 acquisitions using a combination of stock and cash to pay for the acquired companies, and had

operations in 73 different locations in 32 states. Its operations were managed from its headquarters

in Colorado.

52. The Blue Dot and Expanets "roll ups" were accomplished by causing Expanets and

Blue Dot to issue common and preferred stock in those subsidiaries to the sellers of the acquired

businesses. NorthWestern maintained control of those companies by keeping its ownership in senior

preferred stock with voting control and liquidation preference over the preferred and common shares

issued to the sellers of the acquired businesses. As a result, the issuance of common stock in

connection with the numerous acquisitions by Blue Dot and Expanets created minority interests in

the subsidiaries, against which operating losses were allocated.

53. In early 1998, Hylland was promoted to President and COO of NorthWestern

Corporation, and tabbed NorthWestern Corporation's CFO, Daniel Newell, to take his place as

President and COO of NorthWestern Growth. Like Hylland, Newell had begun his career at

Andersen. Although Newell assumed primary responsibility over the management ofNorthWestern

Growth's day-to-day business, Hylland remained active in its affairs, first as its CEO and, later, as

its Vice Chairman. Under the joint direction of Hylland and Newell, NorthWestern Growth

continued its aggressive strategy of acquiring other companies to expand Blue Dot and Expanets.

-14-

54. These investments were a significant departure from NorthWestern's historic business

model. Although NorthWestern continued to provide gas and electricity to customers in South

Dakota and Nebraska, and continued to pay regular quarterly dividends to its shareholders, the utility

business was relegated to secondary status by defendants Lewis and Hylland, and was carved out as

a separate division of the Company, NPS, which by 2000 represented just a small portion of the

Company's business.

55. As described in detail below, both Expanets and Blue Dot were suffering serious

problems at the start of the Class Period. Defendants were nonetheless representing to the market

that Blue Dot and Expanets were experiencing strong growth and North Western was poised to make

a significant acquisition of a Lucent subsidiary that would turn Expanets into the leading mid-market

provider of networked communications services in the United States. In reality, Expanets was in dire

straits because the acquisition came just as the dot.com bubble burst. Meanwhile at Blue Dot, almost

all the HVAC and plumbing companies it had acquired were not performing well.

56. In fact, at a Christmas party held at Lewis' house at the end of 2000, Hylland stood

up to address 150 employees and applaud NorthWestern's results, including "the volume of business"

and "rolled up dollars" the Company was seeing at the corporate level. Hylland then turned to

Newell, and said: "And those numbers are real, aren't they? "in a tone that implied they were not.

Although Newell tried to laugh the question off in response, many of the employees in attendance

were shocked by the brief exchange and what it implied.

57. As a result of these problems, both Expanets and Blue Dot were experiencing huge

losses which undermined defendants' statements that the companies were poised to experience

"sustainable, profitable and accelerated growth." In a sophisticated scheme to conceal the rapidly

deteriorating performance of Blue Dot and Expanets, and keep these losses from hitting

North Western's books, defendants Hylland, Newell and Orme devised the plan and wrongful course

of business alleged herein, whereby the massive (and increasing) losses of Blue Dot and Expanets

were allocated to the minority interests that had been created when common stock was issued in

connection with the acquisitions made by those companies. Although most of those businesses had

failed, defendants continued to report their full value as goodwill on the Company's books. In this

- 15 -

way, defendants were able to conceal throughout the Class Period that they were throwing good

money after bad, and the massive losses at Blue Dot and Expanets during 2000 and into 2001 had

killed the future viability of the business. Throughout the Class Period, substantially all of the

losses of Blue Dot and Expanels were allocated to these minority interests. As losses continued

to mount, the available minority interest basis upon which losses could be allocated was rapidly

being depleted. Defendants therefore caused Expanets and Blue Dot to make additional acquisitions,

which, like the Aramendia transaction discussed herein, typically came as the end of a quarter

approached, and were completed for the sole purpose of increasing the available minority interest

basis so that losses could continue to be kept off of NorthWestern's books.

58. Realizing that the house of cards they had built was about to collapse, the

Management Defendants hatched the scheme complained of herein to conceal the problems at Blue

Dot and Expanets by misleading investors into believing that NorthWestern Corporation and its

subsidiaries were profitable and growing. As a result, Management Defendants reaped enormous

profits by diverting millions of dollars to themselves via a private equity company they had

established at North Western Growth with the help of Hylland's and Newell's former colleagues at

Andersen. The Management Defendants forced NorthWestern to repeatedly go to the markets to

raise cash to keep the Company and its subsidiaries afloat and fund its operations during the Class

Period, including four stock Offerings during the Class Period that generated gross proceeds of

approximately $375 million, and a sale of $700 million of debt securities.

59. The Management Defendants orchestrated this scheme through a network of

interlocking relationships among North Western Corporation and its subsidiaries. Money to acquire

companies to roll up into Blue Dot and Expanets was funneled to the subsidiaries through

NorthWestern Growth, which received senior preferred stock in return. Dividends paid by the

subsidiaries were reported as investment income in NorthWestern Corporation's financials, while

the purported value of the subsidiaries, as reflected in the value of the preferred stock, was reflected

as an asset on NorthWestern Corporation's financials. Meanwhile, losses at the two subsidiaries

were "allocated" to minority interest shareholders, and kept off of NorthWestern's financials. When

the subsidiaries required additional operating funds or capital, it was provided by NorthWestern

-16-

Corporation through additional "investments" in the subsidiaries preferred stock, or through

intercompany loans. Lewis, Hylland, Newell, Whitesel and Orme all managed and oversaw these

transactions in their positions as Officers and/or Directors of NorthWestern Corporation,

NorthWestern Growth, Blue Dot and Expanets, where they had constant access to information

regarding the performance of those companies, and met regularly to discuss the results of their

operations.

60. The scheme complained of herein was perpetrated from the top down as defendants

Lewis, Hylland and Orme oversaw the preparation of NorthWestern's financial forecasts. Hylland

and Orme set the Company's forecast goals and then ordered their subordinates to create false

forecasts to justify the goals they had set. Hylland and Orme then placed intense pressure on their

subordinates, Travis Gjoorvas and Michael Neeman, to force the CFOs at Blue Dot, Expanets and

North Western's other subsidiaries to commit to meet the forecasts. No one ever refused to meet the

forecasts Hylland and/or Orme had set, for fear of losing theirjobs. These ginned-up commitments

then became the "basis" for NorthWestern's projections to the Street regarding NorthWestern's

prospects for an upcoming period. Hylland and the other defendants knew these forecasts were

unattainable and Blue Dot and Expanets repeatedly failed to meet their forecast performance

objectives.

61. To avoid having their manipulative scheme exposed, defendants Hylland and Newell

co-opted their former colleagues at Andersen by paying Andersen $44.4 million in fees in 2001

alone. This was approximately 50% more than the $27 million Enron paid Andersen in 2000for

purported "consulting" services, and over seven times more than the $5.8 million the Company

paid Andersen in 2000. Just $2.6 million of these fees were paid by North Western for auditing

services; the remaining $41.8 million was paid for purported "consulting" services.

62. Defendants artificially inflated the Company's balance sheet as well as its reported

earnings and BPS figures by failing to write down the impairment of, and take necessary reserves

for, its failing Blue Dot and Expanets businesses, which impairments and reserve adjustments

required a massive $880 million charge. Almost $302 million in charges and reserves for overstated

-17-

goodwill were required to be taken by Expanets, in addition to an approximate $289 million charge

required for Blue Dot.

63. These manipulations masked the fact that the Company's non-utility subsidiaries were

not performing according to plan. At least 20% of Blue Dot's locations were known to be

unprofitable and/or were performing so poorly that they had to be sold. By the beginning of the

Class Period, Hylland, Newell, Lewis and Orme knew that Blue Dot and Expanets were in very bad

financial shape. Frequent meetings during the last half of FY00 and throughout FY01, preceded by

detailed written reports, were held to discuss performance problems at Blue Dot and Expanets, which

were attended by Lewis, Hylland, Newell and Orme. The problems were discussed in detail at

monthly management meetings, as well as in face-to-face confrontations.

The Problems at Expanets

64. On March 31, 2000, when telecom stocks were trading at their highs, Expanets

acquired the Growing and Emerging Markets Division of Lucent. According to the Company,

Expanets is the largest mid-market provider of networked communications services in the United

States, with approximately 150 operational centers nation wide.

65. Shortly after this acquisition, the market for telecom services and equipment declined

substantially as a result of the collapse of the dot.com bubble, resulting in certain telecom stock

indexes falling over 90% from their highs, reached in the spring of 2000. In this challenging

environment, Expanets' losses grew more than four-fold, from almost $20 million in 2000 to $87

million in 2001.

66. Defendants assured investors that NorthWestern had a special formula for success

that was allowing, and would continue to allow, Expanets and, therefore, the Company, to achieve

"improved performance" and earnings of between $2.30 to $2.55 per share by the end of 2002.

Both prior to and throughout the Class Period, the Management Defendants consistently represented

that Expanets was achieving and would continue to achieve these results despite the down market

for telecoms. Expanets represented that it could foreseeably achieve these unique results because

the Company provided sufficient "value-added" services that were preventing and would continue

to prevent NorthWestern from suffering from the razor-thin margin which resulted from the

commoditization of the telecom industry.

67. In fact, the Management Defendants had no idea how much money Expanets could

reasonably be expected to make in the future, because they had no internal system or controls that

were adequate to assure that receivables were being collected, or that revenue forecasts were

accurate. This occurred, in part, because Expanets rushed to implement the EXPERT software

accounting system before it was working, resulting in millions of dollars of invoices that were never

sent to customers. Millions more were written-off after Expanets rushed to correct the problem and

sent duplicate invoices to numerous customer accounts.

68. In connection with its acquisition of the Growing and Emerging Markets Division

of Lucent, Expanets had contracted with a Lucent affiliate, Avaya Inc. ("Avaya"), to handle its

billing. Because this was expensive, Expanets had also provided Andersen with a lucrative deal to

put together an integrated internal accounting system, called EXPERT, that would replace the need

to use Avaya for billing. The EXPERT system was supposed to give Expanets a central and

common platform from which all aspects of its business could be operated and managed, including

order entry, scheduling, forecasting, customer billing, trend analysis, compensation and margin

calculation, product support, sales support and financial reporting. Though members of

NorthWestern's information technology department would ordinarily have been consulted and

involved in due diligence before a project of this magnitude was undertaken, this deal was put

together without their knowledge or involvement.

69. There was a great deal of urgency to roll out the EXPERT system so as not to have

to continue paying Avaya for its services. Although implementation of a system like EXPERT

would ordinarily have been expected to take twenty-four months, the launch was scheduled in just

nine months. In order to launch the software on time, Expanets' management instructed software

engineers to forego necessary testing and launch the product even though it had code that was not

working properly.

70. Further, the EXPERT system was drastically over budget. The original budget to

purchase the computer system, configure and test it, and bring it on line was $30 million. By the

NVE

time it started operating in November 2001, NorthWestern had paid $100 million on the project

including $40 million paid to Andersen. Expanets' Board, including defendants Hylland, Newell,

and Orme, became outraged when it learned of the cost overruns, and refused to spend the money

required to debug it and make it operational.

71. The EXPERT system never worked. During its 2002 year-end audit, Deloitte &

Touche LLP ("Deloitte") (which had replaced Andersen as North Western's auditor in the wake of

the Enron scandal) came to the conclusion that the EXPERT system was worthless. Numerous

problems, well known to defendants, resulted from the rushed implementation of the EXPERT

system, causing North Western to issue false and misleading financial statements during the Class

Period, including overstating its accounts receivable. For example:

In early 2002, the software failed to generate any customer invoices such that, by June 2002, approximately $25 million of sales orders dating as far back as November 2001 were hung up in the system. As a result, customers were not being billed, and Expanets was not getting paid for merchandise that had already been shipped and received or services that had already been performed. This problem was highly material, as the lost sales equaled almost a full month of Expanets' reported revenues.

Expanets failed to send six months worth of maintenance service invoices from September 2001 until April 2002, then sent all six months worth of bills to customers at once. Because of the rush to launch the system, customer data was not "scrubbed" before being input into the system, resulting in multiple accounts being created for the same customer. As a result, numerous customers received multiple invoices for the same service. Expanets was ultimately forced to writeoff $50 million for billing adjustments and uncollectible receivables.

Due to delays in collection caused by problems with the EXPERT system, Expanets booked several months worth of revenue in 2002 that should have been reported in 2001, thus contributing to defendants' reporting on April 20, 2002 that Expanets had a breakthrough quarter.

As much as 45% of the receivables at Expanets were over 120 days delinquent, and there were significant receivables that were a year old, or older. At the start of March 2002, Expanets' New Jersey office alone had $10 million in receivables that were over 120 days old.

No updated aging report could be generated by the EXPERT system until March 2002. From January to March 2002, the Company had no aging reports. As a result, the Company had no information about the status of receivables for three months, and made no efforts to collect accounts older than 30 days during that time. Prior to January 2002, the aging receivables report had been generated on Excel spreadsheets - an accounting method typically used by small businesses, but virtually unheard of at a company the size of Expanets.

In 2Q02, the EXPERT system billed numerous customers for service on contracts that had been cancelled, in some instances years prior, in addition to billing these

-20-

same customers for their current maintenance contracts. Beginning in April 2002, over-billing for maintenance services occurred repeatedly throughout the year. As a result, maintenance service revenues, which typically accounted for 30%-40% of Expanets' total revenues, were materially overstated.

72. Problems with Expanets' accounts receivables were discussed at monthly management

meetings and were described in management reports throughout this period. Management reports

were received each month by each of the Management Defendants and included detailed financial

reports that identified the amount of receivables that were outstanding at Expanets. By late 2001,

this data showed that there was a significant amount of outstanding and delinquent receivables. The

amount of receivables reflected in these reports continued to increase throughout 1Q02, 2Q02 and

3Q02, such that all defendants were aware that Expanets had a significant amount of uncollected

receivables outstanding. By June 2002, the problems with the EXPERT system were being openly

discussed by North Western management. The efforts to fix the problems were also documented in

weekly "Awaiting Receipts Reports" which identified how many orders were stuck in the system,

and were discussed during monthly conference calls with top executives at North Western and each

of its subsidiaries, including Lewis, Hylland, Newell and Orme. In late 2002, the problems were so

severe that a "tiger team" was established to address the problem of overstated and uncollectible

accounts receivable.

The Problems at Blue Dot

73. Blue Dot was created in 1997 by rolling up numerous small and medium-sized HVAC

companies. Defendants devised a complex scheme, where in addition to some cash, Blue Dot would

issue junior stock to the owners. These owners' interests would be "minority interests" to those of

North Western.

74. From the beginning, defendants' projections regarding the growth and success of Blue

Dot were flawed. Costs rose due to the centralization of employee benefits, while growth slowed

due to the "lack of entrepreneurial drive" at the acquired business. The lack of proper financial

controls resulted in inaccurate reporting of financial results at the Blue Dot entities, which were not

equipped or experienced in the reporting requirements of a publicly traded company.

-21-

75. The company was constantly putting out fires relating to accounting problems at its

various locations, and as soon as problems in one location were temporarily resolved, new problems

at other locations would crop up. For example, a Cleveland operation had at one time anticipated

a huge positive adjustment for inventory, but in fact had to take a major writedown instead.

Similarly, in 2000, one of the entities Blue Dot had acquired - Air Design, Inc. - had to write-off

$2 million for which it had previously misaccounted. In fact, Blue Dot had no method of forecasting

its cash based on the expected collection of receivables.

76. The undisclosed problems resulted in a lack of cash at Blue Dot. Through 2000, Blue

Dot's cash situation was so precarious that it established its cash position by 9:30 a.m. every work

day to determine if it had enough cash on hand to pay its obligations (e.g., payroll) or whether it

would have to borrow against its line of credit.

77. In January 2001, Bank America refused to renew Blue Dot's line of credit because of

concerns with the amount of credit risk. In particular, Bank America expressed concern over the

quality of Blue Dot's receivables, based on nonpublic information it had received in regular reports

from Blue Dot's CFO. After the line of credit was cancelled, Blue Dot was unable to establish a

new line of credit for nearly two years. In 4Q02, Blue Dot finally was able to establish a small line

of credit with a different bank.

78. Because of their positions at NorthWestern, defendants had access to internal

information regarding the aforementioned problems. As a result of problems like these, defendants

knew or recklessly disregarded, throughout the Class Period, that the information being reported by

Blue Dot was unreliable. Even as the Class Period opened, the Company was conducting monthly

conference calls to discuss the business performance at each of Blue Dot's 70+ locations. Among

others, Orme and Hylland both participated in these calls. Each month in 1999 and into 2000, there

were always five to seven locations with significant problems that led to detailed discussions.

79. Defendants, however, continued to use Blue Dot as a tool to obfuscate

NorthWestern's true financial condition. Blue Dot acquired approximately 70 private companies

between 2000 and 2003. Throughout this period, defendants encouraged North Western to overpay

for these acquisitions which led to the artificial inflation of Blue Dot's goodwill. Only a few of Blue

-22-

Dot's acquisitions generated cash to cover the operating expenses of all of the other acquisitions.

The number of acquisitions (and the increase in minority interest) however, were necessary to

allocate North Western's losses. Thus, the performance of these acquisitions was subordinate to

their role in hiding North Western's losses.

80. Blue Dot typically paid five-to-seven times EBITDA for its acquisitions. This

formula was intentionally used to overvalue the acquired companies in order to increase Blue Dot's

minority interest basis against which losses could be allocated. In 1Q00, Blue Dot overvalued two

of its acquisitions - Wesco in Seattle and another company in Texas - by more than 30%. This

accounting methodology contributed to the $280 million charge North Western ultimately (at the end

of the Class Period) recorded for overstated goodwill at the Company. For example, in 1999, Blue

Dot refused to acquire Wesco because the selling price had been too high. Yet by 1Q00, defendants

were willing to pay a much higher price, not because Wesco was more valuable, but because they

desperately needed additional minority interest basis to conceal Blue Dot's operating losses.

Similarly, at the end of 2001, Blue Dot paid $10 million for a Texas HVAC, Aramendia, that had

only $3 million in annual sales. Although members of Blue Dot's due diligence team had many

unanswered questions about Aramendia's operations, Blue Dot CFO Robert Kennedy went ahead

with the acquisition, under tremendous pressure to get it completed by year end. Right after year

end, in 1Q02, Blue Dot sold Aramendia back to the original owners. It was known internally at Blue

Dot that these acquisitions were "total losers" and constantly needed funding to cover their expenses.

81. North Western funded Blue Dot's acquisitions. Blue Dot then issued preferred stock

that paid dividends to NorthWestern. It was these dividends paid from the Blue Dot preferred stock

owned by North Western to North Western that determined North Western's earnings for the Blue Dot

subsidiary. Blue Dot would then issue junior stock to the owners of the acquired companies along

with some cash (which North Western had provided). Certain owners of the acquired companies,

who had been told Blue Dot would be taken public, had the guaranteed right to force the Company

to redeem their stock, at a predetermined price, if Blue Dot did not go public within a few years. If

the owners chose to exercise that option, it would be necessary to reverse the goodwill already

recorded. Further, if Blue Dot's goodwill were ever less than the dividends recorded then

-23-

NorthWestern would have to convert from segment reporting over to the equity in earnings in

subsidiary method. This would immediately impact NorthWestern's bottom line.

82. To create the appearance that the Company was doing well, Blue Dot would "pay"

NorthWestern dividends on its preferred stock. In fact, every quarter from 2Q00 to year-end 2001,

NorthWestern would wire transfer funds to Blue Dot (ranging from approximately $2 to $6 million)

and the same day Blue Dot would send a return wire for the same amount purportedly as a

"dividend" on its preferred stock. In reality, the funds to pay the dividends to NorthWestern were

merely being sent out by North Western, and then recycled back by Blue Dot. In some instances,

Blue Dot would not return the cash to North Western but would instead simply issue NorthWestern

more preferred stock in Blue Dot in the amount of the purported "dividend" that was supposedly

being paid. This occurred throughout 2000 and 2001, stopping only after Blue Dot had to pay $30

million to junior stock holders who had finally stopped being duped by the phony dividends and

elected to exercise their conversion rights.

83. In early 2002, defendant Whitesel ordered that a Statement of Financial Accounting

Standards ("SFAS") No. 1422 analysis be performed every quarter so that NorthWestern's senior

executives and outside auditors could see a financial "snapshot" of the Company. The analysis

prepared in 1Q02 showed that Blue Dot already had impaired goodwill as of that date. This occurred

even though the analysis was based, in part, upon Blue Dot's inflated financial forecasts. The

impairment would have also been shown by an analysis under SFAS No. 121, had NorthWestern

used reasonable assumptions as to future earnings. The failure to record the impairment in early

quarters based on unrealistic assumptions was a violation of Generally Accepted Accounting

Principles ("GAAP") as they existed at the time, as described in detail below.

84. In 1Q02, NorthWestern's Board of Directors told Hylland that Blue Dot was losing

too much money and could not make any more acquisitions. As a result, the minority interest basis

ran out and there was nowhere left to hide its losses. Desperately avoiding disclosure, Hylland and

2 SFAS No. 142 was a new accounting standard for reporting and evaluating goodwill, effective in 2002. Prior to SFAS No. 142, such accounting was largely governed by SFAS No. 121.

-24-

Newell nevertheless continued in 1Q03 to acquire additional HVAC South Dakota companies,

providing additional minority interests upon which Blue Dot's continuing losses were allocated.

Defendants' Private Slush Fund

85. During 1999, with the help of Andersen, North Western management set up a private

equity investment company that allowed certain executives to invest in the three non-utility

subsidiaries and to share in the profits through these side investments. This slush fund allowed

North Western's senior executives to profit handsomely from engaging in clandestine related-party

transactions with the Company's subsidiaries.

86. The Management Defendants reaped enormous profits from the private equity

company during 2001, even as the performance of NorthWestern's subsidiaries suffered. Lewis

received $1,138,051, while Hylland and Newell each earned $830,376. This was in addition to their

regular salaries and bonuses, which equaled $936,000 for Lewis, $611,000 for Hylland, and

$427,333 for Newell in 2001. The payouts to the executives in 2001 actually amounted to more

than the profits ofall three non-utility subsidiaries - CornerStone, Blue Dot and Expanets - back

to 1998. At the time these awards were reported, however, defendants stated that the bonuses

reflected the overall growth of these subsidiaries and that this type of compensation was in line with

industry standards. In reality, none of the payments were justified because North Western's overall

business was performing so poorly.

87. Participation in the private equity club was limited to NorthWestern's high-ranking

executives, most of whom were employed by NorthWestern Growth. During the Class Period,

defendants Hylland, Newell, Whitesel and Lewis all participated in the equity fund, as did Vice

President Daniel Rausch, General Counsel Jacobsen, Expanets President Younger, Vice President

of Strategic Development Michael Childers, and other top executives. Many other employees were

aware of the large sums the executives were receiving from the slush fund, even while regular

employees were being laid off.

- 25 -

Problems in North Western's Other Subsidiaries

88. The problems at NorthWestern during the Class Period were not limited to its Blue

Dot and Expanets subsidiaries. Other acquisitions the Company had made were also performing

poorly, further hurting its performance. Defendants intentionally or recklessly ignored these

problems as well throughout the Class Period, issuing rosy outlooks, projections and guidance for

the Company. By issuing positive guidance at the same time that negative results at some of these

operations were being disclosed, defendants misled investors by providing them with false

assurances that these problems were temporary setbacks when, in fact, they knew or recklessly

disregarded that these companies had significant financial problems that were affecting, and would

continue to affect, the Company as a whole.

89. On February 15, 2002, NorthWestern acquired the Montana Power Company

("Montana Power") for approximately $1.1 billion in cash, including the assumption of

approximately $488 million in existing Montana Power debt. On March 13, 2002, the Company

announced it had completed the sale of $720 million in senior notes in a Rule 144a offering, using

the proceeds to retire a $720 million short term loan it had used to finance the Montana Power

acquisition. Montana Power's energy operations did not fare well. Despite assurances to the

contrary by NorthWestern, many employees lost theirjobs. State legislators were persuaded to pass

electricity deregulation laws, sending energy bills skyrocketing. Some energy-dependent companies

were forced to shut down, because they could not pay their electricity bills.

90. Almost immediately after the acquisition of Montana Power's energy transmission

business, Jack Haffey, President of NorthWestern Energy LLC and a former top executive when the

utility was known as Montana Power Co., announced he was retiring from the Company, becoming

eligible for a "change of control" payment of at least $1.7 million.

91. North Western, meanwhile, took on $650 million in debt as part of acquiring the

Montana Power assets. The Montana Power acquisition was critical for NorthWestern, because it

needed the income from its operations to pay its operating expenses, including debt service

obligations on debt which had been incurred as a result of ongoing losses at Expanets and Blue Dot.

-26-

Necessary maintenance expenses at Montana Power were also greatly curtailed in order to conserve

operating expenses as a result of the problems at Blue Dot and Expanets.

92. NorthWestern's Montana operations created other problems as well. Through its

subsidiary, Montana First Megawatts, NorthWestern funded and began construction on a 240-

megawatt power plant outside of Great Falls, without first obtaining required regulatory approval

from the Montana Public Service Commission. As a result, North Western overstated the value of

its investment in the Montana First Megawatts project, in violation of SFAS No. 5. Regulatory

approval for the project was never obtained, and the Company ultimately was forced to write down

its investment by $35.4 million.

93. In the context of all of the above, defendants knowingly issued false and misleading

statements during the Class Period as set forth below.

DEFENDANTS' FALSE AND MISLEADING STATEMENTS DURING THE CLASS PERIOD

94. On August 2, 2000, the first day of the Class Period, NorthWestern issued a release

announcing 2Q00 earnings of $56 million, or $0.26 per share. The release stated:

Earnings were primarily driven by increased preferred stock investments in the communications sector, partially offset by the effects of record warm weather and the discontinuance of certain unprofitable natural gas financial trading operations in the propane sector.

"North Western continued to generate strong momentum during the quarter executing our strategy that is focused on expanding our high-growth communications and data solutions sectors complemented by the continued strong cash flow capabilities from our energy and related services sectors," said Merle D. Lewis, chairman and chief executive officer. "Even in light of the record warm temperatures adversely affecting our energy and related services sectors, our second quarter results demonstrate our ability to robustly grow our service and solutions businesses, particularly as we make necessary transition and infrastructure investments to support our goals of sustainable, profitable and accelerated growth in future periods."

* *

"Our strategy is to build long-term value through our substantial growth initiatives," said Richard R. Hylland, president and chief operating office. "With the investments we are making in Expanets, we are creating an entity that is strategically aligned for substantial market expansion opportunities in the changing new world of communications, information and data...."

95. On August 14, 2000, North Western filed with the SEC its Report on Form 10-Q for

2Q00 signed by Monaghan. The Report on Form l0-Q included the financial results reported in the

-27-

August 2, 2000 press release and confirmed that the financial statements contained therein included

"all adjustments necessary for a fair presentation of the results of operations for the interim periods."

Although the Company had invested $414.3 million through June 30, 2000 in Blue Dot and Expanets

and the minority interest scheme was already in full swing at this time, defendants did not disclose

fully, their accounting. Instead, the Report on Form 10-Q innocuously stated that the "[i]nterests of

the former owners of companies acquired by Blue Dot and Expanets who continue to hold an interest

in Blue Dot and Expanets are also reflected as minority interests in the consolidated financial

statements."

96. The foregoing statements made in the August 2, 2000 release and Report on Form 10-

Q for 2Q00 were each false and misleading when made. The true facts, which where then known

to each of the Management Defendants, based upon their access to and review of internal

North Western data, were:

That NorthWestern's reported net income and EPS for 2Q00 were overstated, as defendants failed to record impairment of goodwill on acquisitions which had been made at intentionally inflated costs, as described herein;

That North Western's 2Q00 earnings were artificially inflated by the investments it had made in Expanets and Blue Dot, as the acquisitions were designed to mislead investors into believing that Expanets and Blue Dot were performing according to expectations when, in fact, millions of dollars of losses were being allocated to its minority interests;

That the acquisitions made by Expanets and Blue Dot during the first half of 2000, were intended to purchase revenue so that the defendants could create a misleading impression of revenue growth, thereby qualifying defendants Hylland, Lewis and Newell for increased compensation through their private equity fund while simultaneously increasing the minority basis in Expanets and Blue Dot against which their mounting losses could be charged;

That Hylland, Newell and Orme had carefully concocted an accounting scheme to mislead investors regarding the true value of NorthWestern and its subsidiaries by using the so-called "minority interest" basis created by the Blue Dot and Expanets acquisitions to distort NorthWestern's financial statements and hide its losses from the market;

That by 2Q00, the Management Defendants had overstated North Western's assets and net income by failing to properly account for the numerous acquisitions, including Wesco in Seattle, Washington.

That Blue Dot's goodwill was already impaired as a result of the Wesco and other transactions. To conceal these problems, Blue Dot continued to round trip dividends as previously alleged. The instructions to make these wire transfers were sent by email from NorthWestern's corporate office to the Blue Dot CFO who ensured the

instructions were carried out. These cash transfers were directly connected to the dividend payments to NorthWestern as a description of the transactions would be provided such as "Dividend Payment from Blue Dot Services to NorthWestern for 2Q";

That by August 2000, Blue Dot's cash situation was so precarious that every morning by 9:30 a.m. it would determine whether it had enough cash on hand to pay its simple operating costs and expenses, including electricity costs, rent and payroll, or whether to borrow against its line of credit from Bank America;

That defendants Hylland, Newell and Lewis held meetings in the utility board room at North Western's Huron office to attempt to remedy the fact that Expanets and Blue Dot were "in trouble";

That Blue Dot's rapid "roll up" strategy had resulted in the Company having no functioning accounting controls. Thus, Blue Dot had no means of forecasting what its cash position was going to be based on expected collection of receivables. This inability to forecast Blue Dot's cash position meant that Blue Dot had no way of ascertaining whether it would have cash on hand for the next month, year, etc. nor could it ascertain the quality of its receivables, requiring a substantial adjustment to its balance and income sheets;

That Blue Dot and Expanets were performing poorly in 2000 as now admitted by Management Defendants in NorthWestern's Report on Form 10-K for 2002. Thus, North Western was not poised to "build value or to robustly grow";

That based on the foregoing, Management Defendants knew that NorthWestern's 2Q00 10-Q did not fairly present the results of its operations.

97. On October 30, 2000, NorthWestern issued a press release announcing 3Q00 earnings

of $0.35 per share, and stating:

"North Western reported another very solid quarter, further demonstrating the success of our strategies that are focused on expanding in attractive energy and communications sectors and our commitment to shareholder value," said Merle D. Lewis, chairman and chief executive officer of NorthWestern. "For the sixth consecutive quarter, we have generated double-digit earnings growth, and we remain very optimistic about the continued strong outlook for North Western."

"We are very excited about the growth momentum throughout our energy and communications businesses," said Richard K. Hylland, North Western's president and chief operating officer. "The strong cash flow from our energy business combined with the substantial revenue and EBITDA increases from our communications and data solutions sector represents two vibrant growth opportunities."

Hylland said earnings were enhanced by increased preferred stock investments in the communications sector as well as strong revenues from late summer energy sales. Consistent with previous quarters, NorthWestern continued to make substantial investments and transitionary expenditures within Expanets and Blue Dot®, targeted at building uniformity, consistency and organizational strength necessary for long-term financial and competitive excellence.

-29-

98. On November 13, 2000, North Western filed with the SEC its 3Q00 Report on Form

I 0-Q signed by Monaghan. The Report on Form l0-Q included NorthWestern's 3Q00 results as

detailed in the October 30, 2000 press release and confirmed that the financial statements contained

therein included "all adjustments necessary for a fair presentation of the results of operations for the

interim periods."

99. Defendants knew or recklessly disregarded that the description ofthe statements made

about the Company's financial performance, "earnings growth" and "continued strong outlook for

NorthWestern" in the October 30, 2000 release and its November 13, 2000 Report on Form 10-Q

were each false and misleading when made. The true facts, which were then known to each of the

defendants based upon their access to and review of internal North Western data, were:

• That its energy and communications sectors did not present a "growth" opportunity, but rather NorthWestern's subsidiaries were performing poorly;

• That North Western's revenue and earnings were artificially inflated as defendants had under accrued reserves for impairment of goodwill at the Company's subsidiaries;

• That the Blue Dot and Expanets expansions were not successful, nor was there any reasonable basis for concluding, at that time, that they would be;

• That the statements that NorthWestern's earnings were driven by the investments it had made in Expanets and Blue Dot were designed to and did mislead investors into believing that North Western was performing according to expectations when, in fact, millions of dollars of losses were being allocated to its minority interests and the subsidiaries' goodwill was already impaired;

• That acquisitions by Expanets and Blue Dot during the first half of 2000 were merely intended to purchase revenues that could be used to create a misleading impression of revenue growth at the companies; this so-called "minority interest" scheme was materially misleading, as it overvalued NorthWestern's reported income and EPS for 3Q00;

• That defendants were not committed to "shareholder value" but instead profiting from their private equity fund by overvaluing North Western's income statement and the goodwill of the assets at North Western's subsidiaries;

• That the "minority interest" scheme was additionally false and misleading as it was based on the acquisitions of companies for which NorthWestern and/or its subsidiaries paid too much. In furtherance of this scheme, defendants would pay executives increasing bonuses; the more they paid for the company, the higher the bonus. Thus, goodwill was purposefully inflated at Blue Dot and Expanets;

• That defendants continued to employ their scheme of round tripping funds from North Western to Blue Dot;

-30-

That Blue Dot's operations were failing and Blue Dot was in such bad condition by October 2000 that it was relying on NorthWestern for monies to fund acquisitions and daily evaluate its cash position; and

That as detailed above, Blue Dot lacked internal controls and had no means of forecasting its cash position or the expected collection of accounts receivable.

100. On November 22, 2000, defendants filed with the SEC a Form S-3 Registration

Statement which was signed by defendants Lewis, Hylland, Newell and Monaghan. The Prospectus

incorporated by reference North Western's FY99 Report on Form 10-K; the 1Q00, 2Q00 and 3Q00

Reports on Form 10-Q; and the April 3, 2000 and October 2, 2000 Reports on Form 8-K.

101. The Prospectus contained wholly inadequate risk disclosures that did not reveal

material adverse conditions and attempted to falsely state the actual conditions as mere contingencies

that were "difficult to predict," including:

Risks associated with acquisitions and integration of acquired companies, including acquired companies not performing to expectations, greater than anticipated difficulties in achieving cost savings and synergies, difficulties in integrating operations of acquired companies and the loss of key management personnel.

102. The Form S-3 also stated:

ITEM 17. UNDERTAKINGS.

(a) The undersigned registrant hereby undertakes:

(1) To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:

(ii) To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set forth in the registration statement.

(iii) To include any material information with respect to the plan of distribution not previously disclosed in the registration statement or any material change to such information in the registration statement[.]

103. The November 22, 2000 Registration Statement and Prospectus contained false and

misleading statements as it did not disclose among other things:

That NorthWestern's subsidiaries Blue Dot and Expanets were performing poorly throughout 2000 as later revealed in NorthWestern's Report on Form 10-K for 2002; and

-31 -

That NorthWestern's "minority interest" accounting failed to provide a fair presentation of NorthWestern's income statement as reported in its 1Q00, 2Q00 and 3Q00 Reports on Form 10-Q.

104. On February 8,2001, defendants caused NorthWestern to issue a release announcing

the Company's 4Q00 and FY00 results, claiming that NorthWestern's FY00 BPS was up 13%, and

had increased for the eighth consecutive year. The release stated:

Fully diluted earnings per common share rose 13 percent to $1.83. Total revenues for 2000 were $7.1 billion, reflecting record growth from the company's energy and communications businesses.

"In 2000, NorthWestern's focused strategy on energy and communications, investments in strategic growth, building of additional operational capabilities and the support of our 10,000 dedicated team members resulted in our best year ever," said Merle D. Lewis, NorthWestern's chairman and chief executive officer. "We believe our success and our aggressive pursuit of market leadership in energy and communications provides outstanding prospects for future growth and the continued targeting of our long track record of solid double-digit earnings growth."

* * *

For the fourth quarter of 2000, North Western reported net income of $15.7 million, up 11 percent over the fourth quarter of 1999. Fully diluted earnings per share rose 13 percent to $.60. Total revenues for the fourth quarter were $2.5 billion. Strong energy sales attributable to the normal seasonal weather resulted in enhanced earnings. Consistent with previous quarters, NorthWestern continued to make substantial investments within our partner entities targeted at building long-term organizational strength and operational performance. With the significant growth in 2000, Expanets has strengthened its internal infrastructure to accommodate a nationwide organization with emphasis on higher margin, growth-oriented communications and data solutions activities. Expenses associated with this transition will continue over the next several quarters as infrastructure resources are put fully in place.

105. On April 2, 2001, North Western filed with the SEC its Report on Form 10-K. The

Report on Form 10-K was signed by defendants Lewis, Orme, Whitesel, Hylland, Johnson, Ness,

Darcy, Drook, and Smith. In it, North Western repeated the financial results reported in the February

8, 2001 release, and confirmed that the financial statements contained therein included "all

adjustments necessary for a fair presentation of the results of operations for the interim periods."

106. On May 3, 2001, NorthWestern issued a press release announcing 1Q01 EPS of

$0.70. The release also stated:

"North Western had an outstanding first quarter with exceptional performance from our electric and natural gas segment," said Merle D. Lewis, NorthWestern's chairman and chief executive officer. "These results, excluding the effect of the revenue restructuring activity within our communications business, demonstrate the

-32-

diverse strengths and quality of our business portfolio. It also shows our capability of delivering a strong performance even in light of the recent economic softness. We are on track and remain confident that we will meet our double-digit earnings per share growth targets for 2001."

* * *

The softness of U.S. economic conditions and the current slowdown in the communications industry also impacted first quarter revenue and profits. However, based on its revised relationship with Avaya, which was generally effective as of April 1, 2001 - combined with internal cost efficiency and reduction activities - Expanets' projections for the balance of 2001 and beyond are consistent with prior expectations, and EBITDA is targeted to be in excess of $ 100 million by 2003.

"Our strategic focus on energy and mid-market communications sectors is positioning NorthWestern ideally to capitalize on future opportunities that play directly to our strengths," said Richard R. Hylland, NorthWestern's president and chief operating officer. "We remain on track to accelerate our historic double-digit earnings growth rate by focusing on our fundamental strategy of operational excellence in our energy segments combined with aggressive growth opportunities in our communications businesses."

107. On May 15, 2001, NorthWestern filed with the SEC its 1Q01 Report on Form 10-Q

signed by Orme. In it, North Western repeated the financial results reported in the May 3, 2001 press

release.

108. Management Defendants knew or recklessly disregarded that the results described in

the statements made by the other defendants in the February 8, 2001 release, April 2, 2001 Report

on Form 10-K, the May 3, 2001 press release and the May 15, 2001 Report for 1Q01 on Form 10-Q,

including those concerning the appearance of "growth" and those concerning the projection of

"double-digit earnings growth" were false and misleading when made. The true facts, which were

then known to each of the defendants based upon their access to and review of internal NorthWestern

data were:

Blue Dot's operations were losing money and had no "significant opportunities" to increase NorthWestern's profitability. Hence, NorthWestern's repeated financial condition was not a fair presentation of the results of its operations.

In fact, at a December 2000 Christmas party at defendant Lewis' home, defendant Hylland joked with defendant Newell and other defendants that NorthWestern's numbers were "real." The clear implication was that they were not.

Expanets' projected EBITDA in excess of $100 million by 2003 was not attainable as Expanets too was performing badly and booking revenues on doubtful accounts.

-33-

• Blue Dot's financial condition was so deplorable that Bank America would not re- new its credit line due to poor receivables. As a result, Blue Dot had to establish a new banking relationship.

109. The conditions at Blue Dot were so dire by 2Q01, that on May 29, 2001,

North Western issued a release announcing that Blue Dot President Patrick L. Johnson and Blue Dot

CFO Joan R. Papadakis had resigned "to pursue other business interests." This statement too was

false, as Papadakis and Johnson in fact quit because of the implosion of Blue Dot that had occurred

prior to the Class Period. In its 2002 Report on Form 10-K issued at the end of the Class Period,

however, the Company admitted that this change in management was "a result of deterioration in

Blue Dot's operations."

110. On August 2, 2001, NorthWestern issued a press release reporting its 2Q01 results,

including net income of $10.8 million or $0.38 per share, compared with 2Q00 net income of $7.7

million or $0.26 per share, an increase of 46% on a per share basis. The release stated:

"The strength and diversity of our growth platforms is apparent in our second quarter results," said Merle D. Lewis, North Western's chairman and chief executive officer. "Our energy operations continue to deliver excellent, sustainable growth today while we continue to build the foundation for enhanced future growth in attractive communications markets. Even in the face of challenging economic and market conditions, we continue to be optimistic regarding our long-term prospects in the higher-growth areas of the communications sector, in particular the value-added customer premises space. Looking ahead to the remainder of the year, we maintain our confidence that we will achieve results consistent with our previously stated goal of delivering a seventh consecutive year of double-digit earnings per share growth."

* *

On a year-to-date basis, EBITDA for Blue Dot was $9.0 million compared to $9.8 million in the first half of 2000. Modest operating improvements are expected to continue during the remainder of 2001, with EBITDA for thefull year projected to be above 2000 levels.

Ill. On August 14, 2001, NorthWestern filed with the SEC its 2Q01 Report on Form

10-Q. The 2Q01 Report on Form 10-Q was signed by defendant Orme and repeated the financial

results reported in the August 2, 2001 press release and confirmed that the financial statements

contained therein included "all adjustments necessary for a fair presentation of the results of

operations for the interim periods."

-34-

112. The statements made by North Western and the other defendants in the August 2, 2001

release and the August 14, 2001 Report on Form 10-Q were false and misleading when made. The

true facts which were then known to each of the Management Defendants, based upon their access

to and review of internal NorthWestern data, were:

• That "double digit earnings growth" was not attainable as Blue Dot and Expanets were performing badly and lacked internal controls.

• That North Western's projected growth was based on projections created by Hylland and/or Orme without adequate basis and forced down to Blue Dot and North Western Corporation's other subsidiaries, thus, the Management Defendants had no basis to state that Blue Dot was on track to report EBITDA above 2000 levels.

• That North Western's results did not present a fair representation of its operations for the reasons stated herein.

113. By October 2001, North Western had paid approximately $30 million to 22 sellers of

companies that had been acquired by Blue Dot who had elected to convert their shares in Blue Dot

after it did not go public as promised. Although NorthWestern could have exercised an option to

pay them off in NorthWestern stock, the sellers - who had access to nonpublic information about

the Company - insisted on cash, threatening to exercise a block trade of converted stock if it was

issued. Fearing that public investors would find out the truth about Blue Dot and Expanets which

defendants knew would cause the price of North Western's stock to plummet, the Company agreed

to the sellers' demands.

114. The $30 million cash demand created a liquidity crisis that threatened to expose the

Management Defendants' scheme. Thus, in desperation, defendants quickly put together a $75

million Offering of North Western Corporation common stock to raise the funds needed to pay off

the original Blue Dot investors and provide the cash that North Western's operations required.

115. On October 12, 2001, defendants completed the common stock Offering pursuant to

a Registration Statement and Prospectus (the "October 2001 Registration Statement"), which

Offering was underwritten by Merrill Lynch and Credit Suisse, whereby North Western issued and

sold 3.68 million shares, raising $74.9 million in net proceeds (the "October 2001 Offering").

Approximately $35 million was contributed to Blue Dot to redeem preferred and common stock held

by persons who had sold their business to Blue Dot and were, after access to internal NorthWestern

-35-

data, unwilling to accept NorthWestern common stock, while the remainder was purportedly put

toward reducing short-term debt and other "general corporate purposes." In fact, the remaining

accounts were used to provide the badly needed cash which defendants claimed Blue Dot and

Expanets were generating, but in fact were not.

116. The October 2001 Registration Statement contained NorthWestern's Income

Statements for FY00 and the first half of 2000 and 2001.

117. The October 2001 Registration Statement contained the following statements:

(a) As to the presentation of NorthWestern's financial statements, the October

2001 Registration Statement stated:

[I]n the opinion of our management, [FY00 and Q100 Q2 financials for financials for FY00 as well as for Q100, Q200 and 01] have been prepared on the same basis as the audited financial statements and reflect all adjustments (consisting only of normal recurring adjustments) necessary for a fair presentation of our results of operations and financial position.

(b) The October 2001 Registration Statement contained risk disclosures that portrayed

such actual existing conditions, then impacting NorthWestern as mere contingencies and made

additional material false and misleading statements, including:

Growth Strategy and Business Integration

Our acquisition activities involve the risk of successfully transitioning, integrating and managing acquired companies, including assessing the adequacy and efficiency of information systems, business processes and related support functions, and realizing cost savings and efficiencies from integrated companies in excess of any related restructuring charges. In particular, Expanets is subject to certain risks associated with its continuing integration of the significant acquisition of the Growing and Emerging Markets (GEM) division of Lucent Technologies, Inc., including reliance upon transition services agreements entered into with the seller, substantial investments in corporate infrastructure systems to enable Expanets to terminate such transition services agreements, the successful integration of the much larger GEM business with the existing Expanets business, and the successful transition of the historical GEM sales from voice equipment to relatively higher margin integrated voice and data services solutions in the face of softness in the communications and data sectors generally. We have taken and continue to take steps to address and mitigate such risks at each of our operating companies; however, there can be no assurances that such efforts will be sufficient to meet our future needs.

(c) The Registration Statement purported to identify as future contingencies,

"various risks and uncertainties" that might adversely impact North Western's business. However,

these "risk factors" themselves were false and misleading. In fact, they described known adverse

-36-

conditions then impacting North Western and instead characterized such adverse conditions as mere

contingencies or risks, including:

risks associated with acquisitions, transition and integration of acquired companies;

availability of minority interest basis for loss allocation purposes.

118. The Registration Statement contained false and misleading statements as it did not

disclose among other things:

That North Western's FY00, 1Q01, 1Q00, 2Q00 and 3Q00 financials did not present a fair representation ofNorthWestern's operations and financial position because the financials were overvalued by the inflated goodwill of certain acquisitions and distorted the value of NorthWestern as a result of its "minority basis" accounting.

That not only did North Western's acquisition activities involve certain risks but that these risks were already actualities. For example, the risk of substantial investments in corporate infrastructure at Expanets was already a reality. Almost $100 million had been spent on the EXPERT system in order to deploy it in November of 2001.

119. On November 6, 2001, NorthWestern issued a release announcing its 3Q01 results,

reporting net income of $9.9 million and EPS of $0.36 per share. The release stated:

"We have had strong year-to-date and solid third quarter performances, even in light of the challenging economic conditions," said Merle D. Lewis, NorthWestern's chairman and chief executive officer. "Our balanced, diversified business platforms are capable of delivering current earnings and cash flows as we complete the development and integration phases of our communications business for longer-term accelerated growth."

120. On November 14, 2001, NorthWestern issued its Report on Form 10-Q for 3Q01,

signed by Orme. The 10-Q repeated the financial information contained in the November 6, 2001

press release and similar false and misleading statements regarding its prospects for future growth.

121. On November 30, 2001, NorthWestern held a nationwide conference call for

investors. Defendants Lewis, Newell, Hylland and Orme participated in the call, reaffirming EPS

projections of $2.03 per share for 2001 and announcing an EPS range of $2.30 to $2.55 per share for

2002.

(a) In addition, defendants stated:

[The Expert System] now provides us the ability to be afully integrated end-to-end nationwide business with a common infrastructure, and allows us now to fully integrate all of our operations and take the advantages of those investments. And with management tools and tools that our sales people and our service people can use to more efficient in their operation. That as I mentioned will be completed in total at the end of the first quarter of next year. But again, it's 90 percent completed now.

-37-

But we're attempting to be very conservative on the revenue expectations, so we've matched our business and are matching it right now to an expectation of a $77 million per month production for our business in the year 2002. We feel that it is very achievable for us.

We are looking for some significant improved operating results in both Blue Dot and Expanets. We think that those businesses have significantly repositioned themselves such that wefeel confident in the targets that we 'relaying out, but nevertheless you'll see some significant improved targets and expectations for next year.

Now in addition to that excitement around our senior team, why should you as a shareholder, an analyst or a potential shareholder get excited about where North Western is heading in terms of value creation? Well first and foremost we want to talk about the way we 'vepositioned our businesses to have very strong cash flow and earnings accretive energy and energy related services businesses. We think those are very well-positioned in this marketplace. Secondly, we are the number one provider of communication and data solutions in the mid-market through Expanets, which provides a growth platform in the communications area to complement the strong energy cash flow positions that we've built and put in place.

We are on the verge of the transition from 2001 to 2002 to breakout in terms of that performance and the production of bottomline value. Not only from that standpoint of earnings per share growth and EBITDA growth, but the underlying value of our businesses has got tremendous capability as we move forward with this kind ofperformance.

(b) During a question and answer session following the call, Orme claimed that

"Blue Dot's cash requirements will be fairly minimal. In fact, they'll be more than self sufficient."

In addition, Orme also specifically addressed whether or not North Western would be taking an asset

impairment charge with respect to SFAS No. 142:

CALLER: Kipp, you indicated that with the adoption of - or you're assuming in your '02 numbers that you're not going to take an asset impairment charge with respect to FAS 142. Could you indicate a range of what that might be and when that might occur if it does?

MR KIPP ORME: We're not assuming that there will be, so there's no range that Iprovide.

CALLER: Okay, so that's just the assumption at this time that you don't anticipate one?

MR KIPP ORME: That's correct.

122. Statements regarding NorthWestern's 3Q01 results and its FY01 and FY02 EPS

performance were false and misleading when issued. The true facts regarding NorthWestern's

financial condition and operations which were then known to each of the Management Defendants

based upon their access to and review of internal North Western data included:

• That the EXPERT system "was not 90% complete" rather the EXPERT system was plagued with problems. It was not until July of 2002 that the billing function at Expanets even remotely worked and even then problems persisted with the billing function.

• That the Management Defendants knew that the EXPERT system was more than 300% over budget, did not function correctly and that the Expanets Board had refused to spend additional monies to fix the system and make it work. The EXPERT system has since been deemed worthless by NorthWester's independent auditor..

• Expanets failed to meet its revenue goals for 2001. For example, the revenue goal for the Pacific Northwest region of Expanets in 2001 had been $26 million, but the region only earned $24 million. The Southwestern and Midwestern regions of Expanets had similarly been "struggling."

• Blue Dot and Expanets had not successfully repositioned themselves. In fact, defendants not only were well aware that Blue Dot and Expanets' current operations were a complete disaster, they also knew their balance sheets incorporated millions of dollars of accounts receivable that were severely impaired, but were being carried at Expanets, including accounts receivable from Talisman Casino and at Blue Dot's NorthiBrook facility, many of which were over three and four years old.

• That defendants had no basis to assert Blue Dot would be "more than self-sufficient," as Blue Dot lacked internal controls and thus, Blue Dot had no means of forecasting what its cash position was going to be based on the expected collection of receivables. The inability to forecast Blue Dot's cash position meant that Blue Dot had no way of ascertaining whether it would have cash on hand next month, or indeed next year.

123. During 3Q01 and 4Q01, NorthWestern continued to hemorrhage cash while

defendants Hylland, Orme, Newell and Lewis were desperately seeking to make additional

acquisitions to keep their "roll up" acquisition scheme from collapsing like a house of cards. Blue

Dot required additional acquisitions because the existing minority basis which had enabled

defendants to correct the capacity losses at North Western had been almost entirely consumed. Plus,

Blue Dot's original investors were clamoring to be paid approximately $30 million. Because of their

access to and review of Blue Dot's financial data they were unwilling to accept NorthWestern stock.

124. On December 21, 2001, defendants caused NWCF II to complete its Offering of 4.6

million preferred shares at $25.00 each, generating gross proceeds of $115 million. The

underwriting commissions, paid by NorthWestern to Underwriter Defendants Merrill Lynch, Credit

Suisse, Salomon, UBS and Prudential, were $3.15 million. The Offering was accomplished pursuant

-39-

to a Registration Statement and Prospectus (the "December 2001 Registration Statement") prepared

and/or signed by defendants.

125. The December 2001 Registration Statement incorporated NorthWestern's financial

results for 1Q01, 2Q01 and 3Q01 as well as FY00. Assuring investors of the accuracy of

North Western's unaudited nine month financial results for the interim periods, the December 2001

Registration Statement stated:

[I]n the opinion of our management, [the 3Q00 and 2001 Form l0-Qs], have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position for such periods.

126. The December 2001 Registration Statement also contained false and misleading "risk

disclosures" which were portrayed as mere contingencies and made additional material false and

misleading statements, including:

Growth Strategy and Business Integration

* * *

Our acquisition activities involve the risk of successfully transitioning, integrating and managing acquired companies, including assessing the adequacy and efficiency of information systems, business processes and related support functions, and realizing cost savings and efficiencies from integrated companies in excess of any related restructuring charges.... We have taken and continue to take steps to address and mitigate such risks at each of our operating companies; however, there can be no assurances that such efforts will be sufficient to meet our future needs.

127. The Registration Statement also purported to identify "various risks and

uncertainties," including:

Risks associated with acquisitions, transition and integration of acquired companies; and

Availability of minority interest basis for loss allocation purposes.

128. The foregoing Registration Statement contained false and misleading statements as

it did not disclose, among other things:

That NorthWestern's 3Q00 and 2001 Form 10-Q financials did not present a fair representation of NorthWestern's operations and financial position because NorthWestern improperly allocated losses to minority shareholders.

That many of the "risks" involved with NorthWestern's acquisition activities had already come to fruition as detailed herein.

A.

129. The foregoing statements were issued as part of the Management Defendants' efforts

to confirm NorthWestern's earnings expectations for 2001, in order to complete the NWCF II

Offering and raise badly needed cash. NorthWestern management's statements were repeated in

conference calls and communications with analysts, as reflected in the report ofA.G. Edwards dated

January 22, 2002 stating that "NOR confirmed its expectations for 2001 recurring earnings of

$2.00 to $2.03 per share." Defendants Hylland, Orme and Lewis had conferred with securities

analysts in order to reassure the market that notwithstanding the fact that North Western had returned

the capital to markets just one month after raising $100 million, NorthWestern's operations,

including Blue Dot and Expanets remained strong.

130. Nearly a month to the day after defendants had generated proceeds of $100 million

with the NWCF II Offering, NWCF III completed its Offering of 4.6 million preferred shares at

$25.00 each, generating proceeds of $115 million pursuant to a Registration Statement and

Prospectus (the "January 2002 Registration Statement"). The underwriting commissions, paid by

NorthWestern to Underwriter Defendants Merrill Lynch, Credit Suisse, Salomon, UBS and

Prudential, were $3.15 million.

131. The January2002 Prospectus included North Western's financial statements for FY00

as well as 1Q01, 2Q01 and 3Q01 as detailed herein. The January 2002 Registration Statement

reaffirmed the accuracy of the financial results, stating:

[I]n the opinion of our management, the 3Q Form 2000 and 2001 Form 10-Qs, have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position for such periods....

132. The January 2002 Registration Statement also included "risk disclosures" that were

themselves false and misleading as they portrayed then existing material adverse conditions which

existed at the time of the Offering as mere contingencies.

133. For example, the January 2002 Registration Statement included statements which

omitted to disclose existing adverse conditions and instead characterized such adverse conditions

as mere contingencies or risks, including:

• risks associated with acquisitions, transition and integration of acquired companies; and

-41-

0 availability of minority interest basis for loss allocation purposes.

134 The Prospectus also reported the Company's financial results in the same manner as

the Prospectus for the NWCF II Offering, including the same disclosures regarding their compliance

with GAAP, and including the following table:

Nine Months Year Ended December 31, Ended

September 30, 2001 2000 1999 1998* 1997* 1996*

Ratio of earnings to fixed charges (0.27) 0.96 1.69 2.15 2.42 2.82

Pro forma adjusted ratio of earnings to

fixed charges 0.46 1.07 - - - - - - - -

135. The foregoing Registration Statement contained false and misleading statements as

it did not disclose, among others:

That NorthWestern's 3Q00 and 2001 Form 10-Q financials did not present a fair representation of NorthWestern's operations and financial position because NorthWestern improperly allocated losses to minority shareholders.

That the risks associated with NorthWestern's acquisitions were a reality. In fact, the acquisitions had created real problems, including those with internal controls, management and integration.

136. On February 7, 2002, NorthWestern issued a release over the PR Newswire,

announcing 4Q01 and FY01 results, including EPS of $2.03 per share.

(a) In addition, the release stated:

[W]e have made substantial progress to further strengthen our energy and communications businesses for long-term growth and value creation," said [defendant] Lewis .... "NorthWestern's businesses are positioned to achieve improved performance, and we reaffirm our previously announced 2002 earnings per share guidance of between $2.30 to $2.55."

(b) Regarding the Company's Expanets and Blue Dot subsidiaries, the release

stated, in part, the following:

"Expanets took several important steps during the fourth quarter and throughout the year that should provide major building blocks for achieving its targets in 2002.... In late November, Expanets also introduced a new information technology system infrastructure that when fully implemented should enable the company to more efficiently develop and deploy communications solutions for clients while reducing operating expenses.... This is an extensive project involving

-42-

substantial data migration from third-party legacy systems to the new Expanets system and the launching of a new integrated customer care, billing, order processing and information technology system. Expanets' process teams addressed initial delays in the integration of the new system and continue to make progress toward full implementation of the system," Hylland said.

"Expanets' focus on value-added services and solutions at the customer premises, as opposed to commodity-based services such as a broadband networks, has enabled it to maintain a core level of recurring customer revenues, even in the face of challenging economic conditions. We believe Expanets is well positioned with a cost structure to meet our performance expectations in 2002," Hylland added.

* * *

"Blue Dot's new management team is implementing a plan to improve performance by maximizing higher margin services, implementing new systems and processes, enhancing efficiency and improving underperforming business locations," [stated Hylland].

137. While the reported results for 4Q01 and FY01 reflected a reduction of net income

and a decline in BPS, defendants stated that the main reason for these declines was a one-time

charge, taken to improve operational efficiency. On February 7, 2002, NorthWestern issued a

release that appeared on the AP Newswire, confirming that on an operating basis, North Western's

performance continued to improve:

The main cause of the downturn in the fourth quarter was a $25 million project designed to make operations for the energy and communications company more efficient, said Roger Schrum, spokesman for NorthWestern. A decrease in revenue, prompted by a mild winter and slowing economy, was also a factor, he said.

The special charge is also the cause of the decline in yearly net income, Schrum said.

"Without the charge, we would have an 11 percent improvement," he said.

138. On May 15, 2001, NorthWestern issued is Report on Form 10-Q for 1Q01 reporting

net income of$ 18.4 million or $0.70 per share. The Form 10-Q also reiterated defendants false and

misleading statements concerning NorthWestern's financial performance and prospects for future

growth.

139. Defendants repeated positive statements about the strength of NorthWestern's

operations and its extremely favorable earnings prospects for 2002 buoyed the investor optimism

about North Western and not only allowed defendants to induce investors to purchase more than $200

million of newly-issued NWCF II and NWCF Ill in the December 2001 and January2002 Offerings,

-43-

but caused common stock to trade at or near the Class Period high levels. ¶11. The statements made

in the February 7, 2002 release, and PR Newswire, and Report on Form 10-Q for 1Q01 were each

materially false and misleading when made. The true facts which were then known to each of the

Management Defendants based upon their access to and review of internal North Western data were:

• Throughout the Class Period, the Company's non-utility subsidiaries were not performing according to plan, with at least 20% of Blue Dot's locations performing so poorly that these defendants knew that Blue Dot would have to dispose of these entities and take a multi-million dollar goodwill charge. That Expanets was running its reserves about $66 million short of its rapidly escalating delinquencies.

• Defendants had artificially inflated the Company's balance sheet as well as its reported earnings and EPS figures by failing to write down the impairment of, and/or take necessary reserves for, its failing Blue Dot and Expanets businesses.

• A complicated scheme of accounting gimmickery and subsidiaries owned partially by senior management, whereby losses at both Blue Dot and Expanets were subverted and reallocated to owners of minority interests or shareholders in the Company's subsidiary, allowed the Company to keep these losses off its balance sheet, and artificially inflate NorthWestern's FY00 Fund 1Q01 earnings and income.

• Defendants created the wholly false impression that the implementation of the Expanets information technology system, for which Andersen charged $44 million, was going according to plan, when in fact, this system was causing undisclosed problems, including double billing and lapses in billing which problems were known to Management Defendants. Contrary to defendants' representations, defendants had not addressed the initial problems with this system, and problems of significant magnitude, over which defendants had little or no control, persisted.

• That, as a result of the foregoing, neither North Western nor Management Defendants had reasonable basis to expect and did not in fact, expect FY02 EPS anywhere near $2.55 per share.

140. On April 1, 2002, NorthWestern issued its Annual Shareholder Proxy Statement

announcing NorthWestern's annual meeting of shareholders and its Report on Form 10-K for 2001.

Kurt D. Whitesel was appointed Vice President - Finance, controller and treasurer of North Western

Corporation on September 5, 2001, where he had responsibilities for control, treasury, tax, financial

reporting, accounting and audit, cash management and risk management. Defendant is named as a

defendant herein only for the time period he served as an officer of North Western Corp.

141. On April 15, 2002, having just sold almost $1 billion of newly issued securities,

defendants issued a release on the PR Newswire announcing how "solid" North Western's operations

were and how it was "well positioned to achieve improved operating performance in 2002" providing

additional FY02 EPS "guidance" to investors. The release stated:

-44-

"We expect to report solid first quarter results from our energy and communications businesses, and we continue to target our previously announced 2002 earnings guidance of $2.30 to $2.55per share from continuing operations," said Lewis .... "We are wellpositionedto achieve improved operatingperformance in 2002 from our energy and communications businesses, and we are extremely excited about the future prospects of the company to drive further value to our shareholders."

"[l]n addition, we are on track for delivering substantially improved results in our communications business, Expanets, which has been enhanced in the first quarter by the restructuring of its sales force for future growth initiatives, migration of the business to a common information technology platform and the elimination of costly transition expenses.

Hylland further commented that as a result of the factors discussed above, the company is on track to meet its target of generating in excess of $100 million in consolidated free cash flow on an annualized basis by year end, which will allow for further debt reduction and profitability going forward.

142. This guidance acted to support shares of North Western stock at prices just below

$20.00 per share on April 15, 2002 - well within the utility's historical trading range. The timing

of this release was critical, however, because it came as analysts had begun to question the

complexity of the Company's accounting and the millions of dollars in bonuses defendants had

received in 2001 based on the Company's purported profits, even though NorthWestern's subsidiaries

were losing money. Analysts at PaineWebber and Merrill Lynch, who continued to rate shares of

North Western "Buy" or "Strong Buy," were clearly misled by defendant Orme's statement that the

Company's books were "open" and "complete" and that North Western had been fully candid and had

disclosed everything.

143. On April 30, 2002, the Company published a release on PR Newswire which

announced financial results for 1Q02 and again reaffirmed North Western's full year EPS targets of

$2.30 to $2.55 per share. The release also stated:

"Our energy and communications businesses posted strong first quarter results from continuing operations with the addition of the former Montana Power operations to NorthWestern Energy's results, effective Feb. 1, 2002, and substantial improvement as we expected in operating results from our communications business, Expanets," said Lewis .... "We are well positioned to deliver on our operating plans for 2002 and continue to have confidence in our previously announced 2002 earnings target of $2.30 to $2.55 per share from continuing operations."

* * *

- 45 -

First quarter 2002 results for Expanets, NorthWestern's communications business, were substantially improved with $8.7 million in EBITDA, compared with negative EBITDA of $37.7 million for the first quarter in 2001. Revenues for the first quarter of 2002 were $201.9 million compared to $268.8 million in the same quarter in 2001. First quarter revenues reflect Expanets 'efforts to build a stronger base of recurring, higher-margin revenues despite soft economic conditions in the communications market. Expanets' gross margins increased in the first quarter of 2002 to 38.2 percent of operating revenues compared to 30.8 percent in the first quarter of 2001, with margins targeted to be in excess of 40 percent in the second quarter.

"Expanets had break-through performance in thefirst quarter of2002 and is on track to deliver previously targeted results for 2002," Hylland said. "By restructuring its sales force for future growth and improved gross margins, migrating the business to a common information technology platform and eliminating costly transition expenses, Expanets expects to achieve its previously announced 2002 EBITDA target of $80 to $87 million....

Hylland said that the implementation of Expanets' new information technology system infrastructure, known as EXPERT, made significant strides during the first quarter and that order management and billing activities are fully operational. "The EXPERT system implementation has already delivered substantial savings by enabling Expanets to reduce costly service agreements created as a part of Expanets 'purchase of the Growing and Emerging Markets (GEM) division of Lucent Technologies."

* * *

"Blue Dot continues to make progress toward improving its operations and performance by aggressively managing underperforming locations, focusing on profitable sales initiatives, completing Operation alExcellen ce initiatives, including the relocation of the company headquarters to Sioux Falls, which will result in savings of more than $4 million annually, and implementing a new vehicle sale/leaseback transaction that will reduce its capital expenditures by $10 to $12 million annually."

144. Following the issuance of NorthWestern's press release, on April 30, 2002,

North Western held its earnings conference call. Among others, defendants Hylland, Charters, Orme

and Newell participated in the conference call. Defendants made the following opening remarks:

Today, North Western has two powerful growth platforms: our energy markets and energy services businesses ofNorth Western Energy and Blue Dot as well as our communications operations at Expanets. Those two growth platforms provide significant promise for the future. In addition to our business-building platform that we have talked to you several times about, we also (indiscernible) and continue to build with our financial platforms as well. Our financial platforms involve the relentless focus on strong recurring and free cash flow performance, growth and not only earnings but dividends, and substantial balance sheet and liquidity positioning as we move forward with our businesses.

If we turn to our North Western communications business Expanets, we have seen substantial building as we have gone through the year 2001, 2002, and beyond. That building as we have talked to you many times has involved the acquisition of

the growing and emerging markets (the group of Lucent), the building of those operations together with our 27 original businesses, the designing of infrastructure, whether it be our expert computer system, whether it be the realigning and resizing of our businesses, the focus of our sales force, a variety of operational excellence opportunities to make Expanets's position very well preserved customer in the future - all have been undertaken in the year 2000, year 2001, and as we begin 2002.

As we told you very specifically on November 30th, we assume in all our business plans that there will be no substantial economic recovery through the end of2002, so we built our businesses to be successful without any economic recovery.

Given the success that we have had with our operational building, the success we see from North Western Energy, Expanets and Blue Dot during the remainder of the year, we are not reducing our forecast and are remaining very strong with our EPS projections and guidance of (2.30) to (2.55) per share and that is well within the lines of our targeted 10 to 15 percent earnings growth.

We certainly think that at the $20 range, our stock is undervalued, given the level of cashflow, given the level of our comparable FE ratios in the marketplace, given our dividend yield and the prospects for future dividend growth, our policy of being a 5 to 10-percent dividend grower into the future is one that we think provides great upside to our stock.

And finally, income before minority interest: you see a positive $13.7 million for the first quarter of '02, which is an improvement of a little over $46 million, quarter-on-quarter. So again, throughout the income statement, you see some very strong, very positive improvements there, which really is the manifestation of a lot of the transformation in business-building efforts that have gone underway over the last couple of years. Finally, if you look at net income from (indiscernible) operations, again on a consolidated basis, you see $24 million for the first quarter this year, it has approached to 13.2 last year and finally a diluted EPS of 65 cents versus 48 cents last year, again on a continuing operations basis.

Finally, as Dick mentioned in his opening comments and as we highlighted in our press release, we are happy to reaffirm our previously announced EPS guidance for the full year of 2.30 to 2.55 earnings per share on continuing operations. I think it is worth noting that in the original guidance that we provided that assumed that we would have the Montana power acquisition effective January 1, but despite the loss of Jan uary profitability, we are still reaffirming those targets based on the other opportunities that we see across our businesses that I think is piece of the strength of the underlying base of the businesses that we have.

Turning now to our communications business Expanets: While the transformation of our energy business is obviously apparent, it is arguably even more so with our communications business, Expanets. Throughout the last couple of years, you have heard us speak to the tremendous efforts of the Expands team undergoing this transition in the integration in the integration of their previously acquired businesses onto a common business and IT platform. And while there is new substantial progress along the way, the results of these efforts are now starting to show themselves within the financial results as well that you see for the first quarter of '02.

A couple other points that I would make regarding the first quarter results for the communications group: We talked earlier, we talked at the end of last year that they made the formal cut to the new IT platforms in the end of November, certainly

-47-

gearing the first quarter of this year. There were a number of activities underway to complete that turnover. lain now pleased to say that with that, our IT platform is fully operational and again, given the efforts that were underway in the first quarter, a lot of the efficiencies that are offered by the system were not fully apparent in the first quarter results but as we go toward, you will soon see that in the second quarter and beyond. I think the other point to be made is that as we enter the second quarter and beyond, the fully operational IT system that we have will enable us further efficiencies and more effectiveness in sharing information across the company, thereby allowing for further margin enhancement and more targeted sales activities that will further position our business for ongoing value creation going forward.

The majority of our businesses are performing very well, very much in line of expectations.

145. Following the defendants' statements concerning NorthWestern's financial

performance, a question and answer session ensued as follows:

THE CALLER: Dick, with those goals and mind, when do you think like telecom Blue Dot can start paying its distribution to you guys, in cash?

MR. DICK SCHOEN: Well, as you think through these - just the numbers, the $30 to $35 million in EBITDA will be produced. We hit our targets in the year 2002. That cash will be available to pay partial to - every increasing parts of that cash dividend on our preferred portfolio. If you look at the announcement that Kipp just talked about our sale/leaseback. For example, that sale/leaseback will take roughly about $10 to $12 million out of the annual CapEx requirement through the use of that very advantageous funding that we've got in that sale/leaseback, as well as many of the cost side opportunities we see going forward. So that amount of cash pay on the dividend would be increasing through the year and as we would hit our targets later in the year, as well in the 2003 then we would see that payment of that dividend in cash.

-if you could note where statuses of the credit facilities from the Blue Dot and Expanets?

In the terms of status of the facilities, we are hopefully in the final stages of putting a facility in place at Blue Dot.

THE CALLER: Okay. Question on the minority interest, Kipp, if you could just break up the 4 to 15 million between Expanets and Blue Dot and I guess remind us of the current investment balances at that those two companies currently?

MR. KIPP ORME: Sure, Scott. What you said in earlier that the minority interest allocation was 14.9 million of that 11.2 million was pertained to Expanets and the remaining 3.8 or 3.7 pertained to Blue Dot. In terms of the investment balances, at Expanets there's a $364 million preferred stock investment. I would highlight that, that is an increase of $50 million from the beginning of the year and what that relates to is a Expanets completed to turnover of their IT system as they made that system fully operational. There were originally some doing issues; efficiency is within the billing system of the

4:

new IT system. Those issues have now been more true, the billings are now current, but that did cause the deal in collections of some of the receivables.

146. The conference call generated extensive media coverage, which widely publicized

defendants' comments, including the following reports:

"We think we had a great quarter.... We think our prospects are tremendous." Defendant Orme, Associated Press, April 30, 2002.

"We feel very strongly ourfinancials arefully compliant with GAPF [sic] (generally accepted accounting principles) and we wouldn't anticipate any independent auditor having a contrary view." Defendant Orme, The Billings Gazette, May 1, 2002.

147. Following the publication of the Company's earnings announcement on April 30,

2002, the price of North Western common stock surged almost 4% in a single trading day, to close

at $20.57 per share, on very heavy volume of over three times normal volume.

148. The statements made by management defendants in the April 15 and 30,2002 release

and accompanying conference call were each materially false and misleading when made. The true

facts, which were then known to each of the Management Defendants, based upon their access to and

review of internal North Western data, were:

• As defendants have now admitted, the financial results for the first three quarters of the fiscal year were not prepared in conformity with GAAP, and because they were materially false and misleading and did not present an accurate image of the Company at this time;

• The statements regarding Expanets' EXPERT system were false and misleading because the system was not working and never worked and defendants were openly discussing the problems that had resulted; and

• Expanets' quarterly results were artificially inflated by revenues that had been earned as far back as September 2001, but collection was delayed due to defects in the EXPERT system.

• That NorthWestern's operations were not solid nor was NorthWestern on track to meet the projected EPS of $2.30 for 2002; or well positioned to deliver its operating plans for 2002. Rather, NorthWestern's deteriorating non-utility business entities such as Blue Dot and Expanets relied heavily on utility revenue to support their operations. The warm winter in 2001, further strained what was already a very bad financial situation for NorthWestern. The telecom bubble had burst and the HVAC business was not performing well.

That John Charters had been brought on as CEO of Expanets to improve its faltering business and financial conditions and that Expanets had not had a breakthrough quarter by the restructuring of its sales force but instead had finally unleashed the six-month backlog of invoices hung-up on the flawed EXPERT system. Expanets had no method of generating an aging receivables report from January to March 2002 so defendants had no basis to ascertain Expanets' receivables.

EM

That Blue Dot and Expanets were not a "powerful growth platform" but in fact drains on NorthWestern as a result of their poor financial performance. Blue Dot could not make its forecasts or even get a line of credit for more than a year.

That there was no basis to project BPS of $2.30 to $2.55 per share to meet North Western's targeted 10% to 15 % earnings growth as North Western's Expanets and Blue Dot entities were anything but successful. As defendants have recently admitted in North Western's Report on Form 10-K for 2002, these entities performed poorly since 2000.

That despite all of the above and a slump in the economy, defendants, in order to keep their scheme afloat, made statements that their stock was undervalued at the $20.00 range.

149. On May 1, 2002, NorthWestern hosted its annual meeting for shareholders, after

which the Company published a release on PR Newswire which stated:

"Through our continuing focus on business building operational and financial excellence, we are targeting combined earnings before interest, taxes, depreciation and amortization (EBITDA) of between $335 to $355 million in 2002," said [defendant] Lewis, noting that the company's 2001 EBITDA was $29 million. "The substantial transformation inperformancefrom our energy and communications businesses also is targeted to generate $100 million in annualized free cash flow by year end."

[Defendant] Hylland ... told shareholders that North Western's value creation transformation is illustrated by the Company's strong performance in the first quarter of2002 as the Company reported net income of $24.2 million or 65 cents per diluted shares from continuing operations and before extraordinary charges and discontinued operations, compared to $13.5 million or 48 cents per share in the first quarter of 2001.

"Our expanded energy businesses, including the addition in February 2002 of the form er Montana Power energy operations, is targeted to deliver 70 percent of NorthWestern's operating income in 2002," Hylland said. "Our communications business has demonstrated a strong transformation in performance in the first quarter of 2002. With our established nationwide market leadership in the growing mid-market communications business space, we are well positioned for targeted improvement in 2002 and as the economy strengthens."

150. The statements contained in the Company's May 1, 2002 release were also each

materially false and misleading when made, and were known by defendants to be false at that time,

or were recklessly disregarded as such, for the reasons stated above.

151. On May 15, 2002, NorthWestern filed with the SEC its quarterly Report on Form

10-Q for 1Q02 (signed by defendant Orme), which reiterated its financial and operational results

reported in the April 30, 2002 release, including 1Q02 BPS of $0.48 per share and provided the

following disclosure with respect to the preparation of NorthWestern's financial statements:

-50-

The consolidated financial statements for the interim periods included herein have been prepared by NorthWestern Corporation (the "Corporation"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of the Corporation, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included.

152. On May 16, 2002, shares of North Western fell almost 17%, or $3.40 per share to

close at $16.50 per share, after the Company announced that it had delayed a filing with the SEC.

Defendants were very concerned about the market finding out the truth about Expanets and Blue Dot,

and the financial chicanery that defendants were engaged in.

153. The Company therefore immediately published a release the same day (May 16, 2002)

on PR Newswire, to counteract the decline in the price of its shares. The release again reconfirmed

earnings expectations for FY02. The release stated:

North Western Confirms Full-Year 2002 Earnings Estimates; Knows Of No Reason For Unusual Trading Activity; Company's Form 10-Q Filed

Sioux Falls, S.D. - May 16,2002 - NorthWestern Corporation (NYSE:NOR) today confirmed its previously announced earnings guidance of $2.30 to $2. 55 per share from continuing operations in 2002 and knows of no matters relating to its energy and communications operations that would accountfor the recent unusual trading activity in the company stock. In addition, the company reported that it has completed and filed its Form 10-Q with the Securities and Exchange Commission on May 15, 2002.

154. The very next day, May 17, 2002, NorthWestern published another release on PR

Newswire, which again reaffirmed the Company's performance targets, in part, as follows:

Sioux Falls, S.D. - May 17, 2002 - North Western Corporation (NYSE:NOR) today reaffirmed that it is targeting substantial transformation in performance by the company's energy and communications businesses for 2002 resulting in earnings of $2.30 to $2.55 per diluted share from continuing operations, earnings before interest, taxes, depreciation and amortization (EBITDA) of between $335 to $355 million, and annualized free cash flow of $100 million by year end.

* * *

"Our strongfirst quarterperformance is continuing into the second quarter as we reconfirm our previously announced 2002 earnings target of $2.30 to $2.55 per share from continuing operations," said [defendant] Lewis. "We are on target to generate $100 million in annualized free cash flow by year-end 2002 and EBITDA of $335 to $355 million. Evidence of our strong cash generation capabilities includes our cash and marketable security increase from $100 million at year-end 2001 to $218 million at the end of first quarter 2002. We believe this strong cash flow positions us to further reduce debt and increase profitability going forward.

-51 -

"Our strong energy business, along with improving results from our building communications business, provides a solid platform for improving our capability of increasingfuture earnings and dividends," Lewis said. NorthWestern has increased dividend[s] for 18 consecutive years and has consistently ranked in the top tier of dividend paying companies among the Dow Jones Utility Index as a result of its policy of increasing dividends 5 to 10 percent annually. The company's 2002 annual dividend rate is currently $1.27 per share.

* * *

Hyiland said Expanets, North Western's communications business, showed a transformation in performance in the first quarter of2002 with EBITDA of $8.7 million, an improvement of $46.4 million from an EBITDA loss of $37.7 million in the same quarter in 2001.

"Expanets' improved performance in 2002 is expected to come, in part, from the continuing benefits of its successful efforts to substantially lower its cost structure which has resulted in a greater than 50 percent reduction in its breakeven point as compared to last year," Hylland said. "By restructuring Expanets' sales force for future growth and improved gross margins, migrating the business to a common information technology platform and eliminating costly transition expenses, Expanets expects to achieve its previously announced $135 million EBITDA increase in 2002 - reaching $80 to $87 million in EBITDA targeted for the 2002, compared to a negative EBITDA of $47.5 million in 2001."

155. In addition to the foregoing, the Company also used the May 17, 2002 release to

announce that North Western had dropped Andersen as its independent auditor in the wake of the

Enron fiasco and the impending demise of the firm and replaced it with Deloitte. The release also

stated that "[w]e had no disagreements with Andersen on matters of accounting principles."

156. In acting to dispel any concern about North Western's operations and further stabilize

and re-inflate the price of NorthWestern securities, on May 17, 2002, the Company hosted a two-

hour teleconference for analysts and investors, during which Management Defendants reiterated

many of the same statements and representations made during the prior two days stating:

ANALYST: Hi. Ijust had one last question. Is there any—there's no reason at this point to anticipate that within the course of you know, this year or next year's 10-K, what have you, that we would need to take any write-down of the existing goodwill on the balance sheet and intangibles, either because of the auditor changing or just because time has passed and things change and what have you. Can you just help me understand how you're thinking about that at this point.

RICHARD HYLLAND: And Jonathan - and Kipp will help me with this also as well - but as we kind of stated to a previous answer earlier in the call, that we're going through our FAS 142 reviews right now, you know, through the first quarter into the second quarter, and we anticipate completing those reviews, based on preliminary work that's been done, we do not anticipate, you know, the need to take any changes at this time upon adoption of142, nor - and obviously if we don't have it now, given

-52-

the operations that we've got and the enhancements to the operations to your question of the two-year period of time, we wouldn't anticipate charges thereafter as well.

* *

ANALYST: Could you explain your allowance for doubtful accounts and what your experience has been, both at Expanets and Blue Dot, please?

RICHARD HYLLAND: Yeah. Let me just - the number to your question was 251 million of accounts receivable at 3/31 at Expanets and at Blue Dot it was 45. And we go through a normal process of looking at - at the accounting level within those organizations, at the bad debt experience, losses, potential losses, and all of that, and book reserves against those receivables under —you know, under GAAP.

ANALYST: Could you just give us an idea of what - what percent you're reserving?

RICHARD HYLLAND: Do we have that? I'm not sure we have that percentage in front of us. We don't really have that level in front of us. But it would be the amount that - you know, with—between our financial folks in terms of estimates and those that it would go through our audit that would be expected to be incurred.

KIPP ORME: I think an important point to make is, as we talked about earlier, there's a large number of customers, so any individual balance is quite small. Furthermore, our history in terms of collections has been very positive, and we feel very comfortable with the reserve that we have at this point in time. It's reflective of historical experience, and - and wefrel very comfortable with it.

ANALYST: Would you - is it two or three percent or I mean -

RICHARD HYLLAND: I don't have that number in front of us, but as Kipp said, it's - you know, it was within the relative estimates that we would think would be prudent and adequate.

ANALYST: Very good.

157. Following the conference call on May 20, 2002, UBS issued a report reiterating

NorthWestern management's guidance entitled, "NorthWestern: Reaffirm Outlook and Buy Rating:

Reduce Target to $20 from $25." The report stated:

• We continue to expect 2002 EPS to approximate $2.30, EBITDA to reach $330 million and free cash flow to reach a $100 million annual rate by the end of 2002. These estimates are substantially consistent with company guidance as reiterated on a conference call on May 17.

* *

On a May 17 conference call, North Western management reconfirmed 2002 guidance, initially provided following the year-end report, and substantially confirmed following the first quarter report. Overall, the company's core businesses are performing in line with expectations.

- 53 -

Management is guiding 2002 EPS to a range of $2.30-2.55, 2002 EBITDA to a range of $335-$355 million and annualized free cash flow of $100 million by year-end.

158. As illustrated by the UBS report, the statements made by defendants and contained

in the Company's May 16, 2002 and May 17, 2002 releases and during the May 17, 2002 conference

call, had the effect intended by defendants, that is to stabilize and re-inflate the price of

North Western shares. Thus, by the end of trading on May 20, 2002, shares of the Company had

rebounded from a low of $14.70 during the week, to close trading at $16.92 on May 20, 2002.

159. On June 25, 2002, Merrill Lynch issued an analyst report reiterating a "strong buy"

for North Western stock, stating in part:

Importantly, we expect 2Q earnings to show a continued sequential quarterly improvement in EBITDA at Expanets, NOR's telecom services subsidiary. With the last of the high-cost Avaya service contracts eliminated in March, we believe subsidiary EBITDA for 2Q is on track to post in the range of $20-$25mm versus $8.7mm last year. Such sustained performance should allow Expanets to start paying a cash dividend to NOR by year-end.

160. The statements made in the May 15, 2002, May 16, 2002 and May 17, 2002 releases

and made during the May 17, 2002 conference call were each materially false and misleading when

made. The true facts, which were known by each of the Management Defendants at that time, based

upon their access to and review of internal North Western data, include:

Defendants' own internal SFAS No. 142 analysis showed that a write-down of goodwill was required.

Defendants had no basis to reconfirm its guidance as problems continued to plague Expanets and Blue Dot. Receivables at Expanets and Blue Dot were in fact poor and Hylland and Orme were in possession of the percentage of receivables reserved at Blue Dot and Expanets. The amounts were not "prudent" or "adequate" as defendants belatedly admitted in their restated 1Q02 results that the Company's financial statements were false when issued.

Approximately $25 million of sales orders were "hung up" in the EXPERT system in June 2002, some of which were over eight months old and had been stuck in the system since it had gone "on-line" in November 2001. This amount was not insignificant to a company that achieved approximately $20-$30 million in sales per month at this time.

161. In mid-July 2002, the Company's shares were at a six-year trading low. Defendants

responded by issuing a two-sentence statement which stated, that, "We know of no reason for the

change in the rating of North Western, as nothing has changed in our operations. We continue

-54-

to affirm our previous earnings guidance of $2.30 to $2.55 per share" - the same EPS estimate

previously issued by the defendants in May of 2002.

162. On July 19, 2002, the Associated Press reported that UB S analyst Walter Kirchberger

said, based on guidance from the Company, he had not lowered his expectations of the Company's

per-share earnings for the year. In fact, UBS issued an analyst report on July 18, 2002 affirming,

based on the May 17, 2002 conference call, the "2002 EPS of $2.30-2.55, EBITDA of $330-355

million and annualized free cash flow of $100 million by year-end."

163. On July 22, 2002, in an Associated Press story, and again on July 31, 2002, in a PR

Newswire story, Lewis again reaffirmed the BPS target, stating: "We are confident that we will

reach our previously announced earnings targets for 2002 of $2.30 to $2.55 per share from

continuing operations." The Associated Press report also quoted Merrill Lynch analyst, Carl Kirst,

who continued to rate shares of the Company a "Strong Buy," stating that he believed (on the basis

of management's statements) that NorthWestern could meet its earnings targets, and that "operating

cash flow remains solid."

164. The statements made throughout July 2002 by Management Defendants were each

materially false and misleading when made for the reasons previously stated, as conditions in

North Western's subsidiaries had not changed and, in fact, continued to deteriorate.

165. On August 8, 2002, the Management Defendants caused NorthWestern to publish a

release on PR Newswire announcing excellent results for 2Q02, including net income from

continuing operations of $20.9 million, or $0.49 per diluted share before discontinued operations,

compared with $12.8 million, or $0.47 per diluted share in 2Q01. The release stated:

"Strong results from our energy businesses, which account for more than 70 percent ofNorth Western's operating income, coupled with outstandingperformance from our communications business, led to solid second quarter and first half results," said [defendant] Lewis .... "We are excited about the growth in cash flows from our continuing operations and remain on track to meet our previously announced full-year earnings target of $2.30 to $2.55 per share from continuing operations."

"Our improvement in operating income and cash flows is attributable to our expanded energy operations, improvements in our communications business and our successful Operational Excellence initiatives. We are projected to

-55-

generate further cash flow improvements going forward that are more than sufficient to support the funding ofplanned capital expenditures and dividends," Lewis said.

* *

"We believe strong cash flow from our energy and communications businesses provides a solid platform for generating increased earnings, funding operations and debt as well as paying dividends to our shareholders," Lewis said.

* *

"Expanets' outstanding performance during the first half of 2002 confirms the strength of our mid-market communications services business strategy.... Hylland said. "Expanets successfully reduced sales, general and administrative (SG&A) expenses as a percentage of revenues in the second quarter of 2002 to 32.7 percent from 38.6 percent of revenues in the second quarter of 2001. Despite soft market conditions, we expect Expanets to continue a strong performance in the remaining two quarters of 2002, and we are comfortable with our previously announced full-year 2002 EBITDA target of $80 to $87 million and an annualized EBITDA run rate in excess of $100 million in 2003."

Blue Dot, NorthWestern's energy-related heating, ventilation and air conditioning services provider, reported second quarter 2002 operating income of $2.4 million and EBITDA of $4.2 million, compared with operating income of $2.7 million and EBITDA of $6.8 million in the second quarter of 2001. Revenues for the second quarter of 2002 were $117.8 million, compared with $111.7 million in the second quarter of 2001.

"Blue Dot had improved performance in June 2002 with $2.8 million in EBITDA as seasonal revenues picked up and we began to see improvement resulting from our Operational Excellence initiatives," Hylland said. "Despite the impact of soft economic conditions, we are targeting improvement for Blue Dot during the second half of 2002. To drive improved results, Blue Dot is developing and implementing initiatives to accelerate sales growth and build organizational effectiveness to improve the company's ability to integrate and execute its business plan."

[Defendant] Orme ... said that the transition of independent auditors to Deloitte & Touche has gone smoothly since the firm was selected by North Western's audit committee and the Board ofDirectors in May 2002. Deloitte & Touche has nearly completed its review of North Western's second quarter results that will be filed on Form 10-Q on Aug. 14, 2002. As previously disclosed, NorthWestern implemented, effective Jan. 1, 2002, the new accounting standard, Statement of Financial Accounting Standards No. 142, Goodwill and Other Intangible Assets, which eliminates the requirement to amortize goodwill and limits amortization of other intangibles to instances where the assets have a finite determinable life. Orme said that an independent, third-party assessment has recently been completed and that North Western believes that there will be no impairment to goodwill or other intangibles resulting from the adoption of SFAS No. 142.

-56-

166. On August 8, 2002, defendants hosted a nationwide conference call with analysts and

investors, during which they made substantially similar representations and again assured investors

that North Western was on track to post FY02 EPS of $2.30 - $2.55 per share. The combined effect

of the release and the conference call again caused shares of NorthWestern to rise, climbing almost

12%, to close trading at $12.30 per share.

167. The statements made in the Company's 2Q02 release announcing earnings of $0.49

per share and during the follow-up conference call were each materially false and misleading when

made. The true facts regarding NorthWestern's financial condition and operations were known by

defendants, based upon their access to and review of internal North Western corporate data, including

and as follows:

Defendants have now restated the 2Q02 results and admitted that the financial results for the first three quarters of the fiscal year 2002, including 2Q02, were not prepared in conformity with GAAP, and because they were materially false and misleading when issued.

168. On August 14, 2002, North Western filed with the SEC its Report on Form lO-Q for

2Q02 (signed by defendant Orme), which reiterated NorthWestern's financial and operational results

reported in the August 8, 2002 press release, and provided the following disclosure with respect to

the preparation of its financial statements:

The consolidated financial statements for the interim periods included herein have been prepared by North Western Corporation (the "Corporation"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of the Corporation, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included.

169. On August 14, 2002, NorthWestern also filed a Current Report on Form 8-K to report

that defendants Lewis and Orme had "submitted to the SEC sworn statements pursuant to Securities

and Exchange Commission Order No. 4-460." The statements, in pertinent part, stated that Lewis

and Orme had reviewed the Company's SEC filings and:

• No covered report contained an untrue statement of a material fact as of the end of the period covered by such report (or in the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed); and

• No covered report omitted to state a material fact necessary to make the statements in the covered report, in light of the circumstances under which they were made, not misleading as of the end of the period covered by such report (or in

- 57 -

the case of a report on Form 8-K or definitive proxy materials, as of the date on which it was filed).

170. To further assure investors that NorthWestern's SEC filings were accurate, on

September 20, 2002, the Company announced that "Deloitte & Touche has completed a re-audit

of the company's 2001 financial statements and a review of its first half 2002 financial statements.

No changes ofpreviously reported financial information was [sic] made as a result of the re-

audit." The release stated:

"We requested that Deloitte & Touche re-audit our 2001 financial statements and review our first half 2002 results after they were appointed as our independent auditors in May 2002 following the termination of Arthur Andersen as our previous auditors. Deloitte & Touche has completed its re-audit and review and confirmed our previously issued financial statements, consistent with the CEO and CFO certifications provided to the Securities and Exchange Commission on Aug. 15, 2002, and Sept. 20,2002," said Kipp Orme, North Western's vice president and chief financial officer.

Given the highly publicized misdeeds by Andersen, this disclosure was highly material to investors.

171. The sworn statements pursuant to SEC Order No. 4-460 made by defendants Lewis,

and Orme, and the statements in the earnings release and Report on Form 10-Q were false and

materially misleading when issued. The true facts known by Management Defendants, based upon

their access to and review of internal NorthWestern information, include:

That the Reports on Form 10-Q for 1Q02 and 2Q02 filed with the SEC were not prepared in conformity with GAAP;

Deloitte's so-called "re-audit" of the Company's FY01 1Q02 and 2Q02 financial statements was conducted by essentially the same audit team at Andersen (now with Deloitte) who re-audited their own work on the previous audit; and

Defendants have now admitted that the Company's 1Q02 and 2Q02 financial statements violated GAAP and were materially false and misleading when issued.

172. On September 24, 2002, pursuant to its Shelf Registration Statement on Form S-3,

filed with the SEC on July 27, 2002, North Western filed its preliminary Prospectus Supplement with

respect to the Offering.

173. On September 30, 2002, Northwestern issued a release on the PR Newswire

announcing that the Company had commenced the public Oof ten million shares of common stock,

with a 30-day over-subscription allotment of an additional 1.5 million shares. These shares were

priced at $8.75 per share, and anticipated from the complete oversubscribed Offering were gross

MRIM

proceeds of $88.81 million. Having issued over $700 million in notes in March 2002 in connection

with asset acquisitions, which had the result of boosting debt at the Company to about $1.2 billion,

it was critical at this time that defendants issue equity. In fact, the entire proceeds of this equity

Offering were used by the Company to reduce its debt.

174. On October 1, 2002, NorthWestern filed with the SEC its Prospectus Supplement (the

"October 2002 Prospectus") in connection with the Offering. The Registration Statement and

Prospectus incorporated by reference NorthWestern's 1Q02 and 2Q02 Form 1 0-Qs. The October

2002 Registration Statement and Prospectus also contained and/or incorporated by reference

North Western's Consolidated Statements of Income, Cash Flows and Shareholders' Equity for FY00

and FY01; Consolidated Balance Sheets as of December 31, 2001; Consolidated Statements of

Income and Cash Flows for the six months ended June 30, 2001 and June 30, 2002; and

Consolidated Balance Sheet as of June 30, 2002.

175. The 11.5 million shares in the Offering were sold pursuant to the false and misleading

Registration Statement and Prospectus, filed with the SEC on or about October 3, 2002. The

registration statement provided the following statement on the consolidated operations of the

Company at that time:

Consolidated gross margin in 2001 was $654.6 million, an increase of $45.6 million, or 7.5%, from 2000 results. Gross margin in 2001 increased across all of our segments. Expanets' gross margin increased $20.5 million .... Blue Dot's gross margin increased $8.0 million as a result of acquisitions in 2001. Consolidated gross margin in 2000 was $609.0 million, an increase of $280.1 million, or 85.2%, from 1999 results. Gross margin in 2000 increased across all of our segments. Expanets' gross margin increased $237.5 million .... Acquisitions by Blue Dot also resulted in an increase in gross margin of $36.3 million.

Consolidated gross margin as a percentage of revenues in 2001 was 38.0%, compared to 35.6% in 2000 and 43.4% in 1999. Consolidated gross margin as a percentage of revenues in 2001 improved as a result of the gross margin gains described above, together with our efforts to reduce costs and increase higher-margin recurring service and maintenance revenues in our communications operations.

Consolidated operating expenses in 2001 were $751.5 million, an increase of $146.8 million, or 24.3%, from 2000 results. Operating expenses increased in each of our segments in 2001 due in part to a $24.9 million restructuring charge related to our Operational Excellence project.

Consolidated operating losses from continuing operations in 2001 were $96.9 million, compared to consolidated operating income from continuing operations in 2000 of $4.3 million. The $101.2 million change in operating income was due to a

- 59 -

$78.0 million increase in operating loss at Expanets, an $18.4 million decline in operating income at Blue Dot, and a $12.7 million increase in All Other operating loss.... [A] portion of Blue Dot's losses were allocated to Minority Interests as a result of the capital and ownership structures.

176. Rather than disclose the true adverse conditions which were negatively affecting

NorthWestern at this time, the October 2002 Registration Statement and Prospectus created the

materially false and misleading impression that the Company was meeting or exceeding guidance

sponsored and/or endorsed by defendants, and that North Western's "Business Strategy" was adhering

to defined "strategic initiatives." The Prospectus stated, in part:

Realize the economic benefits of our communications businesses. Our investment in Expanets has created one of the nation's leading providers of networked communications and data services and solutions to medium-sized businesses. Expanets' focus on being a single source provider of essential communications and data solutions at its customers' premises has enabled it to maintain a core level of recurring customer revenues. Expanets plans to generate increasing cash flows from this business through organic growth by broadening the services and products it offers, focusing on higher growth and higher margin services, building recurring maintenance and service revenues and fostering existing and developing supply relationships with the leading technology companies.

177. The Prospectus contained wholly inadequate risk disclosures that did not reveal

material adverse conditions which existed at the time of the Offering, and which portrayed such

actual conditions as mere contingencies, including the following:

Our growth strategy is subject to risks and uncertainties, including those related to the integration of acquired businesses.

A substantial part of our growth has been from acquisitions and a substantial part of future growth in our utility business may come from acquisitions. Pursuant to our growth strategy, we have evaluated and expect to continue to evaluate possible acquisitions on an ongoing basis and at any given time may be engaged in discussions or negotiations with respect to possible acquisitions or strategic investments in the energy or communications industries. Some of these acquisitions may be significant and might require us to raise additional equity and/or incur debt financings.

In addition, our acquisition activities involve the risk of successfully transitioning, integrating and managing acquired companies, including assessing the adequacy and efficiency of information, technical and accounting systems, business processes and related support functions and realizing cost savings and efficiencies from integration in excess of any related restructuring charges. We could expend a substantial amount of time and capital integrating businesses that have been acquired or pursuing acquisitions we do not consummate, which could adversely affect our business, financial condition and results of operations.

* * *

The continuing integration of the Growing and Emerging Markets, or GEM, division ofLucent Technologies, Inc. into Expanets' business could adversely affect Expanets' operations and financial condition.

Expanets is subject to risks associated with its continuing integration of the significant acquisition of the GEM division of Lucent Technologies, Inc. and other acquired businesses into its operations. Although Expanets believes that the integration is substantially complete, we cannot assure that Expanets will not be required to incur additional costs in completing this integration. To the extent Expanets incurs significant additional costs associated with the integration of the GEM business into its business, Expanets' operations and financial condition could be adversely affected.

We may not be able to fully recover transition costs, which could adversely affect our net income and financial condition.

178. The October 2002 Registration Statement and Prospectus also included the

Company's financial statement for 1Q02 and 2Q02, stating:

The unaudited pro forma combined financial information is based upon currently available information and assumptions that our management believes are reasonable.... We derived the following selected financial information for the six month periods ended June 30, 2001 and 2002 from our unaudited consolidated financial statements contained elsewhere herein, which, in the opinion of our management, have been prepared on the same basis as the audited financial statements and reflect all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of our results of operations and financial position for such periods.... The consolidated financial statements for the interim periods included herein have been prepared by North Western Corporation (the "Corporation"), without audit, pursuant to the rules and regulations of the Securities and Exchange Commission ("SEC"). In the opinion of the Corporation, all adjustments necessary for a fair presentation of the results of operations for the interim periods have been included.

179. Rather than disclosing that NorthWestern was incapable of funding operations

through internal generation of cash flow (but was instead relying on the acquisition and liquidation

of acquired properties to fund operations), the October 2002 Registration Statement stated:

We generate cash to fund our operations through a combination of cash flows from current operations, the sale of our securities and our borrowing facilities.

We expect to generate net positive cash flows from operations for the balance of 2002 and to fund our day to day operations through our operating cash flows and our current cash and cash equivalents. Operating cash flows are expected to increase in 2002 as a result of our Operational Excellence initiatives, reduced integration and transition expenses and incremental operating cash flows from NorthWestern Energy LLC's Montana operations.

-61-

180. The October 2002 Registration Statement and Prospectus also represented that

defendants had regularly adjusted property, goodwill and other intangible assets to ensure that they

were properly valued and accounted for:

The excess of the cost of businesses acquired over the fair value of all tangible and intangible assets acquired, net of liabilities assumed, has been recorded as goodwill.

The Corporation 'spolicy is to review property, goodwill andother intangible assets for possible impairment whenever events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable as measured by the comparison of the carrying amount of an asset to future net cash flows expected to be generated by the asset. If such assets are considered impaired, the impairment recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell. If such review indicates that the carrying amount is not recoverable, the Corporation's policy is to reduce the carrying amount of these assets to fair value.

181. The foregoing registration statement contained false and misleading statements as it

did not disclose, among others:

• That the financial information for 1Q02 and 2Q02 did not reflect all adjustments to present a fair representation of the company's financial statements and operations.

182. On November 7, 2002, NorthWestern issued a release on the PR Newswire

announcing results for 3Q02. The release revealed, for the first time, that the Company was

operating well below the guidance that defendants had affirmed, reaffirmed and then reaffirmed

again and again throughout the Class Period— including in connection with the October 2002 $88

million Offering. According to defendant Orme, "[a] s a result of these lower projections and after

adjusting for the October 2002 Offering of additional common shares, North Western is forecasting

full-year earnings per share from continuing operations in the range of $1.50 to $1.60per share,

compared to current consensus market forecasts of $2.30 per share."

183. Following the publication o fthese substantially revised projections for a year that was

already in its eleventh month, defendants hosted a nationwide conference call. While this call was

made under the pretext of providing more information to investors, in fact, the transcript of this

conference call reads like a carefully scripted public relations piece, designed to obscure rather than

illuminate the truth. According to the transcript, after almost seven pages of "highlights" from the

quarter, defendant Orme finally stated, that:

-62-

Speaking to the full year forecast, we are now projecting EPS ofsomewhere in the neighborhood of $1.50-$1.60. Again there are really three principle drivers of the decrease in the forecast. First and foremost the change in minority interest accounting policy as well as the reduced targets at Expanets and Blue Dot. And finally, the October offering that the dilution that had on our EPS was greater [than] what was originally anticipated so we factored that into our revised full year forecast.

184. Following this partial disclosure, the Company purportedly opened the floor to

analysts' questions. What followed was an example of Wall Street at its most corrupt. The three

underwriters of the Company's $88 million one-month old Offering, who were obviously pre-

selected to ask defendants questions about this remarkable about-face, lined up to soft-ball the

Company about inane minutia, and thereby allowed defendants to avoid having legitimate analysts

demand an explanation for defendants' outrageous campaign of deceit which had not yet been fully

disclosed.

185. Following this sudden and shocking disclosure that the Company would not hit its

EPS targets, the price of NorthWestern securities declined substantially, with North Western common

stock trading almost 20% lower, i.e., $7.25 per share, on November 7, 2002, from $8.78 the prior

day. At this time, however, NorthWestern securities continued to trade at artificially inflated levels,

as defendants did not disclose that in fact they had been "cooking the books" at Expanets and Blue

Dot. Rather, defendants attempted to effectuate a "soft landing" by slowly revealing over time the

truth about the status of NorthWestern's operations.

186. Notably, the same day that the Company revealed that it would not post FY02 EPS

at $2.30- $2.55 as previously represented by defendants, but rather would report EPS as much as

40% less, Nowell, who hadj oined the Company as a director only months before, on August 7, 2002,

announced that he was leaving NorthWestern, purportedly due to the expansion of his duties at

Pepsico. Nowell's tenure on the Board of NorthWestern was unusually short, making the

circumstances surrounding his departure very suspicious. Despite Nowell's explanation, it would

soon become obvious to all why Nowell ran away from this Company. What emerged from the

shadows of North Western was frightening.

187. On November 14, 2002, NorthWestern filed with the SEC its Report on Form 10-Q

for 3Q02 (signed by defendant Orme), which reiterated its financial and operational results reported

- 63 -

in the November 7, 2002 release. The Report on Form 10-Q included certifications signed by

defendants Lewis and Orme pursuant to §302 of the Sarbanes-Oxley Act.

188. On December 13, 2002, the Management Defendants revealed additional adverse

information which gave further insight into the true impaired operational and organizational

condition of NorthWestern. That day, the Management Defendants revealed that they could not

possibly obtain their revised earnings guidance of $1.50 to $1.60 per share - that they had

published less than 30 days before - because of the significant but heretofore undisclosed problems

at their Expanets and Blue Dot subsidiaries. That day, the Company issued a release on the PR

Newswire.

(a) The release stated:

Sioux Falls, S.D. - Dec. 13, 2002- NorthWestern Corporation (NYSE:NOR) today announced that it will miss previously disclosed earnings estimates for full-year 2002 of between $1.50 to $1.60 per share from continuing operations. The expected lower 2002 results stem from North Western need to significantly increase reserves for accounts receivable and billing adjustments at its communications services business, Expanets, and lower than expected operating performance at Expands and Blue Dot, the Company's heating, ventilation and air conditioning business.

In connection with its year-end audit, North Western is also undertaking SFAS Nos. 142 and 144 reviews of the value of intangible assets of Expanets and Blue Dot. Due to the increase in reserves at Expanets and current operating performance of Expanets and Blue Dot, NorthWestern may recognize a substantial impairment of goodwill and other intangible assets for these businesses and take a noncash charge that would materially affect NorthWestern's 2002 operating results. Until the Company completes its year-end closing and audit process, NorthWestern will be unable to provide actual full-year 2002 results.

* * *

As a result of continued soft market conditions in the communications sector in the fourth quarter of 2002 and the anticipated increase in reserves, North Western expects earnings before interest, taxes, depreciation and amortization (EBITDA) for Expanets for 2002 to fall substantially below the previously announced range of $73 million to $80 million.

The Company also expects EBITDA at Blue Dot to be slightly lower than previously anticip atedfor the fourth quarter of2002 and, as a result, projects that EBlTDAforfull-year 2002 willfall below the previously announced range of $13 million to $16 million.

.4

(b) For the first time the Management Defendants revealed that investors could

not rely on the adequacy of the Company Is reserves for bad Expanets accounts. In this regard, the

release stated:

North Western is currently evaluating the adequacy ofreserves atExpanets for the collection of accounts receivable and billing adjustments related to previously disclosed billing lapses and data conversion issues in customer accounts stemmingfrom the implementation of Expanets'enterprise software platform . In addition, Expanets expects to reflect a reduction in both maintenance and core services revenues in its fourth quarter 2002 results. North Western has determined it will increase receivable and other reserves at Expanets by at least $50 million. The Company may determine after it has completed its evaluation as a part of its year-end closing and audit process that it is necessary to further increase reserves, as well as to determine the impacts, if any, to prior reported quarterly results for 2002. The anticipated increase in reserves, and any additional increases, will adversely affect North Western and Expanets' results.

(c) This release further warned investors that additional goodwill charges might

be required:

NorthWestern is in the process of conducting its annual assessment of goodwill and other indefinite life intangible assets under Statement of Financial Accounting Standards No. 142 and other intangible assets under Statement of Financial Accounting Standards No. 144. The SFAS Nos. 142 and 144 analyses could result in a substantial impairment ofgoodwil and other intangible assets at Blue Dot and Expanets and the incurrence of a significant noncash charge relating to a write-down ofgoodwill and other intangible assets as a result oflower than previously anticipated earnings and increased reserves. The assessment and determination under SFAS Nos. 142 and 144 will be made by the Company in consultation with its independent valuation specialists and with its auditors in connection with their audit of the Company's 2002 financial statements following year-end. A significant noncash charge would adversely affect NorthWestern's net income for 2002.

189. Following defendants' belated and shocking disclosure, North Western securities fell

once again over 30% to as low as $4.95 per share - the lowest level since December 1984. The

following trading day, December 16, 2002, of NorthWestern securities traded even lower as

investors digested defendants' belated disclosures. All told, the falling price of NorthWestern

common stock represented a decline of over 80% from its Class Period high of $23.64 per share on

March 19, 2002.

190. Defendants, however, still had not revealed the extent of their accounting gimmickery

or the financial condition of Blue Dot and Expanets.

- 65 -

191. The following day, December 14, 2002, the Great Falls Tribune published a report

which stated:

Shares of the Sioux Falls, S.D.-based company closed at $5, down $2.61 per share in one day, or nearly 35 percent. North Western Corp. has lost more than two thirds of its value this year.

* * *

"This is a company that is really loaded up with debt," said one analyst who formerly tracked the company. "What they are telling us is that what they paid or invested in these businesses is not worth what they paid for it. That's why they're taking the write-off"

The manager of an investment group that recently sold its shares of NorthWestern also told Bloomberg news service Friday that North Western has "embarked on a strategy of complete failure."

"When we met with them (several weeks ago), it was very clear management was living in denial," said Ben Peress of Peress Investment Advisors.

192. By December 24, 2002, NorthWestern executives, including Charters and Younger,

were actively discussing whether they could successfully continue to conceal that North Western's

previously reported financial results had been the result of accounting manipulations or whether they

would be forced to restate the Company's financial results.

193. On January 17, 2003, the Company announced that defendant Lewis' employment

with North Western was being terminated. Lewis was succeeded on an interim basis by Drook, the

Chairman of the Company's governance committee of the Board of Directors.

194. By January 14, 2003, the Associated Press reported that Fitch Rating Service had

downgraded almost all of the Company's debt to junk status, meaning that NorthWestern would

have a much more difficult time and pay higher interest when borrowing money. In addition, the

Associated Press reported that:

NorthWestern's debt and preferred shares total an estimated $1.9 billion, while the utility division's fixed assets have a book value of about $1.6 billion.

Fitch senior director Hugh Welton in New York City said marginal performance of the corporation's two unregulated subsidiaries - its telecommunications arm, Expanets, and its heating, ventilating and air conditioning business, Blue Dot - also were factors in the downgrade.

'S

195. Defendants, however, continued to conceal the fact that defendant Blue Dot was

going to run out of cash. As a result, Newell had - out of desperation - ordered Blue Dot to stop

paying its bills because it allowed the Company to accumulate approximately $13 million in cash

by the end of March 2003.

196. On February 6,2003, NorthWestern dropped yet another bombshell on shell-shocked

new securities holders, revealing that, for the first time in 56 years, the Company might not pay a

common stock dividend. The release stated that a final decision on whether to do so would await

completion of the Company's 4Q02 and FY02 results. On this news, the trading volume immediately

spiked to over 1 million shares over the next two trading days and North Western's common stock

fell by 24%, dropping from $4.90 per share to close at $3.74 per share on February 7, 2003, while

North Western preferred securities fell over the next trading days to less than $15.00 per share.

197. On February 19, 2003, Management Defendants revealed more bad news about the

Company, issuing a release on the PR Newswire announcing that North Western would take a charge

of at least $700 million - much larger than previously announced - and that the Company would

definitely suspend its dividend. In addition, the release described a turnaround plan that was

intended to pay off the massive debt it had incurred in funding Blue Dot's and Expanets' operations,

and "return the Company's focus to its core electric and natural gas utility business." The release

further announced the hiring of John Van Roden to oversee the turnaround. In addition, the release

stated:

Background and Elements of Plan

As part of a diversification strategy aimed at accelerating revenue growth, North Western compiled approximately $1 billion in debt over the past several years to finance acquisitions of several nonregulated businesses. Three of those acquired businesses, CornerStone Propane (a retail propane business), Expanets (a provider of networked communications solutions) and Blue Dot (a heating, ventilation and air conditioning business) have failed to meet performance expectations, which has adversely impacted the Company's overall financial performance.

In keeping with the debt reduction focus, North Western's Board ofDirectors suspended its common stock dividend in order to utilize the cash to pay down debt.

198. Although NorthWestern had paid uninterrupted dividends since 1947, and had paid

a dividend of $1.27 per share in 2001, the Company announced that, as a result of its abysmal

-67-

financial condition, it would be forced to discontinue its dividend and that as a result of other

material problems the Company would be forced to take a $700 million charge. NorthWestern

common stockfrll an additional 17%, trading at a low of $2.50 per share on Februaty 19, 2003

- a decline of almost 90% from the Class Period high of $23.64 per share on March 19, 2002. The

current valuation means that all of North Western's 37.4 million shares of stock are worth less than

$100 million - the approximate amount of cash the Company reports to have on hand. Defendants,

however, had not revealed the enormity of the charge they would be forced to take ($880 million in

charges) and the complete lack of financial controls at NorthWestern.

199. On March 7, 2003, NorthWestern shareholders were battered once again when the

Company announced that John Van Roden - the "turnaround expert" - had resigned from the

Companyjust three days after having joined NorthWestern on February 17, 2003.

200. On April 1, 2003, before the market opened, defendants revealed that the full

impairment charge was almost 20% - $110 million - larger than previously disclosed.

North Western issued a release on PR Newswire which stated that in addition to taking a charge of

at least $880 million, the Company had delayed the filing of its year-end financial statements with

the SEC, and that the Company had again revised guidance downward for the following year. The

release stated:

Sioux Falls, S.D. - April 1, 2003 - NorthWestern Corporation (NYSE:NOR) today announced that it will file a Form 12b-25 with the Securities and Exchange Commission which provides for a 15-day extension to file its Annual Report on Form 10-K for the year ended Dec. 31, 2002. In its filing, NorthWestern further updated projected 2002 charges to approximately $880 million. In addition, the Company said it is evaluating internal accounting and financial controls and is implementing a series of actions to address identified deficiencies.

2002 Charges Update

As NorthWestern continues to finalize its financial results for the year ended 12/31/02, it is anticipating approximately $880 million in charges will be taken against full-year results. As of 2/19/03, the Company estimated that it expected to take approximately $700 million in charges. The difference in the previously announced guidance is a result of the following:

Impairment of goodwill and other long-lived assets charges of approximately $302 million forBlue Dot, the Company's heating, ventilation and air conditioning business, compared with a previous projected charge of $280 million.

sm

• Impairment of goodwill and long-lived assets charges of approximately $289 million for Expanets, the Company's communications services business, compared with a previous projected charge of $245 million.

• Approximately $72 million charge for a tax valuation allowance due to the uncertainty of realizing deferred tax assets associated with Blue Dot and Expanets.

• Approximately $36 million charge to writedown the Company's investment in the Montana First Megawatts generation project.

• Reserves and write-offs ofapproximately $66 million at Expanets for billing adjustments and accounts receivable related to billing and data conversion issues in customer accounts stemming from significant implementation difficulties with Expanets' enterprise software system. The Company had previously projected at least $50 million in reserves and write-offs.

* *

Evaluating Internal Financial Controls and Implementing Changes to Address Deficiencies

NorthWestern said that to assure itself that the information presented in its 2002 Form 10-K complies with the requirements of federal securities laws and regulations, the Company is conducting an ongoing evaluation of deficiencies in internal controls relating to:

timely evaluation and substantiation of material account balances;

internal accounting controls related to Expanets' enterprise software system, including the evaluation of appropriate reserves for accounts receivable and billing adjustments; and

supervision, staffing and training of accounting personnel.

As a result of this ongoing evaluation and review of certain accounting entries, North Western said it expects to restate prior unaudited quarterly results for the first three quarters of 2002

North Western has dedicated resources to correct these issues and enhance the understanding and implementation of the Company's controls and procedures. With the assistance of advisors, North Western is continuing to evaluate further improvements to internal accounting andfinancial controls. The Company is also implementing the following corrective actions and additional procedures

Retention of outside professional advisors to evaluate the Company's existing internal controls and make suggestions for improvements.

Retention of additional qualified personnel in accounting positions, as well as more clearly defined responsibilities, supervision and training of existing accounting personnel.

Taking prompt disciplinary action, if necessary, to strengthen adherence to the Company's Sarbanes-Oxley compliance procedures.

'S

Enhancement of the internal audit department.

Additional management oversight and use of outside resources to supplement its employees in preparing consolidated financial statements and other reports filed or submitted under the Securities and Exchange Act of 1934.

* * *

Other Actions Related to the Delayed 2002 10-K Filing

Because of the delayed filing of its 2002 Annual Report on Form 10-K, NorthWestern said it will miss the deadline for providing 2002 audited financial statements to its lenders as required under the Company's senior secured term loan facility. The Company expects to file its Form 10-K and submit its audited financial statements to its lenders within the 30-day cure period provided for such defaults in the senior secured term loan facility.

201. Finally, on April 15, 2003, the end of the Class Period, North Western filed its Report

on Form 10-K and Amended Reports on Forms 10-Q for 1Q02, 2Q02, and 3Q02.

202. The Report on Form 10-K disclosed that not only had the Management Defendants

hidden $880 million dollars of accounting adjustments and overstated North Western's FY02 earnings

by more than $50 million, while the Management Defendants rewarded themselves with millions

of dollars of bonuses based upon North Western's purportedly "strong" performance, but that they

NorthWestern would have to restructure its debt in order to even survive as a going concern.

Defendants also finally admitted that the Company had deficiencies in its internal controls relating

to the "timely evaluation and substantiation of material account balances and supervision, staffing,

and training of accounting personnel." The Report on Form 10-K also included a detailed, and

sometimes candid, explanation of the problems besetting the Company, including the fact that:

blur non-energy businesses has been very disappointing. They have adversely impacted our overall results ofoperations,financial condition and liquidityfor the past three years. ... We have written off our investment in CornerStone and have written off substantially all of our investments in Expanets and Blue Dot.

The performance of Expanets, Blue Dot, and CornerStone has not met our expectations. It has become increasingly apparent that we will never recover our investments in these entities and that these entities will not generate cash flows in sufficient amounts to provide meaningful contributions to our debt service.

-70-

FALSE FINANCIAL STATEMENTS

203. As detailed above, defendants caused North Western to falsely state the Company's

earnings, and to violate GAAP and SEC rules by overstating North Western's assets and revenues,

understating operating expenses and overstating net income. In addition, contrary to representations

and certifications, NorthWestern had deficient internal and financial controls. The accounting

manipulations included:

(i) failing to record impairment on goodwill as required by GAAP;

(ii) improper revenue recognition on billings through the EXPERT system;

(iii) improper revenue recognition using the percentage of completion method;

(iv) improper purchase price allocation relating to the acquisition assets of The Montana Power Company;

(v) improper and manipulative allocations of losses to minority shareholders of Blue Dot and Expanets; and

(vi) improper accruals of rebates, vendor settlements, bonus accruals and other items.

204. North Western has admitted to the following falsified financial information for 2002:

1Q03 2Q02 3Q02

Revenues

As reported $480.1M $515.7M $509.3M

As restated $456.1M $494.8M $501.4M

Gross Profit

As reported $210.4M $253.9M $248.6M

As restated $188.7M $237.7M $244.1M

Income (loss) from Continuing Operations

As reported $24.OM $20.9M $14.6M

As restated $7.3M ($8.8M) $.6M

205. The Company's results prior to 2002 were also materially false and misleading.

206. North Western included its false financial statements and results in press releases and

in its SEC filings. The SEC filings represented that the financial information presented therein was

- 71 -

a fair statement of NorthWestern's financial results and that the results were prepared in accordance

with GAAP.

207. These representations were false and misleading as to the financial information

reported, as such financial information was not prepared in conformity with GAAP, nor was the

financial information a "fair representation" of NorthWestern's financial condition and operations,

causing the financial results to be presented in violation of GAAP and SEC rules.

208. Regulation S-X [17 C.F.R. §210.4-01 (a)( 1)] states that financial statements filed with

the SEC which are not prepared in compliance with GAAP are presumed to be misleading and

inaccurate. Regulation S-X requires that interim financial statements must also comply with GAAP,

with the exception that interim financial statements need not include disclosure that would be

duplicative of disclosures accompanying annual financial statements.

Failure to Record Impairment of Goodwill

209. North Western overstated its assets and income throughout the Class Period by failing

to record charges for impairment of goodwill as required by GAAP.

210. GAAP, as set forth in FASB Statement of Standards ("SFAS") No. 121, requires that

companies review long lived assets, including goodwill, to determine if the assets are impaired.

SFAS No. 121, ¶115-6 :

5. The following are examples of events or changes in circumstances that indicate that the recoverability of the carrying amount of an asset should be assessed:

a. A significant decrease in the market value of an asset

b. A significant change in the extent or manner in which an asset is used or a significant physical change in an asset

C. A significant adverse change in legal factors or in the business climate that could affect the value of an asset or an adverse action or assessment by a regulator

d. An accumulation of costs significantly in excess of the amount originally expected to acquire or construct an asset

e. A current period operating or cash flow loss combined with a history of operating or cash flow losses or a projection or forecast that demonstrates continuing losses associated with an asset used for the purpose of producing revenue.

-72-

6. If the examples of events or changes in circumstances set forth in paragraph 5 are present or if other events or changes in circumstances indicate that the carrying amount of an asset that an entity expects to hold and use may not be recoverable, the entity shall estimate the future cash flows expected to result from the use of the asset and its eventual disposition. Future cash flows are the future cash inflows expected to be generated by an asset less the future cash outflows expected to be necessary to obtain those inflows. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount of the asset, the entity shall recognize an impairment loss in accordance with this Statement. Otherwise, an impairment loss shall not be recognized; however, a review of depreciation policies may be appropriate.

211. The Management Defendants used inflated forecasts to obtain the results they desired

from the impairment analysis required by SFAS No. 121. In fact, the five-year forecasts were a "top-

down" approach wherein Hylland told subsidiaries what the forecasted numbers had to be. The

forecasts showed much higher future revenues and income from the Company's comprising goodwill

than were achievable. The forecasts were not reasonable. By using false and unreasonable forecasts,

NorthWestern was able to avoid reflecting any impairment in its analysis of goodwill and hence

avoid recording losses from write-downs. The appraisal company NorthWestern used, American

Appraisals, was used because American Appraisals agreed to sign off on any assumptions

Northwestern submitted.

212. Moreover, much of NorthWestern's goodwill was impaired on the date of requisition

due to the defendants' practice of intentionally overpaying for acquisitions to generate additional

minority interests to which they could allocate losses.

213. Ultimately, NorthWestern recorded charges of $878.5 million in 4Q02, including

$301.7 million to reflect impairment ofBlue Dot's goodwill and $288.7 million to reflect impairment

of Expanet's goodwill.

Improper Revenue Recognition Billings

214. During the Class Period, NorthWestern recorded revenue based on improperly

prepared billings, such that collectibility was not probable.

215. GAAP, as described by Financial Accounting Standards Board ("FASB") Statement

of Concepts No. 5 ("FASCON"), requires that revenue be both earned and realizable (collectible)

prior to recognition. See FASCON No. 5, ¶J83-84. GAAP as set forth in FASCON No. 5, states

that:

-73-

Losses from uncollectible receivables shall be accrued when both conditions in paragraph 8 are met. Those conditions may be considered in relation to individual receivables or in relation to groups of similar types of receivables. If the conditions are met, accrual shall be made even though the particular receivables that are uncollectible may not be identifiable.

216. During the Class Period, the use of the EXPERT system rendered NorthWestern

unable to produce bills on a timely basis such that the bills were not collectible. Nonetheless,

NorthWestern recorded revenue. The Company also failed to record losses for uncollectible

receivables on a timely basis. NorthWestern failed to record the following amounts of bad debt

expense:

1Q02 2Q03 3Q02

$5.2M $5.1M $6.3M

217. As the Company's second amendment to the 2Q02 Report on Form 10-Q, filed in

2003, stated:

Management determined that revenues and accounts receivable were misstated due to complications experienced at our subsidiary, Expanets, Inc., or Expanets. Expanets experienced numerous complications with its new EXPERT system, particularly with billings and collections. Expanets took several steps to manage the system complications, however, it continued to experience billing complications throughout 2002, including an inability to produce bills in a timely manner with correct billing information, and an inability to produce reliable accounts receivable or collection information. In particular, Expanets identified certain maintenance billing issues that required reversal of previously recorded maintenance revenue. Additionally, management determined that additional adjustments were required to increase the allowance for uncollectible accounts. Adjustments impacting the three months ended March 31, 2002 have been reflected in the restated financial statements included in this Amendment No. 2.

218. Ultimately, the Company has restated its results to reverse the improper revenue

recognition, reducing its previously reported revenues and increasing its previously reported

expenses.

Improper Revenue Recognition Under Percentage of Completion

219. NorthWestern improperly recorded revenue under the percentage of completion

method of accounting even though it did not have adequate support for estimates.

220. GAAP, as set forth in American Institute of Certified Public Accountants ("AICPA")

Statement of Position ("SOP") 81-1, states that the percentage of completion method of accounting

-74-

may only be used where there is the ability to make reasonably dependable estimates as to total

revenues, total costs and the extent of progress toward completion. SOP 81-1.23. Where an entity

cannot make reasonable estimates it should use the completed contract method of accounting where

income is recorded once the contract has been completed. SOP 81-1.25 states in part:

An entity using the percentage-of-completion method as its basic accounting policy should use the completed-contract method for a single contract or a group of contracts for which reasonably dependable estimates cannot be made or for which inherent hazards make estimates doubtful. Such a departure from the basis policy should be disclosed.

221. North Western has now properly admitted that during the Class Period it did not have

the ability to make reasonable estimates of the components for which it recognized revenue under

the percentage of completion method, such that it should have used the completed contract method.

The second amended Report on Form 10-Q for the 2Q02 stated in part:

During our 2002 year-end closing process, it was determined that we were unable to provide adequate information to support recording certain revenues on a percentage of completion basis, and therefore, required adjustments to record projects on the completed contract revenue recognition methodology that was in place prior to 2002. Adjustments impacting the three and nine months ended September 30, 2002 have been reflected in the restated financial statements included in this Amendment No. 2

Improper Purchase Price Allocation Relating to Montana Power

222. On February 15, 2002, NorthWestern completed the acquisition of Montana Power

for $478 million in cash and the assumption of $511 million of debt and other securities.

North Western initially did not allocate any portion of the purchase price to goodwill, with all of the

amount being allocated to property and equipment. North Western has since admitted that it

allocated $400 million to goodwill and reduced property and equipment by $398 million. As a

result, North Western's property and equipment was overstated during 2002.

Improper Allocations of Losses to Minority Interests

223. North Western improperly allocated losses to minority shareholders of Blue Dot. The

very structure of Blue Dot was designed and utilized by defendants to shift losses off of

NorthWestern's books.

224. Blue Dot was formed by NorthWestern in July 1997 under the name ServiCenter

USA, Inc. It changed its name to Blue Dot in 1998. As of December 31, 1999, NorthWestern

- 75 -

controlled 96.9% of Blue Dot's common and preferred stock. Blue Dot made acquisitions of many

other companies between 1998 and 2002 using cash and common stock. The common stock issued

to third parties in connection with these acquisitions created minority interests which were junior to

North Western's preferred stock interests. Operating losses at Blue Dot were allocated first to the

common shareholders of Blue Dot. NorthWestern created this structure to move losses off its books.

This increased North Western's income in 2000 and beyond. NorthWestern allocated these losses

to the extent that common shareholders' basis in Blue Dot was reduced such that no more losses

could be allocated.

225. The Company has subsequently admitted that some losses allocated to minority

interests were improper and has reversed those allocations.

Improper Reductions of Operating Expenses

226. The Company's Costs of Sales and Selling, General and Administrative ("SG&A")

expenses were manipulated during the Class period due to unsupported entries for vendor rebates,

vendor settlements, bonus accruals and other items.

227. As noted above, GAAP permits the recognition of income only when it is both earned

and is realizable (collectible). See FASCON No. 5, ¶83. The Company has subsequently increased

expenses in the 2Q02 and 3Q02 to reflect accruals that should have been made but were not.

North Western's Restatement Is an Admission of Falsity

228. As detailed above, the fact that NorthWestern revised and restated downward its

revenues and net income is an admission that the financial statements originally issued were false

and that the misstatements were material.

229. Pursuant to GAAP, asset forth in Accounting Principles Board Opinion ("APB") No.

20, the type of restatements and revisions announced by North Western were to correct for material

errors in previously issued financial statements. APB No. 20, ¶J7-13. The restatement of past

financial statements is a disfavored method of recognizing an accounting change as it dilutes

confidence by investors in the financial statements, it makes it difficult to compare financial

statements and it is often difficult, if not impossible, to generate the numbers when restatement

occurs. APB No. 20, ¶14. Thus, GAAP provides that financial statements should only be restated

-76-

in limited circumstances, i.e., when there is a change in the reporting entity, there is a change in

accounting principles used or to correct an error in previously issued financial statements.

North Western's restatements and revisions were not due to a change in reporting entity or a change

in accounting principle, but rather to errors in previously issued financial statements. Thus, the

restatements and revisions were an admission by NorthWestern that its previously issued financial

results and its public statements regarding those results were false and misleading.

230. Due to these accounting improprieties, NorthWestern presented its financial results

in a manner that was false and violated GAAP, including the following fundamental accounting

principles:

The principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions was violated (FASCON No. 1, ¶34);

The principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and effects of transactions, events and circumstances that change resources and claims to those resources was violated (FASCON No. 1, ¶40);

The principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners (stockholders) for the use of enterprise resources entrusted to it was violated. To the extent that management offers securities of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and the public in general (FASCON No. 1, ¶50);

The principle that financial reporting should provide information about an enterprise's financial performance during a period was violated. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (FASCON No. 1, ¶42);

The principle that financial reporting should be reliable in that it represents what it purports to represent was violated. That information should be reliable as well as relevant is a notion that is central to accounting (FASCON No. 2, ¶1158-59);

The principle of completeness, which means that nothing is left out of the information that may be necessary to insure that it validly represents underlying events and conditions was violated (FASCON No. 2, ¶79); and

The principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered was violated. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (FASCON No. 2, ¶1195 , 97).

-77-

231. Further, the undisclosed adverse information concealed by defendants during the

Class Period is the type of information which because of SEC regulations, regulations of the national

stock exchanges and customary business practices, is expected by investors and securities analysts

to be disclosed and is known by corporate officials and their legal and financial advisors to be the

type of information which is expected to be and must be disclosed.

ADDITIONAL SCIENTER ALLEGATIONS

232. As alleged herein, North Western and the Management Defendants acted with scienter

in that the Management Defendants knew that the public documents and statements issued or

disseminated in the name of the Company were materially false and misleading; knew that such

statements or documents would be issued or disseminated to the investing public; and knowingly and

substantially participated in the issuance or dissemination of such statements or documents as

primary violations of the federal securities laws. As set forth elsewhere herein in detail, defendants,

by virtue of their receipt of information reflecting the true facts regarding NorthWestern, their

control over, and/or receipt and/or modification of NorthWestern's allegedly materially misleading

misstatements and/or their associations with the Company which made them privy to confidential

proprietary information concerning North Western, actually participated in the fraudulent scheme

alleged herein.

233. Each of the defendants is liable as a participant in a fraudulent scheme and course of

business that operated as a fraud or deceit on purchasers ofNorthWestern securities by disseminating

materially false and misleading statements and/or concealing material adverse facts. The scheme:

(i) deceived the investing public regarding NorthWestern's business, operations, management and

the intrinsic value of North Western securities; (ii) enabled North Western to sell almost $375 million

worth of NorthWestern common and preferred stock to the unsuspecting public via four registered

offerings which took place during the Class Period; (iii) enabled the Company to issue and sell over

$700 million in debt; (iv) allowed top management who participated in a "private-equity" company

that engaged in business with North Western and its subsidiaries which diverted over $3 million to

the Management Defendants in illicit proceeds; and (v) caused plaintiffs and other members of the

Class to purchase North Western securities at artificially inflated prices.

234. Because of the Management Defendants' positions with the Company, they had access

to the adverse undisclosed information about its business, operations, products, operational trends,

financial statements, markets and present and future business prospects via access to internal

corporate documents (including the Company's operating plans, budgets and forecasts and reports

of actual operations compared thereto), conversations and connections with other corporate officers

and employees, attendance at management and Board of Directors' meetings and committees thereof

and via reports and other information provided to them in connection therewith.

235. For example:

Defendants Lewis, Hylland, Newell and Orme all were members of Blue Dot's and Expanets Board of Directors.

Prior to 3Q02, Monaghan was the former Utility Accounting VP of Finance, where he regularly interacted with Corporate accounting staff. Following the Montana Power acquisition, Monaghan relocated to MT and headed up the management of this business.

Hylland and Orme established earnings forecasts intended to meet or exceed market expectations, and then ordered their mignons Gjoorvas and Neeman to establish internal forecasts to support that. The process by which earnings forecasts were established was well known throughout the company.

Throughout the Class Period, Hylland, Lewis, Newell, Monaghan, Whitesel and Orme each received monthly Management Reports and attended monthly management meetings at which the financial performance of Blue Dot and Expanets were discussed in detail. The reports disclosed that neither Blue Dot nor Expanets were meeting performance goals on which NorthWestern's financial forecasts had been based. The Management Reports also described other problems at the subsidiaries, including the growing number of outstanding accounts receivable at Expanets and the problems with its EXPERT software system. The problems with the EXPERT system were also detailed in weekly reports beginning in mid-2002.

A 142 Analysis completed in 1Q02 and provided to Hylland, Orme and other senior executives showed that Blue Dot's goodwill was impaired as of that time, even under the unrealistically inflated performance goals Hylland and Orme established for Blue Dot, yet the Management Defendants refused to take a writeoff for impairment of goodwill until 5/03.

In mid-June, 2002, the entire Blue Dot accounting and finance organization was moved from Florida to North Western's Sioux Falls headquarters, in order to ensure that Hylland and Orme could keep an even closer eye on Blue Dot's financial condition.

Hylland was involved in setting up and overseeing the NorthWesternlAA consulting agreements wherein AA was paid enormous sums of money by NorthWestern to agree to create and validate the accounting methodlogies and practices complained of herein.

- 79 -

Lewis and Newell traveled to each of the various newly acquired Blue Dot and Expanets locations, and also participated, with Hylland and others, in weekly conference calls to discuss planned Blue dot acquisitions. Newell was charged with heading up the effort to get the Blue Dot and Expanets offices "going" and "working right."

236. It is appropriate to treat the Individual Defendants as a group for pleading purposes

and to presume that the false, misleading and incomplete information conveyed in the Company's

public filings, press releases and other publications as alleged herein are the collective actions of the

narrowly defined group of defendants identified above.

237. As officers and controlling persons ofa publicly held company whose common stock

was, and is, registered with the SEC pursuant to the Exchange Act, and was traded on the New York

Stock Exchange (the "NYSE"), and governed by the provisions of the federal securities laws, the

Individual Defendants each had a duty to disseminate promptly, accurate and truthful information

with respect to the Company's financial condition and performance, growth, operations, financial

statements, business, products, markets, management, earnings and present and future business

prospects, and to correct any previously issued statements that had become materially misleading

or untrue, so that the market price of the Company's securities would be based upon truthful and

accurate information. The Individual Defendants' misrepresentations and omissions during the Class

Period violated these specific requirements and obligations.

238. The Management Defendants participated in the drafting, preparation, and/or approval

of the various public and shareholder and investor reports and other communications complained

of herein and were aware of, or recklessly disregarded, the misstatements contained therein and

omissions therefrom, and were aware of their materially false and misleading nature. The

Management Defendants, because of their positions of control and authority as officers and/or

directors of the Company, were able to and did control the content of the various SEC filings, press

releases and other public statements pertaining to the Company during the Class Period. Each

Officer Defendant was provided with copies of the documents alleged herein to be misleading prior

to or shortly after their issuance and/or had the ability and/or opportunity to prevent their issuance

or cause them to be corrected. Accordingly, each of the Management Defendants is responsible for

the accuracy of the public reports and releases detailed herein and is therefore primarily liable for

the representations contained therein.

CLASS ACTION ALLEGATIONS

239. Plaintiffs bring this action as a class action pursuant to Federal Rule of Civil

Procedure 23(a) and (b)(3) on behalf of a class consisting of all those who purchased the securities

of North Western between August 2, 2000 and April 15, 2003, inclusive (the "Class") and who were

damaged thereby. Excluded from the Class are defendants, the officers and directors of the

Company, at all relevant times, members of their immediate families and their legal representatives,

heirs, successors or assigns and any entity in which defendants have or had a controlling interest.

240. The members of the Class are so numerous that joinder of all members is

impracticable. While the exact number of Class members is unknown to plaintiffs at this time and

can only be ascertained through appropriate discovery, plaintiffs believe that there are hundreds or

thousands of members in the proposed Class. Record owners and other members of the Class may

be identified from records maintained by North Western or its transfer agent and may be notified of

the pendency of this action by mail, using the form of notice similar to that customarily used in

securities class actions.

241. Plaintiffs' claims are typical of the claims of the members of the Class as all members

of the Class are similarly affected by defendants' wrongful conduct in violation of federal law that

is complained of herein.

242. Plaintiffs will fairly and adequately protect the interests of the members of the Class

and have retained counsel competent and experienced in class and securities litigation.

243. Common questions of law and fact exist as to all members of the Class and

predominate over any questions solely affecting individual members of the Class. Among the

questions of law and fact common to the Class are:

(a) whether the federal securities laws were violated by defendants' acts as alleged

herein;

(b) whether statements made by defendants to the investing public during the

Class Period misrepresented material facts about the business, operations and management of

NorthWestern; and

(c) to what extent the members of the Class have sustained damages and the

proper measure of damages.

244. A class action is superior to all other available methods for the fair and efficient

adjudication of this controversy since joinder of all members is impracticable. Furthermore, as the

damages suffered by individual Class members may be relatively small, the expense and burden of

individual litigation make it impossible for members of the Class to individually redress the wrongs

done to them. There will be no difficulty in the management of this action as a class action.

APPLICABILITY OF PRESUMPTION OF RELIANCE: FRAUD-ON-THE-MARKET DOCTRINE

245. At all relevant times, the market for North Western's securities was an efficient market

for the following reasons, among others:

(a) North Western's securities met the requirements for listing, and were listed on

the NYSE, a highly efficient and automated market, and/or were actively traded;

(b) As a regulated issuer, North Western filed periodic public reports with the SEC

and the NYSE;

(c) NorthWestern regularly communicated with public investors via established

market communication mechanisms, including through regular disseminations of press releases on

the national circuits of major newswire services and through other wide-ranging public disclosures,

such as communications with the financial press and other similar reporting services; and

(d) North Western was followed by several securities analysts employed by major

brokerage firms who wrote reports which were distributed to the sales force and certain customers

of their respective brokerage firms. Each of these reports was publicly available and entered the

public marketplace.

246. As a result of the foregoing, the market for NorthWestern's securities promptly

digested current information regarding NorthWestern from all publicly available sources and

reflected such information in the price of North Western's securities. Under these circumstances, all

purchasers of NorthWestern's securities during the Class Period suffered similar injury through their

purchase of NorthWestern's securities at artificially inflated prices and a presumption of reliance

applies.

FIRST CLAIM FOR RELIEF For Violation of Sections 10(b) and 20(a) of the Exchange Act and Rule lOb-5

Promulgated Thereunder Against Defendants North Western, Expanets, Blue Dot, Hylland, Orme, Lewis, Newell and Whitesel

247. Plaintiffs repeat and reallege each and every allegation set forth above as if fully set

forth herein.

248. During the Class Period, defendants named in the claim for relief, North Western,

Expanets, Blue Dot, Hylland, Orme, Lewis, Newell and Whitesel carried out a scheme and wrongful

course of conduct which was intended to and, throughout the Class Period, did: (i) deceive the

investing public, including plaintiffs and other Class members, as alleged herein; (ii) enable the

defendants and other NorthWestern insiders to sell more than $1 billion of newly issued

North Western securities to the unsuspecting public; and (iii) cause plaintiffs and other members of

the Class to purchase NorthWestern's securities at artificially inflated prices. In furtherance of this

unlawful scheme and wrongful course of conduct, defendants, and each of them, took the actions set

forth herein.

249. Defendants (a) employed devices, schemes, and artifices to defraud; (b) made untrue

statements of material fact and/or omitted to state material facts necessary to make the statements

made not misleading; and (c) engaged in acts, practices, and a course of business which operated as

a fraud and deceit upon the purchasers of the Company's securities in an effort to maintain artificially

high market prices for North Western's securities in violation of § 10(b) of the Exchange Act and Rule

1 Ob-5. These defendants are sued either as primary participants in the wrongful and illegal conduct

charged herein or as controlling persons as alleged below.

250. Defendants, directly and indirectly, by the use, means or instrumentalities of interstate

commerce and/or of the mails, engaged and participated in a wrongful course of business designed

to misrepresent and/or to conceal adverse material information about the business, operations and

future prospects of North Western as specified herein.

251. These defendants employed devices, schemes and artifices to defraud, while in

possession of material adverse non-public information and engaged in acts, practices, and a course

of conduct as alleged herein in an effort to assure investors ofNorth Western's value and performance

and continued substantial growth, which included the making of, untrue statements of material fact

and omitting to state material facts necessary in order to make the statements made about

North Western and its business operations and future prospects in the light of the circumstances under

which they were made, not misleading, as set forth more particularly herein, and engaged in

transactions, practices and a course of business which operated as a fraud and deceit upon the

purchasers of North Western securities during the Class Period.

252. Each of the defendants' primary liability and/or controlling person liability, arises

from the following facts: (i) Defendants Hylland, Orme, Lewis, Newell and Whitesel were high-level

executives and/or directors at the Company during the Class Period and members of the Company's

management team or had control thereof, (ii) each of these defendants, by virtue of his

responsibilities and activities as a senior officer and/or director of the Company was privy to and

participated in the creation, development and reporting of the Company's internal budgets, plans,

projections and/or reports; (iii) each of these defendants enjoyed significant personal contact and

familiarity with the other defendants and was advised of and had access to other members of the

Company's management team, internal reports and other data and information about the Company's

finances, operations, and sales at all relevant times; and (iv) each of these defendants was aware of

the Company's dissemination of information to the investing public which they knew or recklessly

disregarded was materially false and misleading.

253. The defendants named herein had actual knowledge of the misrepresentations and

omissions of material facts set forth herein, or acted with reckless disregard for the truth in that they

failed to ascertain and to disclose such facts, even though such facts were available to them. Such

defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for

the purpose and effect of concealing NorthWestern's operating condition and future business

prospects from the investing public and supporting the artificially inflated price of its securities. As

demonstrated by defendants' overstatements and misstatements of the Company's business,

operations and earnings throughout the Class Period, defendants, if they did not have actual

knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such

knowledge by deliberately refraining from taking those steps necessary to discover whether those

statements were false or misleading.

254. As a result of the dissemination of the materially false and misleading information

and failure to disclose material facts, as set forth above, the market price of North Western's securities

was artificially inflated during the Class Period. In ignorance of the fact that market prices of

NorthWestern's securities were artificially inflated, and relying directly or indirectly on the false and

misleading statements made by defendants, or upon the integrity of the market in which the securities

trade, and/or on the absence of material adverse information that was known to or recklessly

disregarded by defendants but not disclosed in public statements by defendants during the Class

Period, plaintiffs and the other members of the Class acquired NorthWestern securities during the

Class Period at artificially high prices and were damaged thereby.

255. At the time of said misrepresentations and omissions, plaintiffs and other members

of the Class were ignorant of their falsity, and believed them to be true. Had plaintiffs and the other

members of the Class and the marketplace known the truth regarding the problems that

NorthWestern was experiencing, which were not disclosed by defendants, plaintiffs and other

members of the Class would not have purchased or otherwise acquired their NorthWestern securities,

or, if they had acquired such securities during the Class Period, they would not have done so at the

artificially inflated prices which they paid.

256. By virtue of the foregoing, each of the defendants named herein have violated § 10(b)

of the Exchange Act, and Rule 1 Ob-5 promulgated thereunder.

257. Defendants NorthWestern, Hylland, Orme, Lewis, Whitesel and Newell acted as

controlling persons within the meaning of §20(a) of the Exchange Act as alleged herein. By virtue

of their high-level positions, and their ownership and contractual rights, participation in and/or

awareness of the Company's operations and/or intimate knowledge of the false financial statements

:

filed by the Company with the SEC and disseminated to the investing public, defendants Hylland,

Orme, Lewis, Whitesel and Newell had the power to influence and control and did influence and

control, directly or indirectly, the decision-making of the Company, including the content and

dissemination of the various statements which plaintiffs contend are false and misleading.

North Western controlled the individual defendants, all of its employees as well as Blue Dot and

Expanets via its controlling equity interest. Defendants Hylland, Orme, Lewis, Whitesel and Newell

were provided with or had unlimited access to copies of the Company's reports, press releases, public

filings and other statements alleged by plaintiffs to be misleading prior to and/or shortly after these

statements were issued and had the ability to prevent the issuance of the statements or cause the

statements to be corrected. In particular, defendants Hylland, Orme, Lewis, Whitesel and Newell

had direct and supervisory involvement in the day-to-day operations of the Company and, therefore,

is presumed to have had the power to control or influence the particular transactions giving rise to

the securities violations as alleged herein, and exercised the same. By virtue of their positions as

controlling persons, defendants are liable pursuant to §20(a) of the Exchange Act.

258. As a direct and proximate result of defendants' wrongful conduct, plaintiffs and the

other members of the Class suffered damages in connection with their respective purchases of the

Company's securities during the Class Period.

SECOND CLAIM FOR RELIEF For Violations of Sections 11, 12(a)(2) and 15 of the Securities Act Against

North Western Corporation, North Western Capital Financing II, Lewis, Hylland, Newell, Monaghan, Darcy, Drook, Johnson, Ness, Smith, Merrill Lynch,

Morgan Stanley, Credit Suisse, UBS, Salomon and Prudential

259. Plaintiffs incorporate by reference and reallege the allegations as set forth above,

except to the extent that any allegations could be construed to allege intentional, knowing or reckless

conduct, or otherwise sound in fraud. This second claim for relief is a strict liability/negligence

claim.

Individual Defendants

260. Named plaintiffs Alan Stevens, John LaGalante and Grace Mitchell bring this claim

for relief on behalf of themselves and all other persons who acquired NWCF 118.25% trust preferred

:.

securities pursuant and traceable to a false and misleading registration statement and prospectus (the

"NWCF II Offering Subclass").

261. As director and/or officer signatories to the operative registration statement,

defendants Lewis, Hylland, Newell, Monaghan, Darcy, Drook, Johnson, Ness, and Smith owed

purchasers of the NWCF II preferred securities pursuant to, or traceable to, the 7/99 Registration

Statement and 12/01 Prospectus, as amended (the "December 2001 Prospectus"), the duty to make

a reasonable and diligent investigation of the statements contained in the December 2001 Prospectus

and the SEC filings later incorporated by reference at the time they became effective to ensure that

such statements were true and correct and that there was no omission of material fact required to be

stated in order to make the statements contained therein not misleading. Defendants Lewis, Hylland,

Newell, Monaghan, Darcy, Drook, Johnson, Ness and Smith knew, or in the exercise of reasonable

care should have known, of the material misstatements and omissions contained in or omitted from

the December 2001 Prospectus and financial statements incorporated by reference, as set forth

herein. As such, defendants NorthWestern Corporation, NWCF II, Lewis, Hylland, Newell,

Monaghan, Darcy, Drook, Johnson, Ness and Smith are liable to the Class. None of these defendants

made a reasonable investigation or possessed reasonable grounds for the belief that the statements

contained in the December 2001 Prospectus were not false and misleading.

262. The defendants caused to be issued and disseminated the materially false and

misleading 7/99 Registration Statement and the financial statements incorporated by reference

therein. The 7/99 Registration Statement and December 2-1 Prospectus, together with the financial

statements incorporated by reference, misrepresented or failed to disclose the facts set forth above.

By reason of the conduct alleged herein, each of the defendants violated § § 11 and 12(a)(2) of the

Securities Act and/or controlled a person who violated §l I and 12(a)(2) of the Securities Act.

Issuer Defendants

263. As issuer of preferred securities sold via the December 2001 Prospectus,

North Western and NWCF II are strictly liable to plaintiffs and the other members of the NWCF II

Offering Subclass for the misstatements and omissions contained therein.

Underwriter Defendants

264. Underwriter Defendants Merrill Lynch, Morgan Stanley, Credit Suisse, Salomon,

Prudential, and UBS were the lead underwriters of the preferred securities sold in the Offering, as

defined in § 11 (a)(5) of the Securities Act, and were responsible for the content and dissemination

of the December 2001 Prospectus. The Underwriter Defendants also owed the same duty of care as

the other defendants named in this claim to purchasers of the preferred securities in, or traceable to,

the 12/01 Offering.

265. As underwriters of the 12/01 Offering, Merrill Lynch, Morgan Stanley, Credit Suisse,

Salomon, Prudential, and UBS owed to the purchasers of the NWCF II preferred securities, including

plaintiffs, and the other members of the NWCF II Subclass, the duty to make a reasonable and

diligent investigation of the statements contained in the December 2001 Prospectus at the time they

became effective and were used to sell the preferred securities to ensure that said statements were

true and that there was no omission to state a material fact required to be stated in order to make the

statements contained therein not misleading. Defendants Merrill Lynch, Morgan Stanley, Credit

Suisse, Salomon, Prudential, and UBS knew or, in the exercise of reasonable care, should have

known of the material misstatements and omissions contained in the December 2001 Prospectus, as

set forth herein. As such, these Underwriter Defendants are liable to plaintiffs and the other

members of the Class.

266. Defendants were sellers, officers and/or solicitors, or employers thereof, of the

preferred securities offered and sold in connection with the 12/01 Offering. The acts of solicitation

taken by defendants named in the claim for relief included participation in the preparation and

dissemination of the false and misleading December 2001 Prospectus. The written and oral

communications made in connection with the December 2001 Prospectus contained untrue

statements ofmaterial facts, omitted other facts necessary to make the statements not misleading and

failed to disclose material facts.

267. Underwriter Defendants Merrill Lynch, Morgan Stanley, Salomon, Prudential and

UBS offered for sale and sold the preferred securities purchased by plaintiffs and the Class in the

12/01 Offering. Defendants North Western, the aforementioned named Individual Defendants and/or

the Underwriter Defendants solicited and/or were a substantial factor in the purchase by each Class

member of preferred securities in the 12/01 Offering. But for the participation by North Western

Capital Financing II, the aforementioned named defendants or someone who controlled or employed

these defendants, including the solicitation pled herein, the 12/01 Offering could not and would not

have been accomplished. These defendants participated in the following wrongful acts:

(a) Actively and jointly drafting, revising and approving the December 2001

Prospectus and other written selling materials by which the Offering was made to the investing

public. Such written materials are "selling documents," calculated by these defendants to create

interest in NWCF II preferred securities, and were widely distributed by these defendants for that

purpose;

(b) Finalizing the December 2001 Prospectus and causing it to become effective.

But for these defendants having drafted, filed and/or signed the December 2001 Prospectus, the

12/01 Offering could not have been made; and

(c) Conceiving and planning the 12/01 Offering and togetherj ointly orchestrating

all activities necessary to effect the 12/01 Offering by issuing the shares, promoting the stock and

supervising their distribution and ultimate sale to the investing public.

268. None of the Underwriter Defendants named herein made a reasonable investigation

or possessed reasonable grounds for the belief that the statements contained in the December 2001

Prospectus were true and without omissions of any material facts and were not misleading.

269. At the times they purchased the debt instruments, plaintiffs Alan Stevens, John

LaGalante and Grace Mitchell, and the other members of the NWCF II Offering Subclass were

without knowledge of the facts concerning the wrongful conduct alleged herein and could not have

reasonably discovered those facts.

270. Less than two years have elapsed from the time that plaintiffs Alan Stevens, John

LaGalante and Grace Mitchell discovered or reasonably could have discovered the facts upon which

this Complaint is based to the time that this Action was commenced. Less than five years have

elapsed from the time that the securities upon which this claim for relief is brought were bonafide

offered to the public to the time this Action was commenced.

271. Plaintiffs Alan Stevens, John LaGalante and Grace Mitchell, and the other members

of the NWCF II Offering Subclass sustained damages as a result of their purchases of NWCF II

preferred securities from defendants and/or traceable to the December 2001 Prospectus.

272. Plaintiffs, on behalf of themselves and all others, any Class Members who purchased

NWCF II preferred securities in the Offering and traceable to the December 2001 Prospectus hereby

tender to the defendants named in this claim for relief all such securities still held, in return for the

consideration paid for these securities, together with the interest thereon. Plaintiffs and the Class

members whose securities are still held are entitled to recessionary damages.

THIRD CLAIM FOR RELIEF For Violation of Sections 11, 12, and 15 of the Securities Act Against

North Western Corporation, North Western Capital Financing III, Lewis, Hylland, Newell, Monaghan, Darcy, Drook,

Johnson, Ness, Smith, Merrill Lynch, Morgan Stanley, Credit Suisse, Salomon, Prudential, and UBS

273. Plaintiffs incorporate by reference and reallege the allegations as set forth above,

except to the extent that allegations could be construed to allege any intentional , knowing or

reckless conduct, or otherwise sound in fraud. This Third Claim for Relief is a strict

liability/negligence claim.

274. Named plaintiffs Samuel Christen, M.D. and Grace Mitchell bring this claim for relief

on behalf of themselves and all other persons who acquired NWCF III 8.25% trust preferred

securities pursuant and traceable to a false and misleading registration statement and prospectus (the

"NWCF III Offering Subclass").

275. As director and/or officer signatories to the operative Registration Statement,

defendants North Western Corporation, North Western Capital Financing ifi, Lewis, Hylland, Newell,

Monaghan, Darcy, Drook, Johnson, Ness, Smith, Merrill Lynch, Morgan Stanley, Credit Suisse,

Salomon, Prudential, and 1185 owed to the purchasers of the NWCF III preferred securities pursuant

to, or traceable to, the 7/99 Registration Statement the duty to make a reasonable and diligent

investigation of the statements contained in the Registration Statement and 1/02 Prospectus as

amended (the "January 2002 Prospectus") and the SEC filings later incorporated by reference at the

time they became effective to ensure that such statements were true and correct and that there was

SI

no omission of material facts required to be stated in order to make the statements contained therein

not misleading. Defendants Hylland, Lewis, Newell, Monaghan, Darcy, Drook, Johnson, Ness and

Smith knew, or in the exercise of reasonable care should have known, of the material misstatements

and omissions contained in or omitted from the January 2002 Prospectus and financial statements

incorporated by reference, as set forth herein. As such, defendants NorthWestern Corporation,

NWCF III, Lewis, Hylland, Newell, Monaghan, Darcy, Drook, Johnson, Ness and Smith are liable

to the Class. None of these defendants made a reasonable investigation or possessed reasonable

grounds for the belief that the statements contaned in the January 2002 Prospectus were not false and

misleading.

276. The defendants caused to be issued and disseminated, and participated in the issuance

and dissemination of the materially false and misleading 7/99 Registration Statement and the

financial statements later incorporated by reference. The 7/99 Registration Statement and January

2002 Prospectus, together with the financial statements incorporated by reference, misrepresented

or failed to disclose the facts set forth above. By reason of the conduct alleged herein, each of the

defendants violated §11 of the Securities Act and/or controlled a person who violated §11 and

12(a)(2) of the Securities Act.

Issuer Defendants

277. As issuer of preferred securities sold via the January2002 Prospectus, NorthWestern

amd NWCF III are strictly liable to plaintiffs and the other members of the NWCF III Offering

Subclass for the misstatements and omissions contained herein.

Underwriter Defendants

278. Underwriter Defendants Merrill Lynch, Morgan Stanley, Credit Suisse, Salomon,

Prudential and UBS were the lead underwriters of the preferred securities sold in the Offering, as

defined in § 11 (a)(5) of the Securities Act, and were responsible for the content and dissemination

of the January 2002 Prospectus. The Underwriter Defendants also owed the same duty of care as

the other defendants named in this action to purchasers of the preferred securities pursuant to, or

traceable to, the January 2002 Offering.

-91-

279. As underwriters of the Offering, Underwriter Defendants Merrill Lynch, Morgan

Stanley, Credit Suisse, Salomon, Prudential and UBS owed purchasers of the NWCF III preferred

securities, including plaintiffs Christen and Mitchell and the other members of the NWCF III

Offering Subclass, the duty to make a reasonable and diligent investigation of the statements

contained in the January 2002 Prospectus at the time they became effective to ensure that said

statements were true and that there was no omission to state a material fact required to be stated in

order to make the statements contained therein not misleading. Defendants Merrill Lynch, Morgan

Stanley, Credit Suisse, Salomon, Prudential and UBS knew or, in the exercise of reasonable care,

should have known of the material misstatements and omissions contained in the January 2002

Prospectus and, as set forth herein. As such, these Underwriter Defendants are liable to plaintiffs

and the other members of the Class.

280. Defendants were sellers, officers and/or solicitors, or employers thereof, of the

preferred securities offered and sold in connection with the 1/02 Offering. The acts of solicitation

taken by defendants named in the claim for relief included participation in the preparation and

dissemination of the false and misleading January 2002 Prospectus. The written and oral

communications made in connection with the July 1999 Registration Statement and January 2002

Prospectus contained untrue statements of material facts, omitted other facts necessary to make the

statements not misleading and failed to disclose material facts.

281. Defendants Merrill Lynch, Morgan Stanley, Credit Suisse, Salomon, Prudential and

UBS offered for sale and sold the preferred securities purchased by plaintiffs and the Class in the

January2002 Offering. Defendants North Western, the aforementioned named Individual Defendants

and/or the Underwriter Defendants solicited and/or were a substantial factor in the purchase by each

Class member of preferred securities in the December 2001 Offering. But for the participation by

NorthWestern Capital Financing III, the aforementioned named defendants or someone who

controlled or employed these defendants, including the solicitation pled herein, the January 2002

Offering could not and would not have been accomplished. These defendants participated in the

following wrongful acts:

-92-

(a) Actively and jointly drafting, revising and approving the January 2002

Prospectus and other written selling materials by which the Offering was made to the investing

public. Such written materials are "selling documents," calculated by these defendants to create

interest in NWCF III preferred securities, and were widely distributed by these defendants for that

purpose;

(b) Finalizing the January 2002 Prospectus and causing it to become effective.

But for these defendants having drafted, filed and/or signed the prospectus, the 1/02 Offering could

not have been made; and

(c) Conceiving and planning the January 2002 Offering and together jointly

orchestrating all activities necessary to effect the 1/02 Offering by issuing the shares, promoting the

stock and supervising their distribution and ultimate sale to the investing public.

282. At the times they purchased the debt instruments, plaintiffs Christen and Mitchell,

and the other members of the NWCF III Offering Subclass were without knowledge of the facts

concerning the wrongful conduct alleged herein and could not have reasonably discovered those

facts.

283. Less than two years have elapsed from the time that plaintiffs Christen and Mitchell

discovered or reasonably could have discovered the facts upon which this Complaint is based to the

time that plaintiffs filed their complaint. Less than five years have elapsed from the time that the

securities upon which this claim for relief is brought were bonafide offered to the public to the time

plaintiffs filed this action.

284. Plaintiffs, on behalf of themselves and all others, any Class Members who purchased

NWCF III preferred securities in the Offering and traceable to the January 2002 Prospectus hereby

tender to the defendants named in this claim for relief all such securities still held, in return for the

consideration paid for these securities, together with the interest thereon. Plaintiffs and the Class

members whose securities are still held are entitled to recessionary damages.

-93-

FOURTH CLAIM FOR RELIEF For Violation of Sections 11, 12(a)(2) and 15 of the Securities Act

Against North Western Corporation, Hylland, Lewis, Orme, Whitesel, Johnson, Ness, Darcy, Drook,

Smith and Morgan Stanley

285. Plaintiffs incorporate by reference and reallege the allegations as set forth above,

except to the extent that allegations could be construed to allege intentional, knowing or reckless

conduct, or otherwise sound in fraud. This Fourth Claim for Relief is a strict liability/negligence

claim.

286. Named plaintiff Carpenters Pension Trust for Southern California brings this claim

for relief on behalf of itself and all other persons who acquired North Western 8.75% Pension Trust

for California Notes pursuant and traceable to a false and misleading registration statement and

prospectus (the "Notes Subclass").

287. As director and/or officer signatories to the registration statement, defendants

NorthWestern Corporation, Hylland, Lewis, Orme, Whitesel, Johnson, Ness, Darcy, Drook and

Smith owed purchasers of the notes pursuant to, or traceable to, the April 2002 Registration

Statement and its subsequent amendments, the duty to make a reasonable and diligent investigation

of the statements contained in the April 2002 Registration Statement, its subsequent amendments

and the SEC filings incorporated by reference at the time they became effective to ensure that such

statements were true and correct and that there was no omission of material facts required to be

stated in order to make the statements contained therein not misleading. Defendants Hylland, Lewis,

Orme, Whitesel, Johnson, Ness, Darcy, Drook and Smith knew, or in the exercise of reasonable care

should have known, of the material misstatements and omissions contained in or omitted from the

April 2002 Registration Statement, its subsequent amendments and financial statements incorporated

by reference, as set forth herein. As such, defendants North Western Corporation, Hylland, Lewis,

Orme, Whitesel, Johnson, Ness, Darcy, Drook and Smith are liable to the Class. None of these

defendants made a reasonable investigation or possessed reasonable grounds for the belief that the

statements contained in the April 2002 Registration Statement, and its subsequent amendments were

not false and misleading.

288. Defendants caused to be issued and disseminated the materially false and misleading

April 2002 Registration Statement, its subsequent amendments and the financial statements

incorporated by reference. The April 2002 Registration Statement, its subsequent amendments and

the financial statements incorporated by reference misrepresented or failed to disclose the facts set

forth above. By reason of the conduct alleged herein, each of the defendants violated §11 and

12(a)(2) of the Securities Act and/or controlled a person who violated § § 11 and 12(a)(2) of the

Securities Act.

Issuer Defendants

289. As issuer of the notes sold via the April 2002 Registration Statement and its

subsequent amendments, NorthWestern Corporation is strictly liable to plaintiffs and the other

members of the Notes Subclass for the misstatements and omissions contained herein.

Underwriter Defendant

290. Underwriter Defendant Morgan Stanley was the lead underwriter of the notes

exchanged in the Offering, as defined in § 11 (a)(5) of the Securities Act, and was responsible for the

content and dissemination of the April 2002 Registration Statement and its subsequent amendments.

The Underwriter Defendant also owed the same duty of care as the other defendants named in this

claim to purchasers of the Notes pursuant to, or traceable to, the Notes Exchange.

291. As underwriters of the Offering, Underwriter Defendant Morgan Stanley owed to the

purchasers of the Notes, including plaintiff Carpenters Pension Trust for Southern California and the

other members of the Class, the duty to make a reasonable and diligent investigation of the

statements contained in the 4/02 Registration Statement and its subsequent amendments at the time

it became effective to ensure that said statements were true and that there was no omission to state

a material fact required to be stated in order to make the statements contained therein not misleading.

Underwriter Defendant Morgan Stanley knew, or in the exercise of reasonable care, should have

known of the material misstatements and omissions contained in the April 2002 Registration

Statement, and its subsequent amendments, as set forth herein. As such, this Underwriter Defendant

is liable to plaintiff and the other members of the Class.

-95-

292. Defendants were sellers, officers and/or solicitors, or employers thereof, of the Notes

offered and sold in connection with the Notes Exchange. The acts of solicitation taken by defendants

named in the claim for relief included participation in the preparation and dissemination of the false

and misleading April 2002 Registration Statement and its subsequent amendments. The written and

oral communications made in connection with the April 2002 Registration Statement and its

subsequent amendments contained untrue statements of material facts, omitted other facts necessary

to make the statements not misleading and failed to disclose material facts.

293. Defendant Morgan Stanley offered for sale and sold the Notes purchased by plaintiff

Carpenters Pension Trust for Southern California and the Class in the Notes Exchange. Defendants

North Western, the aforementioned named Individual Defendants and/or the Underwriter Defendant

solicited and/or were a substantial factor in the purchase by each Class member of Notes in the Notes

Exchange. But for the participation by NorthWestern, the aforementioned named defendants or

someone who controlled or employed these defendants, including the solicitation pled herein, the

Notes Exchange Offering could not and would not have been accomplished. These defendants

participated in the following wrongful acts:

(a) Actively and jointly drafting, revising and approving the April 2002

Registration Statement and its subsequent amendments, and other written selling material by which

the Notes Exchange was made to the investing public. Such written materials are "selling

documents," calculated by these defendants to create interest in NorthWestern notes, and were

widely distributed by these defendants for that purpose.

(b) Finalizing the April 2002 Registration Statement and its subsequent

amendments and causing them to become effective. But for these defendant having, drafted, filed

and/or signed the April 2002 Registration Statement and its subsequent amendments, the Notes

Exchange could not have been made.

(c) Conceiving and planning the Notes Exchange and together jointly

orchestrating all activities necessary to effect the Notes Exchange by issuing the notes, promoting

the notes and supervising their distribution and ultimate sale to the investing public.

I,

294. At the times they purchased the debt instruments, plaintiff Carpenters Pension Trust

for Southern California and the other members of the Notes Subclass were without knowledge of

the facts concerning the wrongful conduct alleged herein and could not have reasonably discovered

those facts.

295. Less than two years have elapsed from the time that plaintiff Carpenters Pension Trust

for Southern California discovered or reasonably could have discovered the facts upon which this

Complaint is based to the time that plaintiffs filed their complaint. Less than five years have elapsed

from the time that the securities upon which this claim for relief is brought were bonafide offered

to the public to the time plaintiffs filed this action.

296. Underwriter Defendant Morgan Stanley did not make a reasonable investigation or

possess reasonable grounds for the belief that the statements contained in the April 2002 Registration

Statement and its subsequent amendments were true and without omissions of any material facts and

were not misleading.

297. Plaintiff Carpenters Pension Trust for Southern California, on behalf of itself and all

others, any Class Members who purchased Notes in the Notes Exchange and traceable to the April

2002 Registration Statement and its subsequent amendments, hereby tender to the defendants named

in this claim for relief all such securities still held, in return for the consideration paid for these

securities, together with the interest thereon. Plaintiff Carpenters Pension Trust for Southern

California and the Class members whose securities are still held are entitled to recessionary damages.

FIFTH CLAIM FOR RELIEF For Violation of Sections 11, 12(a)(2) and 15 of the Securities Act

Against North Western Corporation, Hylland, Lewis, Newell, Orme, Whitesel, Johnson, Ness, Darcy, Drook, Smith, Morgan Stanley, Credit Suisse and UBS

298. Plaintiffs incorporate by reference and reallege the allegations as set forth above,

except to the extent that allegations could be construed to allege intentional, knowing or reckless

conduct for the truth, or otherwise sound in fraud. The Fifth Claim for Relief is a strict

liability/negligence claim.

299. Named plaintiff Caman Investments brings this claim for relief on behalf of itself and

all other persons who acquired NorthWestern common stock at $8.75 per share pursuant and

Wz

traceable to a false and misleading registration statement and prospectus (the "Common Stock

Offering Subclass").

300. As director and/or officer signatories to the registration statement, defendants

Hylland, Lewis, Newell, Orme, Whitesel, Johnson, Ness, Seymann, Darcy, Drook and Smith owed

purchasers of the common stock in, or traceable to, the 7/99 Registration Statement and 10/2

Prospectus (the "October 2002 Prospectus"), the duty to make a reasonable and diligent investigation

of the statements contained in the Registration Statement, the October 2002 Prospectus, and the SEC

filings incorporated by reference at the time they became effective to ensure that such statements

were true and correct and that there was no omission of material facts required to be stated in order

to make the statements contained therein not misleading. Defendants Hylland, Lewis, Newell, Orme,

Whitsel, Johnson, Ness, Seymann, Darcy, Drook and Smith knew, or in the exercise of reasonable

care should have known, of the material misstatements and omissions contained in or omitted from

the October 2002 Prospectus and financial statements incorporated by reference, as set forth herein.

As such defendants North Western Corporation, Hylland, Lewis, Newell, Orme, Whitsel, Johnson,

Ness, Seymann, Darcy, Drook and Smith are liable to the Class. None of these defendants made a

reasonable investigation or possessed reasonable grounds for the belief that the statements contained

in the October 2002 Prospectus were not false and misleading.

301. The defendants caused to be issued and disseminated the materially false and

misleading contained in the 7/99 Registration Statement, the October 2002 Prospectus and the

financial statements incorporated by reference. The 7/99 Registration Statement and October 2002

Prospectus, together with the financial statements incorporated by reference, misrepresented or failed

to disclose the facts set forth above. By reason of the conduct alleged herein, each of the defendants

violated §1 1 and 12(a)(2) of the Securities Act and/or controlled a person who violated §1 1 and

12(a)(2) of the Securities Act.

Issuer Defendants

302. As issuer of the stock sold via the October 2002 Prospectus, North Western is strictly

liable to plaintiffs and the other members of the Common Stock Subclass for the misstatements and

omissions contained herein.

IM

Underwriter Defendants

303. Underwriter Defendant Morgan Stanley, Credit Suisse and UBS were the lead

underwriters of the stock purchased in the Offering, as defined in § 11 (a)(5) of the Securities Act, and

was responsible for the content and dissemination of the October 2002 Prospectus. Underwriter

Defendants Morgan Stanley, Credit Suisse and UBS also owed the same duty of care as the other

defendants named in this claim to purchasers of the stock pusuant to, or traceable to, the 10/02

Offering.

304. As underwriters of the Offering, defendants Morgan Stanley, Credit Suisse and UBS

owed to the purchasers of the common stock, including plaintiff Caman Investments and the other

members of the Class, the duty to make a reasonable and diligent investigation of the statements

contained in the October 2002 Prospectus at the time it became effective to ensure that said

statements were true and that there was no omission to state a material fact required to be stated in

order to make the statements contained therein not misleading. Defendants Morgan Stanley, Credit

Suisse and UBS knew or, in the exercise of reasonable care, should have known of the material

misstatements and omissions contained in the October 2002 Prospectus, as set forth herein. As such,

these Underwriter Defendants are liable to plaintiffs and the other members of the Class.

305. Defendants were sellers, officers and/or solicitors, or employers thereof, of sales of

the stock offered and sold in connection with the 10/02 Stock Offering. The acts of solicitation taken

by defendants named in the claim for relief included participation in the preparation and

dissemination of the false and misleading October 2002 Prospectus. The written and oral

communications made in connection with the October 2002 Prospectus contained untrue statements

of material facts, omitted other facts necessary to make the statements not misleading and failed to

disclose material facts.

306. Defendants Morgan Stanley, Credit Suisse and UBS offered for sale and sold the

stock purchased by plaintiffs and the Class in the 10/02 Offering. Defendant NorthWestern, the

aforementioned named Individual Defendants and/or the Underwriter Defendant solicited and/or

were a substantial factor in the purchase by each Class member of common stock in the 10/02

Offering. But for the participation by NorthWestern, the aforementioned named defendants or

S.

someone who controlled or employed these defendants, including the solicitation pled herein, the

10/02 Stock Offering could not and would not have been accomplished. These defendants

participated in the following wrongful acts:

(a) Actively and jointly drafting, revising and approving the October 2002

Prospectus and other written selling materials by which the Stock Offering was made to the investing

public. Such written materials are "selling documents," calculated by these defendants to create

interest in NorthWestern stock and were widely distributed by these defendant for that purpose;

(b) Finalizing the October 2002 Prospectus and causing it to become effective.

But for these defendants having drafted, filed and/or signed the October 2002 Prospectus, the Offer

could not have been made; and

(c) Conceiving and planning the Stock Offering and togetherj ointly orchestrating

all activities necessary to effect the Stock Offering by issuing the shares, promoting the stock and

supervising their distribution and ultimate sale to the investing public.

307. At the times they purchased the common stock, plaintiffs Caman Investments and the

other members of the Common Stock Subclass were without knowledge of the facts concerning the

wrongful conduct alleged herein and could not have reasonably discovered those facts prior to the

Stock Offering.

308. Less than two years have elapsed from the time that plaintiff Caman Investments

discovered or reasonably could have discovered the facts upon which this Complaint is based to the

time that plaintiffs filed their complaint. Less than five years have elapsed from the time that the

securities upon which this claim for relief is brought were bonajIde offered to the public to the time

plaintiffs filed this action.

309. None of the Underwriter Defendants named herein made a reasonable investigation

or possessed reasonable grounds for the belief that the statements contained in the October 2002

Prospectus were true and without omissions of any material facts and were not misleading.

310. Plaintiff Caman Investments, on behalf of itself and all others, any Class Members

who purchased North Western common stock at $8.75 per share in the 10/02 Offering and traceable

to the October 2002 Prospectus hereby tender to the defendants named in this claim for relief all such

-100-

securities still held, in return for the consideration paid for these securities, together with the interest

thereon. Plaintiffs and the Class members whose securities are still held are entitled to recessionary

damages.

PRAYER FOR RELIEF

WHEREFORE, plaintiffs pray for relief and judgment, as follows:

A. Determining that this action is a proper class action, certifying plaintiffs and their

proper representatives under Rule 23 of the Federal Rules of Civil Procedure;

B. Awarding compensatory damages in favor of plaintiffs and the other Class members

against all defendants, jointly and severally, for all damages sustained as a result of defendants'

wrongdoing, in an amount to be proven at trial, including interest thereon, and/or as to the § § 11,

12(a)(2) and/or 15 claims, awarding rescission or a rescissory measure of damages;

C. Awarding plaintiffs and the Class their reasonable costs and expenses incurred in this

action, including counsel fees and expert fees;

D. Awarding extraordinary, equitable and/or injunctive relief as permitted bylaw, equity

and the federal statutory provisions sued hereunder, pursuant to Rules 64 and 65 and any appropriate

state law remedies to assure that the Class has an effective remedy; and

E. Such other and further relief as the Court may deem just and proper.

JURY DEMAND

Plaintiffs hereby demand a trial by jury.

DATED: July 21, 2003 HAGEN, WILKA & ARCHER, P.C. WILKA THOMAS .

I~Z ~ THOMAS K. WILKA

418 First National Bank Building 100 South Phillips, P.O. Box 964 Sioux Falls, SD 57101-0964 Telephone: 605/334-0005 605/334-4814 (fax)

- 101 -

DATED: July 21, 2003 DOUGHERTY & DOUGHERTY, LLP TIMOTHY J. GHERTY

.DOIERT

100 North Phillips Avenue, Suite 402 Sioux Falls, SD 57101 Telephone: 605/335-8586 605/331-2519 (fax)

Co-Liaison Counsel

MILBERG WEISS BERSHAD HYNES & LERACH LLP

WILLIAM S. LERACH DARREN J. ROBBINS 401 B Street, Suite 1700 San Diego, CA 92101 Telephone: 619/231-1058 619/231-7423 (fax)

DATED: July 21, 2003 MILBERG WEISS BERSHAD HYNES & LERACH LLP

PATRICK J. COUGHLIN REED R. KATHREIN DENNIS J. HERMAN DAV AVINE WILL pCF

DENNIS J. HERMAN

100 Pine Street, Suite 2600 San Francisco, CA 94111 Telephone: 415/288-4545 415/288-4534 (fax)

SCOTT & SCOTT, LLC DAVID R. SCOTT MICHAEL A. SWICK 108 Norwich Avenue Colchester, CT 06415 Telephone: 860/537-3818 860/537-4432 (fax)

Co-Lead Counsel for Plaintiffs

-102-

ADEMI & O'REILLY, LLP GURI ADEMI 3620 East Layton Avenue Cudahy, WI 53110 Telephone: 414/482-8000 414/482-8001 (fax)

LAW OFFICES OF CURTIS V. TR1NKO, LLP CURTIS V. TRINKO 16 West 46th Street, 7th Floor New York, NY 10036 Telephone: 212/490-9550 212/986-0158 (fax)

LAW OFFICES OF ALFRED G. YATES, JR. ALFRED G. YATES, JR. 519 Allegheny Building 429 Forbes Avenue Pittsburgh, PA 15219 Telephone: 412/391-5164 412/471-1033 (fax)

WEINSTEIN KITCHENOFF SCARLATO KARON & GOLDMAN LTD.

PAUL J. SCARLATO 1845 Walnut Street, Suite 1100 Philadelphia, PA 19103 Telephone: 215/545-7200 215/545-6535 (fax)

Attorneys for Plaintiffs

G:\Cases-SF\Northwestern\amendedcap2.cpt

- 103 -

CERTIFICATION ?T3RStT To FSPERM scuRVrEs LWS

Grace J. Mitchell (PlaintIffh3, declares, as to the claims asserted, under the federal securities laws, chat:

1. Plaintiff has reviewed the class action complaint and authorizes its filing,

2. Planciff did not purchase the security chat is the subject of this action a the direction of plaintiff's counsel or in order to participate in this private action.

3. Plaintiff is willing to serve as a representative party on behalf of the class, including providing testimony ac depositiori and trial, if necessary.

4. Plaintiff ' s transactions in rzarzhwesterrl Capital Financing ri (NOR PrC) and NorthWestern capital Financing III (NOR PvDJ that are the subject of this action are:

12/18101 buy 100

NOR PrC

$25.00/security

1/24/02 buy 80

NOR PrD

@ $25.00/security

S. During the three years prior to the date of this Certification, Plaintiff has not sought to serve or served as a representative party for a class in a case filed under the federal securities laws, except as follows (list, if any)

S. The 9lainzitf will not accept any payment for serving as a representative party on behalf of the class beyond the Plaintiff's pro rata share of any recovery, except such reasonable costs and expenses Cinclud3,ng lost wages) directly relating to the representation of the class as ordered or approved by the court.

I declaz-e under penalty of perjury that the foregoing is true and correct.

Executed this day of J1y. 2003.

race 3. Mi}ell

I vItiJ I.TW !t1W1

I, Steven S2afars certify that

1. 1 have reviewed the complaint and authorize its filing

2. 1 did not purchase the security that is the subject of this action at the direction of

plaintiff's counsel or in order to participate in any private action arising wider this title.

3. 1 urn willing to servo as a representative party on behalf of a class and will testify at

deposition and trial, if necessary.

4. The following are my transactions in Northwestern Corporation common stock;

5. 1 have not sought to serve as a representative party on behalf of a class in a securities

action during the last three years.

6. I will not accept any payment for serving as a representative party, except to receive

my pro rata share of any recovery or as ordered or approved by the court including the award to a

representative of reasonable costs and expenses (including lost wages) directly relating to the -

representation of the class.

The foregoing are, to the best of my knowledge and

Dated: May-&, 2003

nta.