As filed with the Securities and Exchange Commission on June 4, 2001February 11, 2002
Registration No. [333- ]333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-4
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933
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AVISTA CORPORATION
(Exact name of registrant as specified in its charter)
WASHINGTON 4931 91-0462470
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
incorporation or organization)
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99202
(509) 489-0500
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
David J. Meyer, Esq. J. Anthony Terrell, Esq.
Avista Corporation Thelen Reid & Priest LLP
1411 East Mission Avenue 40 West 57th Street
Spokane, Washington 99202 New York, New York 10019
(509) 489-4316 (212) 603-2108
(Names and addresses, including zip codes, and telephone numbers, including area
codes, of agents for service)
----------------
Approximate date of commencement of proposed sale of the
securities to the public:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
----------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
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CALCULATION OF REGISTRATION FEE
- --------------------------------------------------------------------------------
PROPOSED PROPOSED
MAXIMUM MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING AGGREGATE AMOUNT OF
SECURITIES TO BE BE PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT (1) PRICE (1) FEE
- --------------------------------------------------------------------------------
9.75% Senior Notes due $400,000,000 100% $400,000,000 $100,000
June 1, 2008
- --------------------------------------------------------------------------------
- ------------------------------------------- ---------------- --------------- ------------------ ----------------
PROPOSED
PROPOSED MAXIMUM
MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE AMOUNT TO BE OFFERING PRICE OFFERING REGISTRATION
REGISTERED REGISTERED PER UNIT (1) PRICE (1) FEE
- ------------------------------------------- ---------------- --------------- ------------------ ----------------
First Mortgage Bonds, 7.75% Series due 2007 $150,000,000 100% $150,000,000 $35,850
- ------------------------------------------- ---------------- --------------- ------------------ ----------------
(1) Determined solely for the purpose of calculating the registration fee
pursuant to Rule 457(f)(2) promulgated under the Securities Act.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act, or until the Registration Statement shall become effective
on such date as the Securities and Exchange Commission, acting pursuant to said
Section 8(a)THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT, OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME EFFECTIVE
ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), may determine.MAY DETERMINE.
================================================================================
Subject to completion, dated June 4, 2001, 2002
PROSPECTUS
AVISTA CORPORATION
EXCHANGE OFFER
AVISTA CORP. IS OFFERING TO ISSUE ITS
9.75% SENIOR NOTES7.75% FIRST MORTGAGE BONDS DUE JUNE 1, 20082007
(REGISTERED)
IN EXCHANGE FOR ITS
9.75% SENIOR NOTES7.75% FIRST MORTGAGE BONDS DUE JUNE 1, 20082007
(UNREGISTERED)
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, , 20012002 UNLESS EXTENDED
o The new notes willbonds will:
o bear interest at 9.75%7.75% per annum, and
o mature on JuneJanuary 1, 2008, and
o be redeemable, at the option of Avista Corp., as described in this
prospectus.2007.
These terms are the same as the terms of the old notes.bonds. The new notesbonds will
not be subject to any restrictions on transfer, except in certain
circumstances relating to broker-dealers described in this prospectus.
o Avista Corp. will accept all notesbonds that noteholdersbondholders properly tender and do
not withdraw before the expiration of the exchange offer.
o You will not recognize any income, gain or loss for U.S. federal income tax
purposes as a result of the exchange.
o Like the old notes,bonds, the new notesbonds will be unsecured.secured by a lien on Avista
Corp.'s facilities for the generation, transmission and distribution of
electric energy and for the storage and distribution of natural gas.
o The exchange offer is not conditioned on the tender of any minimum
principal amount of old notes.bonds.
o There will likely be no public market for the new notes.bonds.
----------------
SEE "RISK FACTORS" BEGINNING ON PAGE 10 TO READ ABOUT CERTAIN FACTORS YOU SHOULD
CONSIDER BEFORE MAKING ANY DECISION CONCERNING THIS EXCHANGE OFFER.
----------------
The Securities and Exchange Commission and state securities regulators have not
approved or disapproved of these securities, or determined if this prospectus is
truthful or complete. Any representation to the contrary is a criminal offense.
, 20012002
The information provided in this Prospectus is not complete and may be changed.
We may not sell these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This Prospectus is not an offer
to exchange these securities and it is not soliciting an offer to exchange these
securities in any jurisdiction in which the offer or exchange is not permitted.
TABLE OF CONTENTS
PAGE
Summary.............................................3
Risk Factors.......................................10
Avista Corporation.................................12
Use of Proceeds....................................15
Certain Regulatory Matters.........................15
The Exchange Offer.................................17
Description of the New Bonds.......................25
Bank Credit Agreements.............................36
Certain U.S. Federal Income Tax Considerations.....37
Plan Of Distribution...............................40
Where You Can Find More Information................41
Safe Harbor for Forward-Looking Statements.........42
Legal Matters......................................43
Experts............................................43
THIS PROSPECTUS INCORPORATES BY REFERENCE IMPORTANT BUSINESS AND FINANCIAL
INFORMATION ABOUT AVISTA CORP. THAT IS NOT INCLUDED IN OR DELIVERED WITH THIS
PROSPECTUS. SEE "WHERE YOU CAN FIND MORE INFORMATION". YOU MAY OBTAIN COPIES OF
DOCUMENTS CONTAINING SUCH INFORMATION FROM US, WITHOUT CHARGE, BY EITHER CALLING
OR WRITING TO US AT:
AVISTA CORPORATION
1411 EAST MISSION AVENUE
SPOKANE, WASHINGTON 99202-2600
ATTENTION: TREASURER
TELEPHONE: (509) 489-0500
IN ORDER TO OBTAIN TIMELY DELIVERY, YOU MUST REQUEST DOCUMENTS FROM US NO LATER
THAN ___, 2001,, 2002, WHICH IS FIVE BUSINESS DAYS BEFORE THE EXPIRATION DATE OF THE
EXCHANGE OFFER ON ______, 2001.
TABLE OF CONTENTS
PAGE
----
Summary..............................................................3
Risk Factors.........................................................9
Avista Corporation..................................................11
Capitalization......................................................14
Use of Proceeds.....................................................14
The Exchange Offer..................................................15
Description of the New Notes........................................23
Certain U.S. Federal Income Tax Considerations......................60
Plan of distribution................................................64
Where you can find more information.................................65
Legal Matters.......................................................65
Experts.............................................................65, 2002.
--------------------
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED OR INCORPORATED BY
REFERENCE IN THIS PROSPECTUS OR IN THE LETTER OF TRANSMITTAL IN CONNECTION WITH
THE EXCHANGE OFFER.
WE HAVE NOT AUTHORIZED ANYONE TO GIVE YOU ANY INFORMATION OTHER THAN
THIS PROSPECTUS. YOU SHOULD NOT ASSUME THAT THE INFORMATION CONTAINED OR
INCORPORATED IN THIS PROSPECTUS IS ACCURATE AS OF ANY DATE AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO EXCHANGE THE NEW NOTESBONDS AND
IT IS NOT SOLICITING AN OFFER TO EXCHANGE THE NEW NOTESBONDS IN ANY JURISDICTION IN
WHICH THE EXCHANGE OFFER IS NOT PERMITTED.
2
SUMMARY
This summary, which is presented solely to furnish limited introductory
information regarding Avista Corporation (Avista Corp. or the Company), the
exchange offer and the new notes,bonds, has been selected from the detailed
information contained elsewhere in this prospectus (including the documents
incorporated by reference). This summary does not contain all of the information
that you should consider before making any investment decision.a decision to participate in the exchange
offer. The terms "we", "us" and "our" refer to Avista Corp. and, when
applicable, its subsidiaries. You should read the entire prospectus carefully.carefully,
including the detailed financial and other information incorporated by reference
in this prospectus and the information contained in the section entitled RISK
FACTORS.
AVISTA CORPORATION
GENERAL
Avista Corp., which was incorporated in the State of Washington in
1889, is an energy company involved in the production, transmission and
distribution of energy as well as other energy-related businesses. Avista
Utilities, which is an operating division of Avista Corp. and not a separate
entity, provides electric and natural gas utility company having operations locatedservice to customers in the Pacific
Northwest.four western
states and is subject to state and federal regulation. We also have subsidiaries
involved in energy trading and marketing and information and technology businesses. As of March 31, 2001, our employees included
approximately 1,460 people in our utility operations and approximately 800
people in our subsidiary
businesses. Our corporate headquarters are in Spokane, Washington, which serves
as the Inland Northwest's center for manufacturing, transportation, health care,
education, communication, agricultural and service businesses.
Our operations are organized into four linesAvista Utilities provides electricity distribution and transmission
services to a total of business--Avistaapproximately 317,000 retail customers in eastern
Washington and northern Idaho, and natural gas distribution service to
approximately 284,000 retail customers in parts of Washington, Idaho, Oregon and
California. Avista Utilities anticipates residential and commercial electric
load growth to average approximately 3.0% annually for the next five years and
natural gas load growth, including transportation volumes, to average for the
next five years approximately 1.6% annually in the Washington and Idaho service
area and approximately 2.5% annually in the Oregon and South Lake Tahoe service
areas. In addition to providing electric transmission and distribution services,
Avista Utilities generates electricity. It owns and operates eight hydroelectric
projects, a wood-waste fueled generating station and two natural gas-fired
combustion turbine generating units. Avista Utilities also owns a 15% share in a
two-unit coal-fired generating facility and leases and operates two additional
natural gas-fired combustion turbine generating units. These facilities have a
maximum capacity of approximately 1,470 megawatts ("MW"), of which 65% is
hydroelectric and 35% is thermal. We also have a 50 percent interest in the 280
MW Coyote Springs 2 project under construction near Boardman, Oregon. See
"--Recent Developments -- Asset Sales". Avista Utilities also engages in
wholesale sales and purchases of electric capacity and energy.
Avista Corp.'s Energy Trading and Marketing Informationline of business excludes
Avista Utilities' regulated utility operations, and Technology,is comprised of Avista
Energy, Inc. ("Avista Energy") and Avista Ventures.Power, LLC ("Avista Power"). Avista
Energy is an electricity and natural gas trading and marketing business. Avista
Power has a 49% ownership interest in a 270 MW natural gas combustion turbine
facility in Rathdrum, Idaho, which commenced commercial operation in September
2001.
RECENT DEVELOPMENTS
RECOVERY OF PURCHASED POWER COSTS
Beginning in the second quarter of 2000, the price of power in western
wholesale markets rose to unprecedented levels and became much more volatile. In
the fourth quarter of 2000 and continuing through the third quarter of 2001, we
were required to purchase above-normal amounts of electric energy in the
wholesale market to meet our retail demand. This was primarily due to reduced
availability of hydroelectric resources due to low streamflow levels. The
combination of high prices and increased amounts purchased caused our purchased
power costs to be far in excess of the levels recovered from retail customers
under current rates.
In August 2000 the Washington Utilities and Transportation Commission
("WUTC") issued an order permitting us to record as an expense on our income
statement only that portion of our purchased power costs which was being
recovered from retail customers under existing rates. Under the WUTC order, we
were permitted to "defer" the recognition on our income statement of the portion
of our purchased power costs which was in excess of the level then being
3
recovered from retail customers. Instead, we were allowed to record these excess
costs as a "regulatory asset" on our balance sheet for possible recovery in the
future. We already had similar authority in Idaho under a previously established
power cost adjustment mechanism.
Our deferral balances have reached levels that made it necessary for
the Company to file for rate increases with the WUTC and the Idaho Public
Utility Commission ("IPUC") as described below.
As of December 31, 2001, the total amount of cash expended for excess
purchased power costs which has been deferred on our balance sheet was $235
million, of which $162 million was attributable to Washington customers and $73
million was attributable to Idaho customers.
REQUESTED ELECTRIC RATE INCREASES
September WUTC Order. In September 2001, the WUTC issued an order
approving a 25% temporary electric surcharge, subject to refund, for all classes
of Washington customers, for a period of 15 months commencing October 2001. The
order also terminated the previously approved deferred accounting mechanism, as
of January 1, 2002. We had requested a 36.9% surcharge over a period of 27
months. The authorized surcharge will not be adequate to offset the entire
Washington portion of our deferred cost balances. The surcharge will allow us to
reduce the deferred cost balance by $125 million. Of this amount, $71 million
will be additional cash revenue and $54 million was a non-cash credit taken on
October 1, 2001 against the deferred cost balance. The amount so credited, which
was previously being amortized to revenue over a period of years, resulted from
an unrelated matter. The surcharge will have no material impact on net income
since the deferred costs are amortized to offset the increase in revenues. The
WUTC ordered us to file a general rate case in December 2001 to determine the
prudency of our purchased power costs as well as to address other matters.
October IPUC Order. In October 2001, the IPUC issued an order approving
a 14.7% power cost adjustment ("PCA") surcharge, and extending an existing 4.7%
PCA surcharge, for all classes of Idaho customers for 12 months commencing
immediately. The surcharge will allow us to reduce the deferred cost balance by
approximately $58 million. Of this amount, approximately $24 million will be
additional cash revenue and approximately $35 million will be an unrelated
non-cash credit for costs being amortized through the end of 2002. The IPUC
indicated that it could, upon further review, authorize extensions of the
surcharges. As in the case of the Washington surcharge, the Idaho PCA surcharge
will have no material impact on net income.
November WUTC Deferred Cost Filing. In November 2001, prior to filing
our general rate case (which generally can take up to 11 months to be resolved),
we filed a request with the WUTC for an expedited procedural schedule to
determine the prudency and recoverability of the Washington portion of our
deferred purchased power costs accrued through September 30, 2001. A procedural
schedule has been set and final legal briefs in this prudence case are due March
22, 2002. This order would not result in any immediate rate changes, but will
determine the definitive amount of deferred power costs that will ultimately be
recovered from retail customers. Any such rate changes would be addressed in the
general rate case.
December WUTC General Rate Filing. On December 3, 2001, we filed a
general rate case with the WUTC requesting, among other things:
o an interim rate increase, subject to refund, of 10% above current
electric prices (including the September 2001 surcharge) to offset
increased costs that are in excess of those being recovered through
existing rates;
o the issuance of an order implementing a temporary deferred accounting
mechanism to run from January 1, 2002 until the conclusion of the
general rate case, to reflect cash spent to cover power supply-related
costs to serve retail customer needs but not yet reflected in rates;
o recovery of costs associated with the addition of the new Coyote
Springs 2 power project and other electric generation projects built
to serve retail customer needs;
o establishment of a PCA mechanism to adjust electric rates up or down
with changes in the market and in hydroelectric conditions, similar to
the existing Idaho PCA mechanism that has been in place since 1989;
and
4
o a 12.75% rate of return on common equity.
The net effect of the requested increases, if granted, would be:
o a permanent 22.5% increase over existing rates (excluding the
September 2001 surcharge) which would have a positive impact on net
income; plus
o a temporary 14.9% increase over existing rates (excluding the
September 2001 surcharge), designed to recover the remaining balance
of deferred purchased power costs over a period of 5 years from the
end of the general rate case, which would, like the surcharges
currently in effect, have substantially no impact on net income.
December WUTC Order Granting Accounting Petition. Effective December
28, 2001, the WUTC issued an order authorizing the Company to defer 90% of its
excess power supply-related costs until the conclusion of the general rate case.
Both the prudence of these costs and the ratemaking treatment are subjects of
the general rate case and are subject to final review and approval by the WUTC.
RECENT GAS COST ADJUSTMENTS
On July 6, 2001, we filed requests for purchased gas cost adjustments
("PGA") with the WUTC and the IPUC. A PGA increase of 12.2% was authorized by
the WUTC, effective on August 9, 2001. A PGA increase of 11.5% was authorized by
the IPUC, effective on September 1, 2001. Total deferred purchased gas costs
were approximately $53 million as of December 31, 2001. We estimate that the PGA
rate changes will increase revenues by approximately $25 million per year. Based
on current PGAs in place and current natural gas prices, we expect that the
deferred natural gas cost balance will be fully recovered by December 2002.
However, there will be no material impact on net income as natural gas costs are
amortized to offset the increase in revenues.
ASSET SALES
Coyote Springs 2. On December 12, 2001, we sold 50% of our interest in
the Coyote Springs 2 project, representing 140 MW of a 280 MW combined-cycle
natural gas-fired plant currently under construction near Boardman, Oregon to
Mirant Americas Development, Inc. ("Mirant"). National Energy Production
Corporation ("NEPCO"), a wholly-owned subsidiary of Enron Corporation, is the
contractor responsible for the engineering, procurement and construction of the
Coyote Springs 2 project. The project is planned to begin commercial operation
in the third quarter of 2002. Avista Corp. and Mirant will share equally in the
costs of construction, operation and output from the plant. As of December 12,
2001, we had invested approximately $92.7 million in the project, which has a
total expected cost of $185.4 million.
Combustion Turbines. In November 2001, our subsidiary, Avista Power,
announced its intention to sell three combustion turbine units being
manufactured by General Electric Company. The expected proceeds will be
approximately $46 million in cash over a period commencing November 2001 and
continuing through July 2002. We recorded an $8.2 million pre-tax impairment
charge related to these assets in September 2001.
Avista Communications. In September 2001, we announced our intention to
dispose of our interest in Avista Communications, our telecommunications
affiliate, and thereby exit from the telecommunication service provider
business. To date we have announced dispositions of assets and operations in
Idaho, Montana, Washington and Wyoming. Complete divestiture is expected to be
finalized in mid-2002. As a result of such divestitures, we recorded a $58.4
million pre-tax impairment charge related to these assets in September 2001.
RATINGS DOWNGRADE
On December 11, 2001, Fitch, Inc. downgraded our credit ratings. Among
those ratings downgraded was our senior secured debt, which was downgraded from
BBB with a negative outlook to BBB- with a stable outlook. In October 2001,
Moody's Investor Service and Standard & Poor's downgraded our credit ratings.
Among those ratings downgraded was our senior secured debt, which was downgraded
from Baa1 to Baa3 with a negative outlook by Moody's Investor Service and from
BBB to BBB- with a negative outlook by Standard & Poor's. Also downgraded was
our overall corporate credit rating, which is now rated Ba1 with a negative
outlook by Moody's Investor Service and BB+ with a negative outlook by Standard
& Poor's.
5
ENRON EXPOSURE
Both Avista Energy and Avista Corp. (through the Avista Utilities
division) engage in physical and financial transactions for the purchase and
sale of electric energy and capacity and natural gas. Both companies have done
considerable business with several affiliates of Enron Corporation ("Enron"). We
have both short-term and long-term contracts with the Enron affiliates. Avista
Corp.'s long-term contracts with Enron affiliates have remaining terms ranging
from 1 to 3 years. Avista Energy's long-term contracts with Enron affiliates
have remaining terms ranging from 1 to 9 years. On December 2, 2001, Enron
Corporation and certain of its affiliates (including certain entities with which
is an operating divisionwe have outstanding transactions) filed for protection under Chapter 11 of the
U.S. Bankruptcy Code. The bankruptcy filing constitutes a default under Avista
Corp.'s and Avista Energy's existing contracts with Enron affiliates, and Avista
Corp. and Avista Energy have terminated substantially all the contracts and have
suspended all trading activities with Enron and its affiliates.
As of December 31, 2001, Avista Corp. and Avista Energy had accounts
receivable from Enron and its affiliates of $3.1 million and $14.1 million,
respectively.
Our contracts with each Enron affiliate provide that, upon termination,
the net settlement of accounts receivable and accounts payable with such entity
will be netted against the mark-to-market value of the terminated forward
contracts with such entity. We currently estimate that, for each of Avista Corp.
and not a
separate entity, representsAvista Energy, our net mark-to-market liability to Enron entities in respect
of terminated forward contracts substantially exceeds the regulated utility operations. Avista Capital, a
wholly-owned subsidiarytotal net receivables
from these entities. We further estimate that the net mark-to-market liability
to Enron entities in respect of terminated forward contracts of Avista Corp., owns all and
Avista Energy, taken together, exceeds total net receivables from these entities
by less than $30 million. Any claims by the Enron entities for amounts which we
might owe in respect of the subsidiary companies
engagedterminated forward contracts would be subject to any
defenses and counterclaims which we may have.
Our estimates of the mark-to-market values of terminated forward
contracts are based on data currently available and on assumptions as to future
market prices and other information. While we believe that our assumptions are
reasonable, they are subject to change and ultimately could be challenged by the
Enron entities or their bankruptcy trustees.
NEPCO, the contractor for the Coyote Springs 2 project, was not
included in the initial bankruptcy filings made by Enron and its affiliates.
However, NEPCO's obligations were guaranteed by Enron, and the bankruptcy filing
by Enron is an event of default under the Coyote Springs 2 construction
contract. NEPCO and Coyote Springs 2, LLC have amended the construction contract
to, among other linesthings, authorize Coyote Springs 2, LLC to make immediate draws
under a letter of business.credit posted to secure NEPCO's performance and to permit
Coyote Springs 2, LLC to pay third-party subcontractors of NEPCO directly.
Coyote Springs 2, LLC is continuing to assess the ability of NEPCO to perform
its obligations under the construction contract and may need to exercise
additional remedies in the event the impact of the Enron bankruptcy prevents
NEPCO from performing its obligations under the construction contract.
Avista Corp. is party to power exchange arrangements with a remaining
life of 15 years whereby Enron Power Marketing Inc. ("EPMI") (one of the Enron
affiliates which filed for bankruptcy protection) purchases and sells capacity
and energy from and/or to Avista Utilities and Portland General Electric
Company. We cannot predict either (1) what effect, if any, the bankruptcy
proceedings will have upon EPMI's performance of its obligations under these
arrangements or (2) the effect, if any, of nonperformance on our business or
financial condition.
THE EXCHANGE OFFER
GENERAL Avista Corp. is offering to exchange $1,000 in
principal amount of new notesbonds for each $1,000 in
principal amount of old notesbonds that noteholdersbondholders
properly tender and do not withdraw before the
expiration date. Avista Corp. will issue the new
notesbonds on or promptly after the expiration date.
There is $400,000,000$150,000,000 in aggregate principal
amount of old notesbonds outstanding. See THE EXCHANGE
OFFER.
EXPIRATION DATE The exchange offer will expire at 5:00 p.m., New
York City time, on , 20012002 unless extended.
If extended, the term "expiration date" will mean
the latest date and time to which the exchange
offer is extended. Avista Corp. will accept for
exchange any and all old notesbonds which are properly
tendered in the exchange offer and not withdrawn
before 5:00 p.m., New York City time, on the
expiration date.
6
RESALE OF NEW NOTESBONDS Based on interpretive letters written by the staff
of the Securities and Exchange Commission to
companies other than Avista Corp., Avista Corp.
believes that, subject to certain exceptions, the
new notesbonds may generally be offered for resale,
resold and otherwise transferred by any holder
thereof, without compliance with the registration
and prospectus delivery provisions of the
Securities Act of 1933. However, any holder who is
an "affiliate" of Avista Corp. within the meaning
of Rule 405 under the Securities Act would have to
comply with these provisions unless an exemption
was available.
If Avista Corp.'s belief is inaccurate, holders of
new notesbonds who offer, resell or otherwise transfer
new notesbonds in violation of the Securities Act may
incur liability under that Act. Avista Corp. will
not assume or indemnify holders against this
liability.
3
CONDITIONS TO THE Avista Corp. may terminate the exchange offer
EXCHANGE OFFER before the expiration date if it determines that
its ability to proceed with the exchange offer
could be materially impaired due to
o any legal or governmental action,
o any new law, statute, rule or regulation, or
o any interpretation by the staff of the SEC of
any existing law, statute, rule or
regulation.
TENDER PROCEDURES - If you wish to tender old notesbonds that are
BENEFICIAL OWNERS registered in the name of a broker, dealer,
commercial bank, trust company or other nominee,
you should contact the registered holder promptly
and instruct the registered holder to tender on
your behalf.
IF YOU ARE A BENEFICIAL HOLDER, YOU SHOULD FOLLOW
THE INSTRUCTIONS RECEIVED FROM YOUR BROKER OR
NOMINEE WITH RESPECT TO TENDERING PROCEDURES AND
CONTACT YOUR BROKER OR NOMINEE DIRECTLY.
TENDER PROCEDURES - If you are a registered holder of old notesbonds and
REGISTERED HOLDERS AND you wish to participate in the exchange offer, you
DTC PARTICIPANTS must complete, sign and date the letter of
transmittal delivered with this prospectus, or a
facsimile thereof. If you are a participant in The
Depository Trust Company and you wish to
participate in the exchange offer, you must
instruct DTC to transmit to the exchange agent a
message indicating that you agree to be bound by
the terms of the letter of transmittal. You should
mail or otherwise transmit the letter of
transmittal or facsimile (or DTC message),
together with your old notesbonds (in book-entry form
if you are a participant in DTC) and any other
required documentation to Chase Manhattan Bank and
Trust Company, National Association,Citibank, N.A., as
exchange agent.
GUARANTEED DELIVERY If you are a registered holder of old notesbonds and
PROCEDURES you wish to tender them, but they are not
immediately available or you cannot deliver them
or the letter of transmittal to the exchange agent
prior to the expiration date, you must tender your
old notesbonds according to special guaranteed delivery
procedures. See THE EXCHANGE OFFER - "Procedures
for Tendering - Registered Holders and DTC
Participants - Registered Holders" on page 18.22.
WITHDRAWAL RIGHTS You may withdraw tenders of old notesbonds at any time
before 5:00 p.m., New York City time, on the
expiration date.
CERTAIN FEDERAL INCOME TAX The exchange of new notesbonds for old notesbonds will not
TAX
CONSIDERATIONS be a taxable event for U.S. federal income tax
purposes. As a result, you will not recognize any
income, gain or loss with respect to the exchange.
7
EFFECT ON HOLDERS OF If you are a holder of old bonds and do not tender
OLD BONDS your old bonds in the exchange offer, you will
continue to hold the old bonds and you will be
entitled to all the rights and limitations
applicable to the old bonds in the mortgage,
except for any rights under the registration
rights agreement that by their terms terminate
upon the consummation of the exchange offer.
CONSEQUENCES OF All untendered old bonds will continue to be
FAILURE TO EXCHANGE subject to the restrictions on transfer provided
for in the old bonds. In general, the old bonds
may not be offered or sold unless registered under
the Securities Act of 1933, except pursuant to an
exemption from, or in a transaction not subject
to, the Securities Act of 1933 and applicable
state securities laws. Other than the new bonds
being registered in connection with the exchange
offer, we do not currently anticipate that we will
register the old bonds under the Securities Act of
1933.
EXCHANGE AGENT Chase Manhattan Bank and Trust Company, National
AssociationCitibank, N.A. is the exchange agent. Its
telephone number is (800) 275-2048.1-800-422-2066. Its address is
2001
Bryan111 Wall Street, 9th Floor, Dallas, Texas 75201.14th Floor/Zone 3, New York, New
York 10043.
THE NEW NOTESBONDS
OFFERED SECURITIES $400,000,000$150,000,000 principal amount of 9.75% Senior
Notes7.75% First
Mortgage Bonds due June 1, 20082007
MATURITY DATE JuneJanuary 1, 20082007
INTEREST PAYMENT DATES JuneJanuary 1 and DecemberJuly 1 of each year, beginning
DecemberJuly 1, 2001
4
2002
SECURITY; RANKING The new notes are unsecured notesbonds will be issued under Avista Corp.'s
Mortgage and Deed of Trust, dated as of June 1,
1939, as supplemented (the "mortgage") and will be
secured by a lien on Avista Corp.
They's facilities for
the generation, transmission and distribution of
electric energy and for the storage and
distribution of natural gas. The new bonds will
rank pari passuequally in right of payment with all of
Avista Corp.'s current and future unsecured senior indebtednessfirst mortgage
bonds and senior in right of payment to all
current and future unsecured senior indebtedness
and subordinated indebtedness.indebtedness, which as of
December 31, 2001 was $967.2 million. As of
MarchDecember 31, 2001, Avista Corp. had outstanding
$203.5$533.5 million of first mortgage bonds.
ISSUANCE OF ADDITIONAL BONDS Additional bonds which is secured by a
lienmay be issued under the mortgage
on substantially allthe basis of Avista Corp.'s
utility plant assets. Avista Corp. also has a
credit agreement which is secured by a pledge70% of the capital stock of Avista Capital. By reason,
and to the extent, of this mortgage and this
pledge, the first mortgage bonds and the
borrowings under this credit agreement will rank
prior to the new notes.
OPTIONAL REDEMPTION Each of the new notes will be redeemable in wholecost or in part at our option at any time, at a
redemption price equal to the greater of (i) 100%
of the principal amount of the new notes being
redeemed or (ii) the sum of the present values of
the remaining scheduled payments of the principal
of and interest on the new notes being redeemed
discounted to the date of redemption on a
semi-annual basis (assuming a 360-day year
consisting of twelve 30-day months) at the
Treasury Yield (as defined herein) plus 50 basis
points; plus, in either case, whichever is
applicable, accrued interest on the new notes
being redeemed to the date of redemption. See
DESCRIPTION OF THE NEW NOTES--"Optional
Redemption."
REPURCHASE AT OPTION OF
HOLDERS UPON A CHANGE You have the option, subject to certain
OF CONTROL conditions, to require us to repurchase any new
notes held by you in the event of a "Change in
Control", as described in this offering circular,
at a price equal to 101% of the aggregate
principal amount of new notes repurchased plus
accrued and unpaid interest, if any, thereon, to
the date of purchase. See DESCRIPTION OF THE NEW
NOTES --"Repurchase at the Option of
Holders--Change of Control."
REPURCHASE AT OPTION OF You also may have the option, subject to certain
HOLDERS UPON CERTAIN conditions, to require us to repurchase any new
ASSET SALES notes held by you in the event of certain Asset
Sales. See DESCRIPTION OF THE NEW
NOTES--"Repurchase at the Option of Holders--Asset
Sales."
BASIC COVENANTS OF We will issue the new notes under an indenture
INDENTURE with Chase Manhattan Bank and Trust Company,
National Association. The indenture, among other
things, restricts our ability and the ability of
our subsidiaries to:
o sell assets;
o pay dividends on stock or repurchase stock;
o pay subordinated debt;
o make investments;
o incur debt or issue preferred stock;
o use assets as security in other transactions;
o restrict the ability of subsidiaries to
pay dividends or make other paymentsfair value to
Avista Corp.;
o merge (whichever is less) of property
additions or on the basis of retired bonds or cash
deposited with or into other companies;
o engage in certain transactions with
affiliates; and
o enter into sale and leaseback transactions.
5
These covenants are subject to significant
exceptions. For more details, see DESCRIPTION OF
THE NEW NOTES--"Certain Other Covenants."the trustee.
USE OF PROCEEDS The net proceeds from the issuance and sale of the
old notesbonds are being used: (a)used to payretire maturing
medium-term notes and other short-term
debt
and maturing long-term debtindebtedness. We will not receive any proceeds
from the issuance of Avista Corp. issued
to fund a portion of its construction, improvement
and maintenance programs, (b) to reimburse Avista
Corp.'s treasury for funds previously expended for
any of these purposes and (c) for other corporate
purposes.the new bonds in the exchange
offer.
RISK FACTORS
You should read DESCRIPTION OF THE NEW NOTESthe RISK FACTORS section, beginning on page 910 of this
prospectus, so that you understand the risks associated with an investment in
securities of Avista Corp.
68
SUMMARY CONSOLIDATED FINANCIAL DATA
We have selected the historical financial data shown below for the fiscal
years 1996-2000 from the audited
consolidated financial statements of Avista Corp. You should read this
information along with the consolidated financial statements of Avista Corp. and
the notes to those financial statements.statements which are incorporated by reference into
this prospectus.
YEARS ENDED DECEMBERYears Ended December 31,
-------------------------------------------------------------------------------------------------------------------
1996 1997 1998 1999 2000
----------- ----------- ----------- ----------- -----------
(THOUSANDS OF DOLLARS EXCEPT RATIOS)---------- ------------ ------------ ------------ ---------------
(Thousands of Dollars except Ratios)
INCOME STATEMENT DATA:Income Statement Data:
Operating Revenues:
Avista Utilities................................. $ 798,994 $ 891,665 $ 1,049,212 $ 1,115,647 $ 1,512,101Utilities................ $798,994 $891,665 $1,049,212 $1,115,647 $1,512,101
Energy Trading and Marketing.....................Marketing.... -- 247,028 2,408,734 6,695,671 6,531,551
Information and Technology.......................Technology...... 813 1,030 1,995 4,851 11,645
Avista Ventures..................................792 1,318 2,266 5,732
Other........................... 145,150 163,598 231,483 122,303 32,937
Intersegment eliminations........................eliminations....... -- (1,149) (7,440) (33,488) (176,744)
----------- ----------- ----------- ----------- -----------
Total............................................ $ 944,957 $ 1,302,172 $ 3,683,984 $ 7,904,984 $ 7,911,490
Operating Income/---------- ------------ ------------ ------------ ---------------
Total........................... $944,957 $1,301,934 $3,683,307 $7,902,399 $7,905,577
Income (Loss) from Operations
(pre-tax):
Avista Utilities................................. $ 173,658 $ 178,289 $ 143,153 $ 142,567 $ 3,177Utilities................ $173,658 $178,289 $143,153 $142,567 $3,177
Energy Trading and Marketing.....................Marketing.... (649) 6,577 22,826 (97,785) 250,196
Information and Technology.......................Technology...... (1,443) (5,364) (5,192) (13,002) (40,084)
Avista Ventures..................................(5,391) (4,979) (8,966) (26,424)
Other........................... 15,355 9,962 12,033 (423) (9,861)
----------- ----------- ----------- ----------- -----------
Total............................................ $ 186,921 $ 189,464 $ 172,820 $ 31,357 $ 203,428---------- ------------ ------------ ------------ ---------------
Total........................... $186,921 $189,437 $173,033 $35,393 $217,088
Interest Expense .................................. $ 63,255 $ 66,275 $ 69,077 $ 65,076 $ 68,723................... $63,255 $66,275 $69,017 $64,747 $68,255
Income from Continuing Operations
Before Income Taxes.........................Taxes............... 132,962 175,872 121,474 42,771 165,140175,826 121,746 45,559 178,053
Income from Continuing Operations... 83,453 114,767 78,316 28,662 101,055
Income (Loss) from
Discontinued Operations........... -- 30 (177) (2,631) (9,376)
Net Income.........................................Income.......................... 83,453 114,797 78,139 26,031 91,679114,767 78,316 28,622 101,055
Preferred Stock Dividend
Requirements..................................... $ 7,978 $ 5,392 $ 8,399(1) $ 21,392(1) $ 23,735(1)Requirements...................... $7,978 $5,392 $8,399(1) $21,392(1) $23,735(1)
Common Stock Dividend.............................. $ 69,390 $ 69,390 $ 56,898 $ 18,301 $ 22,616
BALANCE SHEET DATA:Dividend............... $69,390 $69,390 $56,898 $18,301 $22,616
Balance Sheet Data:
Utility Plant in Service--Net...................... $ 1,951,664 $ 2,031,026 $ 2,095,301 $ 2,184,698 $ 2,205,230Service--Net....... $1,397,876 $1,433,123 $1,470,942 $1,500,837 $1,518,312
Total Assets:
Avista Utilities................................. $ 1,921,429 $ 1,926,739 $ 2,004,935 $ 1,976,716 $ 2,129,614Utilities................ $1,921,429 $1,926,739 $2,004,935 $1,976,716 $2,129,614
Energy Trading and Marketing.....................Marketing.... 320 212,868 955,615 1,595,470 10,271,834
Information and Technology.......................Technology...... 1,517 3,475 7,461 26,379 59,632
Avista Ventures..................................2,221 2,492 6,312 13,599
Other........................... 254,032 268,703 285,625 114,929 102,844
----------- ----------- ----------- ----------- -----------
Total............................................ $ 2,177,298 $ 2,411,785 $ 3,253,636 $ 3,713,49498,212
Discontinued Operations--Avista
Communications................ -- 1,254 4,969 20,067 50,665
---------- ------------ ------------ ------------ ---------------
Total........................... $2,177,298 $2,411,785 $3,253,636 $3,713,494 $12,563,924
Total Debt......................................... $ 764,526 $ 762,185 $ 730,022 $ 714,904 $ 931,966Debt.......................... $764,526 $762,185 $730,022 $714,904 $931,966
Company-Obligated Mandatorily
Redeemable Preferred
Trust Securities.......................Securities.................. -- $ 110,000 $ 110,000 $ 110,000 $ 100,000
Preferred Stock Subject to Mandatory
Redemption.... $Redemption........................ 65,000 $ 45,000 $ 35,000 $ 35,000 $ 35,000
Convertible Preferred Stock........................Stock......... -- -- $ 269,227(1) $ 263,309 --
Stockholders' Equity............................... $ 825,736 $ 793,812 $ 792,261 $ 691,808 $ 759,224
OTHER FINANCIAL DATA:Common Equity....................... 710,736 748,812 488,034 393,499 724,224
Other Financial Data:
Earnings Before Interest, Taxes,
Depreciation and Amortization .................................... $ 268,314 $ 312,040 $ 261,098 $ 184,321 $ 309,804Amortization..... $268,314 $311,952 $261,087 $185,615 $318,737
Depreciation and Amortization...................... $ 72,097 $ 69,893 $ 70,547 $ 76,474 $ 75,941Amortization....... $72,097 $69,851 $70,324 $75,309 $73,429
Capital Expenditures............................... $ 99,182 $ 91,160 $ 106,270 $ 115,609 $ 201,433Expenditures................ $99,182 $91,160 $106,270 $115,609 $201,433
Ratio of Earnings Before Interest,
Taxes, Depreciation and
Amortization to Fixed Charges (2)................................ 4.24 4.71 3.78 2.83 4.512.87 4.67
Ratio of Consolidated Earnings to
Fixed Charges (3)................................................. 2.97 3.49 2.66 1.611.66 3.45
Year to Date September 30,
----------------------------
2000 2001
------------ -------------
(Thousands of Dollars
except Ratios)
Income Statement Data:
Operating Revenues:
Avista Utilities................ $1,014,987 $930,955
Energy Trading and Marketing.... 4,630,646 4,235,536
Information and Technology...... 3,903 10,085
Other........................... 25,046 12,898
Intersegment eliminations....... (78,406) (197,905)
------------ -------------
Total........................... $5,596,176 $4,991,569
Income (Loss) from Operations
(pre-tax):
Avista Utilities................ $(30,817) $95,277
Energy Trading and Marketing.... 132,647 90,995
Information and Technology...... (18,023) (23,232)
Other........................... (4,797) (7,423)
------------ -------------
Total........................... $79,010 $155,617
Interest Expense ................... $49,570 $76,689
Income from Continuing Operations
Before Income Taxes............... 56,995 105,032
Income from Continuing Operations... 30,052 64,212
Income (Loss) from
Discontinued Operations........... (6,479) (44,394)
Net Income.......................... 23,573 19,818
Preferred Stock Dividend
Requirements...................... 23,127(1) 1,824
Common Stock Dividend............... 16,956 17,057
Balance Sheet Data:
Utility Plant in Service--Net....... $1,500,752 $1,563,543
Total Assets:
Avista Utilities................ $1,978,135 $2,430,034
Energy Trading and Marketing.... 4,117,257 2,091,752
Information and Technology...... 32,281 34,427
Other........................... 117,479 85,765
Discontinued Operations--Avista
Communications................ 39,534 25,550
------------ -------------
Total........................... $6,284,686 $4,667,528
Total Debt.......................... $861,247 $1,266,922
Company-Obligated Mandatorily
Redeemable Preferred
Trust Securities.................. 110,000 100,000
Preferred Stock Subject to Mandatory
Redemption........................ 35,000 35,000
Convertible Preferred Stock......... -- --
Common Equity....................... 661,197 734,147
Other Financial Data:
Earnings Before Interest, Taxes,
Depreciation and Amortization..... $161,739 $235,778
Depreciation and Amortization....... $55,174 $54,057
Capital Expenditures................ $113,899 $238,303
Ratio of Earnings Before Interest,
Taxes, Depreciation and
Amortization to Fixed Charges (2) 3.26 3.07
Ratio of Consolidated Earnings to
Fixed Charges (3)................. 2.07 2.30
(1) In December 1998, we converted shares of common stock for Convertible
Preferred Stock, which was responsible for a number of changes in the data
in 2000, 1999 and 1998 from 1997. (See Note 15 of Notes to Financial
Statements in the Form 10-K.)
(2) "Earnings Before Interest, Taxes, Depreciation and Amortization", or
EBITDA, represents net income from continuing operations before interest
expense (including related amortization), taxes based on income from
continuing operations, depreciation and amortization, to
interest expense (including related amortization).amortization. EBITDA is commonly
used to analyze companies on the basis of operating performance, leverage
and liquidity. While EBITDA should not be construed as a substitute for
operating income or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, we have presented EBITDA to provide
additional information with respect to our ability to meet future debt
service, capital expenditure and working capital requirements. EBITDA is
not a measure determined under generally accepted accounting principles.
7
Also, as calculated above, EBITDA may not be comparable to similarly titled
measures reported by other companies. "Fixed Charges" include interest
(whether or not capitalized) and related amortization.
(3) "Earnings," as defined by Regulation S-K, represent the aggregate of (1)
net income from continuing operations before the cumulative effect of an
accounting change, (2) taxes based on income from continuing operations,
(3) investment tax credit adjustments--net and (4) fixed charges. "Fixed
Charges" include interest (whether expensed or capitalized), related
amortization and estimated interest applicable to rentals.
89
RISK FACTORS
You should carefully consider the following factors in addition to the
other information contained or incorporated by reference in this prospectus. WE WILL NEED TO FINANCE OUR OPERATIONS AND CAPITAL EXPENDITURES. OUR LEVEL OF
INDEBTEDNESS COULD AFFECT OUR ABILITY TO DEDICATE SUFFICIENT CASH FLOW TO THESE
PURPOSES, WHICH WOULD ULTIMATELY AFFECT OUR ABILITY TO MEET OUR OBLIGATIONS ON
THE NEW NOTES.
We have incurredThe
risks described in this section are those that we consider to be most
significant long-term indebtedness to support capital
expenditures and to maintain working capital. At April 30, 2001, after giving
effect to the issuancethis exchange offer. If any of the old notes, we had, total long-term debtfollowing events occur, our
business, financial condition or results of approximately $1,079.5 million. In addition, we will need to finance capital
expenditures and obtain additional working capital from time to time. Theoperation could be materially
harmed.
WE HAVE SIGNIFICANT CASH REQUIREMENTS, SIGNIFICANT INDEBTEDNESS AND LIMITED CASH
AVAILABLE.
Since the fourth quarter of 2000, our cash requirements for purchased
power have been greater than the related amounts paid to service the total amount of our indebtedness, both short-term
and long-term, could reduce the amount of cash flow available to fund working
capital, future acquisitions, the deferral accounts discussed below, other
corporate requirements and capital expenditures.
IF WE ARE UNABLE TO RECOVER DEFERRED PURCHASED POWER AND, TO A LESSER EXTENT,
NATURAL GAS COSTS EXCEEDING AMOUNTS INCLUDED IN CURRENT RETAIL RATES, WE MAY
EXPERIENCE AN ADVERSE IMPACT ON CASH FLOW AND EARNINGS.
Purchased power and natural gas costs incurred to serve our retail
customers are generally recovered or expected to be recovered in base rates.
However, there is a lag between the time we incur any increases in these costs
and the time we collect these increases from customers. As more fully described
in Note 1 of Notes to Financial Statements--"Power Cost Deferrals and Power and
Natural Gas Adjustment Provisions" in Avista Corp.'s Annual Report on Form 10-K
for the year 2000, costs in excess of those included in base rates are deferred
as an asset on our balance sheet and not shown as an expense until recovered
fromus by our retail
customers. In 2000addition to purchased power and operating expenses, we have
continuing commitments for capital expenditures for construction, improvement
and maintenance of facilities. We have incurred substantial levels of
indebtedness, both short and long term, to finance these requirements and to
otherwise maintain adequate levels of working capital. Debt service is another
significant cash requirement. In addition, we have also made significant cash
investments to finance the pricedevelopment of companies in our Information and
Technology line of business. These cash outflows have substantially reduced cash
available for our ordinary operating expenses.
WE NEED TO MAINTAIN ADEQUATE CREDIT WITH BANKS.
We also need to maintain access to adequate levels of credit with our
banks. Cash held by Avista Energy, one of our subsidiaries, is restricted by
that company's credit agreement and is not generally available to Avista Corp.
THE EXTENT TO WHICH THE CURRENT SURCHARGES AND THE PROPOSED WASHINGTON RATE
INCREASE WILL OFFSET OUR DEFERRED ENERGY COST BALANCES WILL DEPEND ON A NUMBER
OF FACTORS BEYOND OUR CONTROL.
The temporary electric rate surcharge approved by the WUTC in September
2001 will allow us to reduce our deferred energy cost balances by an estimated
$125 million through December 31, 2002, and the PCA surcharge approved by the
IPUC will allow us to reduce our deferred energy cost balances by an estimated
additional $58 million through October 11, 2002. For reference, the total
deferred electric energy cost balance at December 31, 2001 was approximately
$235 million. Revenues collected under the Washington surcharge are subject to
refund based on, among other things, whether or not the WUTC determines that the
costs were "prudently" incurred and whether or not Avista Utilities' overall
retail rates, as to be modified, are "just, fair, reasonable and sufficient." If
we are not permitted to recover substantially all our deferred energy costs, our
financial condition will be seriously impaired. The extent to which the amounts
recovered under the surcharges and the proposed rate increase in westernWashington will
be sufficient to offset the deferred cost balances will depend on a number of
factors beyond our control, including, but not limited to, the availability of
hydroelectric resources, outages of generation units, energy demand, energy
prices in wholesale markets, rose to
unprecedented levels, accompanied by increases in natural gas prices, in both
cases far above the levels included in base rates. These market conditions are
expected to continue in 2001.
We have mechanisms in place to recover (subject to certain limitations)
increases in gas costs in Washington, Idaho and Oregon, and we regularly make
filings to recover increased costs under these mechanisms. As of March 31, 2001,
we had balances of deferred gas costs totaling $79.3 million. We also have a
mechanism in place to recover (subject to certain limitations) increases in
purchased power costs in Idaho and had a balance of deferred purchased power
costs in Idaho of $5.2 million, a power cost rebate of $0.9 million which is
being flowed through to customers, and a surcharge deferral balance of $6.8
million, as of March 31, 2001. On March 23, 2001, we filed an application in
Washington to establish the prudencypossible additional rate relief of the purchased power costs incurred as
well as for approval of a method to recover the cost increases. As of March 31,
2001, we had a balance of deferred purchased power costs of $56 million plus
accrued interest of $0.7 million in Washington. We will be able to recover these
balances of deferred costs only in the amounts, and at the times, authorized by
the respective state commissions. As discussed in "Recent Developments", on May
23, 2001, the Washington public utility commission approved a settlement
agreement reached among Avista Corp., the staff of that commission and other
parties.
RECENT CHANGES IN THE ENERGY MARKETS IN THE WESTERN UNITED STATES HAVE LED TO
SIGNIFICANT INCREASES IN WHOLESALE POWER PRICES. BECAUSE OF THESE HIGH PRICE
LEVELS, A DECREASE IN OUR POWER RESOURCE AVAILABILITY OR AN INCREASE IN CUSTOMER
DEMAND THAT REQUIRES US TO PURCHASE MORE POWER COULD HAVE AN ADVERSE IMPACT ON
OUR CASH FLOW AND EARNINGS.
Wholesale power prices rose dramatically starting in the second quarter of
2000 and remain significantly above historic levels in the Pacific Northwest,
including our service territory, and throughout the western United States.
Significant emerging factors include the gradual depletion of excess generating
capacity in the West, increasing instances of transmission congestion and
increased ownership of generating facilities by entities which are not
traditional "public utilities." Also, wholesale power markets have been affected
by the restructuring of electric utility regulation at both state and federal
levels.
9
Federal and state officials, including the Federal Energy Regulatory
Commission, the California Public Utility Commission and the Attorneys General
of California, Oregon and Washington, have commenced reviews to determine the
causes of the changes in the wholesale energy markets.
Under normal water conditions and customer demand, we would be able to
provide almost all of our forecasted native load energy requirements with our
own generation plants and long-term contracts until the end of 2003, with the
balance covered through short-term contracts. However, current forecasts show
streamflow conditions for hydroelectric generation for 2001 at no better than
60% of normal. In response to the reduced hydroelectric generation, we have made
additional fixed price purchases of energy to cover our retail and firm
wholesale load requirements for 2001 with additional purchases from the higher
cost short-term wholesale market. If hydroelectric conditions further
deteriorate, or our generating plants do not operate as planned, or weather
conditions cause retail loads to increase, we would incur additional costs from
increased purchases in the higher cost short-term wholesale energy market. This
would have an adverse impact on our cash flow and, if not ultimately recovered,
on our earnings.type
currently being sought.
WE ARE SUBJECT TO THE RISKS INHERENT IN THE UTILITY BUSINESS INCLUDING NORMAL
OPERATING RISKS, SUCH ASAND OUR CASH FLOW
AND EARNINGS COULD CONTINUE TO BE ADVERSELY AFFECTED, BEYOND THE COSTTERM OF FUELANY
RATE INCREASES, DUE TO POTENTIAL HIGH PRICES AND VOLATILE MARKETS FOR PURCHASED
POWER, INCREASED CUSTOMER DEMAND FOR ENERGY, CONTINUED LOW AVAILABILITY OF OUR
HYDROELECTRIC RESOURCES, OUTAGES OF OUR GENERATING FACILITIES OR A FAILURE TO
DELIVER ON THE POSSIBILITYPART OF PLANT OUTAGES,
AND, IN OUR CASE, THE SUFFICIENCY OF STREAMFLOWS. WE ARE ALSO SUBJECT TO
REGULATORY RISKS, SUCH AS INCREASED ENVIRONMENTAL REGULATION AND THE CHALLENGE
TO OBTAIN SATISFACTORY RATE RELIEF, AS WELL AS TO RISKS ASSOCIATED WITH
DEREGULATION OF ENERGY MARKETS.SUPPLIERS.
The utility business involves many operating risks. For example, there may
be a breakdown or failureIf Avista
Utilities' operating expenses, including the cost of electrical generating or other equipment, fuel
interruption or performance below expectedpurchased power,
significantly exceed the levels recovered from retail customers for an extended
period of output or efficiency. Also,
some of our facilities use natural gas and coal in their generation of
electricity. The market prices and availability of natural gas and coal
fluctuate. Increasing prices for these commodities or a lack of availability
could impair ourtime, its cash flow and ifearnings would be negatively affected. Factors
which could cause purchased power costs to be higher than currently anticipated
include, but are not ultimately recovered, on our earnings. In
addition,limited to, a return to high prices in Western wholesale
markets and/or high volumes of energy purchased in wholesale markets due to:
o increases in demand due, for example, either to weather or
customer growth;
10
o continued diminished availability of our hydroelectric plants require continuous water flow for their
operation. A droughtresources
due to low streamflow conditions;
o outages of any of our thermal or other water flow impairment may limit our abilitygenerating facilities; and
o failure to produce and market electricityperform on the part of any party from these facilities.
In addition, the utility business is subject to complex and stringent
energy, environmental, and other governmental laws and regulations. The
acquisition, ownership and operation of power generation facilities requires
numerous permits, approvals, and certificates from appropriate federal, state,
and local governmental agencies. If environmental regulations, such as emission
limits, are tightened, this could increase the amount we must invest to bring
our facilities into compliance. In general, the prices we are allowed to charge
for our electric and natural gas services are intended to provide, after
recovery of allowable operating expenses, an opportunity to earn a reasonable
rate of return. The regulatory commissions of the states in which we
operate may
limit our ability to increase prices, and future changes in the regulatory
framework may also affect our ability to earn a reasonable rate of return.
More recently, wholesale power markets have been affected by the
restructuring of electric utility regulation at both federal and state levels.
In particular, deregulation in California, combined with increased demand and
limitations on supply, has affected wholesale power prices throughout the West.
In addition, although there is currently no legislativepurchase capacity or regulatory movement
toward deregulation in Washington or Idaho, in a deregulated environment,
evolving technologies might provide alternate energy supplies at lower costs,
leading to lower adjusted market prices and reducing margins for traditional
utilities that use technologies and generating assets with capital and operating
costs higher than the lower adjusted market price.energy.
WE ARE SUBJECT TO THE FINANCIAL, LIQUIDITY,COMMODITY PRICE RISK, CREDIT RISK AND COMMODITY PRICEOTHER RISKS
ASSOCIATED WITH ENERGY TRADING AND MARKETING ACTIVITIES.
Our subsidiary, Avista Energy, trades electricity and natural gas, along
with derivative commodity instruments, including futures, options, swaps and
other contractual arrangements. Most transactions are conducted on a largely
unregulated "over-the-counter" basis, there being no central clearing mechanism
(except in the case of specific instruments traded on the commodity exchanges).
As a result of these trading activities, we are subject to various risks,
including market risk, liquidity risk, commodity risk and credit risk. Although
Avista Energy scaled back operations to focus primarily in the western United
States during 2000, its trading operations continue to be affected by, among
other things, volatility of prices within the electric energy and natural gas
10
markets, the demand for and availability of energy, lower unit margins on new
sales contracts and deregulation of the electric utility industry.
Avista Energy is renegotiating its credit agreement with its primary
lending banks which expired on May 31, 2001. Avista Energy anticipates receiving
an extension to June 30, 2001 of its existing credit agreement and anticipates
the completion of documentation and closing of a new credit agreement by the end
of June 2001. The existing agreement contains a variety of covenants and
restrictions, including restrictions on dividends.MARKETS.
In connection with matching loads and resources, Avista Utilities also
engages in wholesale sales and purchases of electric capacity and energy, and,
accordingly, is also subject to commodity price risk, credit risk and other
risks associated with these activities. Avista Utilities may also be exposed to
refunds for wholesale power sales depending on the outcome of the FERC's
retroactive price cap proceeding for the Pacific Northwest but would also have
the opportunity to establish offsetting claims.
Our subsidiary, Avista Energy, trades and markets electricity and
natural gas, along with derivative commodity instruments, including futures,
options, swaps and other contractual arrangements. As a result of these trading
and marketing activities, we are subject to various risks, including commodity
price risk and credit risk, as well as possible new risks resulting from the
imposition of market controls by federal and state agencies. The FERC is
conducting separate proceedings related to market controls within California and
within the Pacific Northwest that include proposals by certain parties to
retroactively impose price caps. The retroactive application of price caps could
result in liabilities for refunding revenues recognized in prior periods. Avista
Energy and other parties are vigorously opposing these proposals. If retroactive
price caps were imposed, Avista Energy could develop offsetting claims.
Credit risk includes the risk that counterparties that owe us money or
energy will breach their obligations. Should the counterparties to these
arrangements fail to perform, we may be forced to enter into alternative
arrangements. In that event, our financial results could be adversely affected
and we could incur losses. Although our models take into account the expected
probability of default by counterparties, our actual exposure to a default by a
particular counterparty could be greater than the models predict.
THE BANKRUPTCY OF ENRON CORPORATION AND MANY OF ITS AFFILIATES COULD ADVERSELY
AFFECT, IN GENERAL, THE WHOLESALE MARKETS FOR POWER AND NATURAL GAS AND, IN
PARTICULAR, VARIOUS ASPECTS OF OUR BUSINESS.
The bankruptcy filings by Enron and many of its affiliates could have
an adverse effect generally on wholesale electricity and natural gas markets, in
terms of the disruptive effect of temporary illiquidity and/or volatility, and
could ultimately lead to regulatory changes. We cannot predict the nature or
extent of any such changes or the effect, if any, they may have on us. The
filing could also directly affect the Avista entities, in terms of the matters
discussed under SUMMARY - "Recent Developments - Enron Exposure." As a result of
the filing, Avista entities have been required to find, and enter into contracts
with, new counterparties in the place of the terminated contracts.
11
AVISTA CORPORATION
GENERAL
Avista Corp., which was incorporated in the State of Washington in
1889, is an electric and gas utilityenergy company having operations locatedinvolved in the Pacific
Northwest.production, transmission and
distribution of energy as well as other energy-related businesses. We also have
subsidiaries involved in energy, information and technology businesses. As of March 31, 2001, our employees included
approximately 1,460 people in our utility operations and approximately 800
people in our subsidiary businesses. Our corporate
headquarters are in Spokane, Washington, which serves as the Inland Northwest's
center for manufacturing, transportation, health care, education, communication,
agricultural and service businesses.
Our operations are organized into four lines of business--Avista Utilities,business:
o Avista Utilities;
o Energy Trading and Marketing,Marketing;
o Information and Technology,Technology; and
Avista Ventures.o Other.
Avista Utilities, which is an operating division of Avista Corp. and
not a separate legal entity, represents the regulated utility operations.provides electric and natural gas service to
customers in four western states and is subject to state and federal price
regulation. Avista Capital, aone of our wholly owned subsidiary of Avista Corp.,subsidiaries, owns all of
the subsidiary companies engaged in the other lines of business.
Avista Corp.'s lines of business,BUSINESS STRATEGY
Our strategy is to:
o improve cashflow and continue rebuilding our financial strength
by:
o pursuing a general rate increase in Washington to recover
increased costs and the companies included within them,
are illustrated below:
------------------
AVISTA CORPORATION*
------------------
/
-----------------------------------------------
/ /
- ---------------- --------------
AVISTA UTILITIES** AVISTA CAPITAL*
- ---------------- --------------
/
-----------------------------------------------------------------
/ / /
----------------------- --------------- -----------------
ENERGY INFORMATION AND AVISTA VENTURES**
TRADING AND MARKETING** TECHNOLOGY** -----------------
----------------------- --------------- /
/ / /
------------- / ---------------- / --------------- /
AVISTA ENERGY* / AVISTA ADVANTAGE*/ AVISTA VENTURES* /
------------- / ---------------- / --------------- /
------------ / ----------- / ----- /
AVISTA POWER*/ AVISTA LABS* / OTHER*/
------------/ ----------- / -----
------------ / --------------------- /
AVISTA-STEAG*/ AVISTA COMMUNICATIONS*/
------------ ---------------------
* - denotes a business entity.
** - denotes an operating division orportion of our deferred power costs not
being recovered by the surcharge in Washington.
o disposing of assets and operations, such as the Avista
Communications line of business, 11not directly related to our
energy operations.
o being positioned to issue equity securities during 2002, subject
to market and other conditions.
o reducing our ratio of total debt to total capitalization.
o maintain a strong, low-cost, efficient electric and natural gas
utility business in the Northwest.
o position the utility to be "long" production capacity by owning
or controlling generation and natural gas resources exceeding
100% of retail load.
o continue to position Avista Energy as a focused, asset-enabled
energy marketing and trading business.
o find strategic partners for Avista Labs and Avista Advantage.
12
ENERGY BUSINESSES
Avista Utilities
Avista Utilities provides electricity and natural gas distribution and
transmission services in a 26,000 square mile area in eastern Washington and
northern Idaho with a population of approximately 835,000.830,000. It also provides
natural gas distribution service in a 4,000 square mile area in northeast and
southwest Oregon and in the South Lake Tahoe region of California, with the
population in these areas approximating 500,000.of approximately 525,000. At the end of 2000,2001, retail
electric service was supplied to approximately 313,000317,000 customers in eastern
Washington and northern Idaho; retail natural gas service was supplied to
approximately 279,000284,000 customers in parts of Washington, Idaho, Oregon and
California.
Our retail customers include residential, commercial and industrial
classifications, with the residential classification accounting for the most
energy consumed and the greatest contribution to revenues. Avista Utilities also
engages in wholesale sales and purchases of electric capacity and energy.
Avista Utilities anticipates residential and commercial electric load
growth to average approximately 3.0% annually for the next five years primarily
due to expected increases in both population and the number of businesses in its
service territory. Avista Utilities expects natural gas load growth, including
transportation volumes, to average for the next five years approximately 1.6%
annually in the Washington and Idaho service area and approximately 2.5%
annually in the Oregon and South Lake Tahoe service areas, in each case due to
expected conversions from electric space and water heating to natural gas, and
increases in both population and the number of businesses in these areas. These
projections are based on purchased economic forecasts, publicly available
studies, and internal analysis of company-specific data, such as energy
consumption patterns and internal business plans.
In addition to providing electric transmission and distribution
services, Avista Utilities is responsible for electric generation and production.generates electricity. Avista Utilities owns and
operates eight hydroelectric projects, a wood-waste fueled generating station
and two natural gas-fired combustion turbine (CT) generating units. It also owns a
15% share in a two-unit coal-fired generating facility and leases and operates
two additional natural gas-fired CTcombustion turbine generating units. These
facilities have a total net capabilitymaximum capacity of approximately 1,470 megawatts, of which
65% is hydroelectric and 35% is thermal. In addition, Avista Utilities has a
number of long-term power purchase and exchange contracts that increase its
available resources.
Under normal water conditions and loads,Historically, Avista Utilities' own generation
plants and long-term contracts would be ableelectric rates to provide approximately 90%retail customers have
been among the lowest of its
forecasted native load energy requirements in 2001, and 100% thereof in 2002 and
2003. The balance would be covered through short-term contracts. Avista
Utilities has covered essentially all of its electric energy requirementsinvestor-owned utilities in the forward markets for 2001. ForUnited States, due
primarily to the large proportion of hydroelectric resources. Retail electric
rates will remain low, on a discussion of current water conditions, see RISK
FACTORS.
Avista Utilities anticipates residential and commercial electric load
growth to average approximately 2.6% annually forrelative basis, even after the next five years primarily
due to expected increasestemporary surcharges
which were recently approved in both population and the number of businesses in its
service territory. The number of electric customers is expected to increase and
the average annual usage by residential customers is expected to remain steady.
Avista Utilities expects natural gas load growth, including transportation
volumes, in its Washington and Idaho, service area to average approximately 2.7%
annuallydescribed under CERTAIN
REGULATORY MATTERS.
In February 2000 Avista Utilities received a new 45-year operating
license from the FERC for the next five years.Cabinet Gorge and Noxon Rapids Hydroelectric
Generating Stations, which have a combined maximum generating capacity of 794
MW. Of Avista Utilities' remaining 191 MW of hydroelectric resources, 155 MW
represents the maximum capacity of six other plants operated under a FERC
license. This license will have to be renewed in 2007.
On December 12, 2001, we sold 50% of our interest in the Coyote Springs
2 project, representing 140 MW, of a 280 MW combined-cycle natural gas-fired
plant currently under construction near Boardman, Oregon to Mirant. NEPCO, a
wholly-owned subsidiary of Enron Corporation, is the contractor responsible for
the engineering, procurement and construction of the Coyote Springs 2 project.
The Oregonproject is planned to begin commercial operation in the third quarter of
2002. Avista Corp. and South Lake Tahoe, California
service areas are anticipated to realize 3.4% growth annually during that same
period. The natural gas load growth is primarily due toMirant will share equally in the costs of construction,
operation and output from the plant. As of December 12, 2001, we had invested
approximately $92.7 million in the Coyote Springs 2 project, which has a total
expected conversions
from electric space and water heating to natural gas, andcost of $185.4 million.
Dramatic increases in both
populationthe price of energy in Western wholesale markets
during 2000 and the numberfirst part of businesses2001, compounded by the deterioration of the
availability of hydroelectric resources in its service territories. These
electric2001 to the lowest level in at least
73 years, have had an adverse effect on Avista Corp.'s financial condition and
natural gas load growth projections are based on purchased economic
forecasts, publicly available studies,results of operations. See RISK FACTORS and internal analysis of company-specific
data, such as energy consumption patterns and internal business plans. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Future Outlook"Operations" in Avista Corp.'s
13
Annual Report on Form 10-K for the year ended December 31, 2000 and its Currentin Avista
Corp.'s Quarterly Report on Form 10-Q for the quarterquarterly period ended March 31, 2001 for additional information.September
30, 2001.
Energy Trading and Marketing
Energy Trading and Marketing is comprised of Avista Energy Inc., Avista
Power, Inc. and Avista
STEAG, LLC.Power. Avista Energy is an electricity and natural gas trading and marketing
business. Avista Power was formed to develop, purchase
and own electric generation assets. Avista STEAG is a joint venture between
Avista Capital and STEAG AG, a German independent power producer, to develop
electric generating assets. On April 27, 2001, Avista Capital gave notice to
STEAG AG, electing to terminate the Avista STEAG venture pursuant to its terms.
Avista Capital and STEAG AG are now preparing for an orderly winding up and
termination of Avista STEAG. Avista Energy Avista Power and Avista STEAG all
operate primarilyoperates in the Western Systems Coordinating Council, ("WSCC"),
which is comprised of the eleven Western states.states and parts of Western Canada and
Baja California.
Avista Energy is in the business of buying and selling electricity and
natural gas. Avista Energy's customers include commercial and industrial
end-users, electric utilities, natural gas distribution companies and other
trading companies. Avista Energy also trades electricity and natural gas
derivative commodity instruments.
Avista Power has electric generation projects under development and
constructiona 49% ownership interest in strategic locations primarily in the WSCC. Avista Power and
Cogentrix Energy, Inc. have entered into an agreement to jointly build and/or
buy interests in natural gas-fired electric generation plants in the states of
Washington, Oregon and Idaho. A project under this agreement is thea 270 megawatt 12
natural gas
combustion turbine facility located in Rathdrum, Idaho, with 100%which commenced commercial
operation in September 2001. All of itsthe output is contracted to Avista Energy
for 25 years. Non-recourse project financing was completed in
March 2000Due to changing market conditions and as part of the facility is currently under construction, with commercial
operation expected to start in late 2001.
In December 2000, Avista Utilities selected the Coyote Springs 2 project, a
280-megawatt combined-cycle natural gas-fired plant near Boardman, Oregon to add
generation to its portfolio. Construction commenced in January 2001 under a
fixed price turnkey engineering, procurement and construction contract with
project completion anticipated in mid-2002. The process is underway to transfer
ownership fromCorp's
overall business strategy, Avista Corp. has decided that Avista Power to Avista Utilities. Avista Corp. is currently
negotiating bank financing for the construction of this project. A portion of
the proceeds of the notes may be used to finance construction costs.will not
develop any additional non-regulated generating projects.
OTHER BUSINESSES
Information and Technology is comprised of Avista Advantage, Inc., Avista
Laboratories, Inc.
("Avista Labs") and Avista Communications,Advantage, Inc. ("Avista Advantage").
o Avista Labs is developing both modular Proton Exchange Membrane
fuel cells for power generation at the site of the consumer or
industrial user and fuel cell components including fuel
processors and hydrogen sensors. Avista Labs has recently
initiated commercial sales of its hydrogen-only fuel cell systems
for various applications, primarily back-up power for the
commercial market.
o Avista Advantage is an e-commerce provider of facilities
management billing and information services to commercial
customers throughout the U.S. and Canada. Its primary product
lines include consolidated billing, resource accounting, energy
analysis, load profiling and maintenance and repair billing
services.
o Avista LabsCorp. reached a decision in September 2001 that it would divest
substantially all of the assets of Avista Communications, which provides various
telecommunications services to communities in the Northwest. In October 2001,
the Company announced that minority shareholders of Avista Communications will
acquire ownership of its Montana and Wyoming operations as well as its dial-up
internet access operations in Spokane, Washington and Coeur d'Alene, Idaho. In
November 2001 the Company announced that Avista Communications has agreed to
sell the assets and customer accounts of its Yakima and Bellingham, Washington
operations to Advanced Telcom Group, Inc. In December 2001, Avista
Communications entered into an agreement to transfer its voice and integrated
services facilities in Spokane, Washington and Coeur d' Alene, Idaho to certain
subsidiaries of XO Communications, Inc. The Company is continuing to pursue
divestiture of the remaining portion of the business.
The Other line of business includes several other minor subsidiaries.
This line of business was formed to invest in business opportunities that would
have potential strategic value in Avista Corp.'s other existing lines of
business. Avista Corp. is in the process of developing both modular Proton
Exchange Membrane fuel cells for power generation atphasing out of this line of
business.
14
USE OF PROCEEDS
The net proceeds from the siteissuance and sale of the consumer or industrial userold bonds were used
to retire $114 million of medium-term notes maturing between December 2001 and
fuel cell components.
o Avista Communications is an Integrated Communications Provider
providing local dial tone, data transport, internet services, voice
messagingJuly 2002, and other telecommunications services to under-served
communities primarily in ten Northwest markets. Avista Communications
is also involved in designing, building and managing metropolitan area
fiber optic networks.
Avista Ventures includes Avista Ventures, Inc. and several other minor
subsidiaries. Avista Ventures was formed to align Avista Corp.'s investment and
acquisition activitiesshort-term indebtedness bearing interest at a weighted
average rate of 7.26% per annum. We will not receive any proceeds from the
issuance of the new bonds in the strategic growth areasexchange offer.
CERTAIN REGULATORY MATTERS
ELECTRIC
On August 9, 2000, the WUTC approved Avista Utilities' request for
deferred accounting treatment for certain power costs related to increases in
wholesale electric prices beginning July 1, 2000 through June 30, 2001. The
specific power costs deferred include the changes in power costs to Avista
Utilities from the costs included in base retail rates, resulting from changes
in short-term wholesale market prices, changes in the level of energy, informationhydroelectric
generation and technology. In addition,changes in the level of thermal generation (including changes in
fuel prices). The deferrals each month are calculated as the difference between
the actual costs to Avista Ventures hold investments in real estate and
majority ownership of AM&D, a metals fabrication and manufacturing business.
BUSINESS STRATEGY
Avista Corp.'s general business strategy is to:
o maintain a strong, low-cost utility business focused on delivering
efficient, reliable and high quality service to its customers;
o reduce the size and riskUtilities associated with these three power cost
components, and the level of costs included in Avista Utilities' base retail
rates. The power costs deferred relate solely to the operation of Avista
Utilities' system resources to serve its energy trading
activities;
o pursue opportunitiessystem retail and wholesale load
obligations.
On January 24, 2001, the WUTC approved a modification to develop new generationthe deferral
mechanism to supportrecover power supply costs associated with meeting increased retail
and wholesale system load requirements, effective December 1, 2000. The approval
of the growingmodification was conditioned on Avista Utilities filing by March 20, 2001
a proposal addressing the prudence of the incurred power requirementscosts, the optimization
of Company-owned resources to the benefit of retail customers and the
appropriateness of recovery of power costs through a deferral mechanism. This
proposal was also to address cost of capital offsets to recognize the shift in
risk from shareholders to ratepayers and Avista Utilities' plan to mitigate the
Northwest; and
o have access to electric and natural gas resources, both owned and
under long-term contract, in excess of projected requirements.
RECENT DEVELOPMENTSdeferred power costs.
On May 23, 2001, the Washington Utilities and Transportation Commission
(the "WUTC")WUTC approved a settlement agreement which had been reached among
Avista Corp., the staff of the WUTC and other parties with respect to deferred
energypower costs. The agreement, among other things, providesprovided for the extension of
Avista Corp.'s deferral accounting mechanism through February 2003. Due to the
planned addition of generating resources as well as the expiration of certain
long-term power sale agreements, Avista Utilities, expectsat the time of the settlement
agreement, expected to be in a power surplus 13
position by Julythe middle of 2002. The
agreement was based, in part, on the expectation that Avista Utilities further expects theUtilities' profits
from surplus power sales towould offset the power cost deferral balance, reducing
the balance to zero by the end of February 2003 without any price increase to retail
customers. These expectations arewere based on assumptions as to a number of
variables including, but not limited to, streamflow conditions, thermal planplant
performance, level of retail loads, wholesale market prices and the amount of
additional generating resources. Avista Utilities has reserved the right to requestalter,
amend, or terminate the settlement agreement as well as the right to seek
interim rate relief. Since the issuance of the FERC price mitigation plan on
June 18, 2001, wholesale market prices in the West have decreased. The wholesale
market price decrease negatively affected Avista Utilities' plan for recovery of
deferred power costs through future surplus power sales.
During June and the first part of July 2001, Avista Utilities evaluated
the effect of the recent decline in wholesale market prices and the FERC price
mitigation plan on its ability to recover deferred power cost balances under the
settlement agreement approved by the WUTC on May 23, 2001 and the continuing PCA
mechanism for Idaho customers approved by the IPUC. The combination of low
hydroelectric availability, the cost of energy and capacity under forward
contracts entered during a period of high wholesale prices to meet customer
demand for 2001, the decline in forward wholesale prices and the FERC price
mitigation plan increased current and estimated future deferred costs to levels
significantly higher than originally anticipated and significantly reduced the
expected value from future surplus sales of energy. As such, Avista Utilities
determined that the plan for recovery of deferred cost balances, as contemplated
in the May 23, 2001 settlement agreement with the WUTC and the existing PCA with
the IPUC, was not feasible.
15
Accordingly, on July 18, 2001 Avista Utilities filed requests with the
WUTC and IPUC for the approval of an immediateelectric energy surcharge of 36.9% in
Washington and a PCA surcharge of 14.7% in Idaho for a 27-month period beginning
in September 2001. As of December 31, 2001, Avista Utilities had deferred $235
million in power costs that have not been recovered in rates.
On September 24, 2001 the WUTC issued an order approving a 25%
temporary electric rate surcharge for the 15-month period from October 1, 2001
to recoverDecember 31, 2002 that will be applied uniformly across all Washington
electric customer classes. Revenues collected under the surcharge are subject to
refund depending on the determination made in the general rate case referred to
below. It is estimated the order will allow Avista Utilities to reduce the
deferred power cost balance by $125 million. This will include the receipt of
$71 million in additional revenue from the surcharge and the accelerated
amortization of $54 million of a deferred non-cash credit on the Company's
balance sheet. The deferred non-cash credit relates to funds received in
December 1998 for the monetization of a contract in which the Company assigned
and transferred certain rights under a long-term power sales contract with
Portland General Electric to a funding trust. The deferred balance was scheduled
to be amortized into revenues over the 16-year period of the long-term sales
contract. There will be no direct impact on net income from either the surcharge
or accelerated amortization of the deferred non-cash credit; however, the
surcharge revenue will increase cash flows. Total deferred power costs for
Washington customers were $162 million as of December 31, 2001.
As part of the surcharge order, the WUTC ordered Avista Utilities to
file a general rate case by December 2001 as discussed below. The order by the
WUTC also provided for the termination of the accounting mechanism for the
deferral balance if circumstances
change. See RISK FACTORS.of power costs effective December 31, 2001. The WUTC has subsequently
approved the implementation of a temporary accounting mechanism for deferred
power supply-related costs for the period from January 1, 2002 through the
conclusion of the general rate case. As requested by Avista Utilities, the
deferred accounting mechanism has been modified to reflect the deferral of 90
percent of the difference between actual power supply-related costs and the
amount of power supply-related costs allowed to be recovered in current rates.
On May 31,November 13, 2001, Avista Utilities filed a request with the WUTC
for an expedited procedural schedule to address the prudency of the $199.7
million of deferred power costs for Washington customers incurred as of
September 30, 2001. This procedure will determine the definitive amount of
deferred power costs that will ultimately be recovered from retail customers.
The Company made this request due to the fact that uncertainty involving the
recovery of deferred power costs will present financing challenges for the
Company renewed itsduring the first half of 2002. The Company's $220 million committed line
of credit and repaid
all outstanding borrowings under that facility. The new $220 million credit
facility expires on May 29, 2002. As of May 31, 2001, there were no amounts
borrowed under this committed line of credit.
The Company is in the process of obtaining a construction loan to finance
$120 million of the construction costs for the Coyote Springs 2 project with a
term that matches the construction period. A term sheet has been signed with two
co-lenders to fully underwrite such construction loan. The Company currently
anticipates the completion of the documentation and closing by the end of June
2001.
CAPITALIZATION
The following table sets forth our consolidated capitalization as of March
31, 2001, as well as our consolidated casha $125 million (subsequently reduced to $90 million)
accounts receivable financing facility expire in May 2002. It will be difficult
for the Company to renew financing facilities or issue equity securities without
certainty of the recoverability of deferred power costs. Avista Utilities
anticipates receiving a WUTC order by April 2002 with regards to the prudence
and recoverability of deferred power costs incurred prior to September 30, 2001.
This request does not provide for an adjustment to rates or the period over
which deferred power costs will be recovered. These issues, among other things,
were addressed in the general rate case that was filed on December 3, 2001
discussed below.
On December 3, 2001, Avista Utilities filed its rate case and requested
the recovery of additional deferred power costs and sought to demonstrate the
prudence of all power costs which it has incurred. The general rate case
addresses various power supply issues previously raised by the WUTC, a long-term
power cost adjustment mechanism, increased capital costs as well as other issues
customarily addressed in general rate cases, including whether or not the total
rates are just, fair, reasonable and sufficient. General rate cases before the
WUTC have historically taken from ten to twelve months to be resolved. See
SUMMARY -"Recent Developments." Effective December 28, 2001, the WUTC issued a
temporary deferred accounting mechanism to run from January 1, 2002 until the
conclusion of the general rate case.
On October 12, 2001 the IPUC issued an order approving a 14.7% PCA
surcharge for Idaho electric customers. The IPUC also granted an extension of a
4.7% PCA surcharge implemented earlier in 2001 that was set to expire January
31, 2002. Both PCA surcharges will remain in effect until October 11, 2002. The
IPUC directed Avista Utilities to file a status report 60 days before the PCA
surcharge expires. If review of the status report and the actual balance and short-term debt
(includingof
deferred power costs support continuation of the current portion of long-term debt). The following data are
qualified in their entiretyPCA surcharge, the IPUC has
indicated that it anticipates the PCA surcharge will be extended for an
additional period. It is currently estimated the IPUC order will allow Avista
Utilities to reduce the deferred power cost balance by our financial statements and other information
incorporated by reference into this prospectus. The "As Adjusted" column
reflects ourapproximately $58.2
million. This will include the receipt of proceeds of $388.3$23.6 million in additional revenue
16
from the issuancePCA surcharges and salethe accelerated amortization of $34.6 million of a
deferred non-cash credit on the Company's balance sheet for the monetization of
the Old Notes (after discounts and commissions and estimated offering and
exchange offering expenses)Portland General Electric sale agreement (see description above). There will
be no direct impact on net income from either the PCA surcharges or accelerated
amortization of the deferred non-cash credit; however, the PCA surcharges will
increase cash flows. The current PCA mechanism allows for the deferral of 90% of
the difference between actual net power supply expenses and the applicationauthorized level
of $278.4net power supply expense approved in the last Idaho general rate case. Total
deferred power costs for Idaho customers were $73 million as of December 31,
2001.
The extent to which the amounts recovered through the electric
surcharge in Washington (as originally authorized or as it may be modified) and
the PCA surcharge in Idaho will be sufficient to offset the deferred power cost
balances will depend not only on the magnitude and duration of the net
proceedsrate
increases granted but also on the ongoing changes in the amount of the balances
throughout the term of the rate increases. The balances will accrue a carrying
charge and will continue to be affected by a variety of market factors beyond
our control including, but not limited to, the paymentavailability of short-term debt (includinghydroelectric
resources, energy demand and energy prices in wholesale markets.
GAS
On July 6, 2001, Avista Utilities filed requests for purchased gas cost
adjustments ("PGA") with the WUTC and the IPUC. The Washington PGA increase of
12.2% approved by the WUTC became effective on August 9, 2001. The Idaho PGA
increase of 11.5% approved by the IPUC became effective on August 28, 2001.
Total deferred purchased gas costs were $53 million as of December 31, 2001.
Avista Utilities estimates the PGA rate changes will increase revenues by $24.6
million per year. Based on current portion of
long-term debt).
AS OF
MARCH 31, 2001
-----------------------------
AS
ACTUAL ADJUSTED
------ --------
(UNAUDITED)
(THOUSANDS OF DOLLARS)
CashPGAs in place and Cash Equivalents..................... $ 205,185 $ 315,140
Short-Term Debt (including current portion of
long-term debt)............................. $ 278,379 ---
Long-Term Debt................................ $ 679,479 $1,079,479
Company-Obligated Mandatorily Redeemable
Preferred Trust Securities.................. 100,000 100,000
Preferred Stock............................... 35,000 35,000
Total Common Equity........................... 750,344 750,344
---------- ----------
Total Capitalization................ $1,564,823 $1,964,823
USE OF PROCEEDS
The proceeds fromnatural gas prices,
Avista Utilities expects that the issuance and sale ofdeferred natural gas cost balance will be
fully recovered by December 2002. However, there will be no impact on net income
as deferred natural gas costs are amortized to offset the old notes are being used:
(a) to pay short-term debt and maturing long-term debt of Avista Corp. issued to
fund a portion of its construction, improvement and maintenance programs, (b) to
reimburse Avista Corp.'s treasury for funds previously expended for any of these
purposes and (c) for other corporate purposes.
14
increase in revenues.
THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
Avista Corp. is offering to issue its 9.75% Senior Notes Due June 1, 2008,7.75% First Mortgage Bonds due
2007, which have been registered under the Securities Act (the "New Notes"Bonds"), in
exchange for its 9.75% Senior Notes Due June 1, 2008,7.75% First Mortgage Bonds due 2007, which have not been so
registered (the "Old Notes"Bonds"), as described herein (the "Exchange Offer").
The Old NotesBonds were sold by Goldman, Sachs & Co., BNY Capital Markets,
Inc., Fleet Securities, Inc. and TD Securities (USA) Inc. (the "Initial
Purchaser"Purchasers") on April 3,December 19, 2001 to a limited number of institutional investors
(the "Purchasers"). In connection with the sale of the Old Notes,Bonds, Avista Corp.
and the Initial PurchaserPurchasers entered into an Exchange and Registration Rights
Agreement, dated April 3,December 19, 2001 (the "Registration Rights Agreement"), which
requires, among other things, Avista Corp.
(a) to file with the Securities and Exchange Commission (the
"SEC") a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") with respect to New NotesBonds identical in
all material respects to the Old Notes,Bonds, to use commercially reasonable
efforts to cause such registration statement to be declared effective
under the Securities Act and to make an exchange offer for the Old
NotesBonds as discussed below, or
(b) to register the Old NotesBonds under the Securities Act.
Avista Corp. is obligated, upon the effectiveness of the exchange offer
registration statement referred to in (a) above, to offer the holders of the Old
NotesBonds the opportunity to exchange their Old NotesBonds for a like principal amount of
New NotesBonds which will be issued without a restrictive legend and may be reoffered
and resold by the holder without restrictions or limitations under the
Securities Act. A copy of the Registration Rights Agreement has been filed as an
exhibit to the Registration Statement of which this prospectus is a part. The
Exchange Offer is being made pursuant to the Registration Rights Agreement to
satisfy Avista Corp.'s obligations under that agreement. The term "Holder" with
17
respect to the Exchange Offer means any person in whose name Old NotesBonds are
registered on Avista Corp.'s books, any other person who has obtained a properly
completed assignment from the registered holder or any DTC participant whose Old
NotesBonds are held of record by DTC. At the date of this prospectus, the sole Holder
of Old NotesBonds is DTC.
In participating in the Exchange Offer, a Holder is deemed to represent
to Avista Corp., among other things, that
(a) the New NotesBonds acquired pursuant to the Exchange Offer are
being obtained in the ordinary course of business of the person
receiving such New Notes,Bonds, whether or not such person is the Holder,
(b) neither the Holder nor any such other person receiving such
new
notesNew Bonds is engaging in or intends to engage in a distribution of
such New Notes,Bonds,
(c) neither the Holder nor any such other person receiving such
new
notesNew Bonds has an arrangement or understanding with any person to
participate in the distribution of such New Notes,Bonds, and
(d) neither the Holder nor any such other person receiving such
new
notesNew Bonds is an "affiliate," as defined in Rule 405 under the
Securities Act, of Avista Corp.
Based on an interpretation by the staff of the SEC set forth in
no-action letters issued to third-parties, Avista Corp. believes that the New
NotesBonds issued pursuant to the Exchange Offer may be offered for resale and resold
or otherwise transferred by any Holder of such New NotesBonds (other than any such
Holder which is an "affiliate" of Avista Corp. within the meaning of Rule 405
under the Securities Act and except as otherwise discussed below with respect to
Holders which are broker-dealers) without compliance with the registration and
prospectus delivery requirements of the Securities Act, so long as such New
NotesBonds are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in the
distribution (within the meaning of the Securities Act) of such New Notes.Bonds. Any
Holder who tenders in the Exchange Offer for the purpose of participating in a
15
distribution of the New NotesBonds cannot rely on such interpretation by the staff of
the SEC and must comply with the registration and prospectus delivery
requirements of the Securities Act in connection with a secondary resale
transaction. Under no circumstances may this prospectus be used for any offer to
resell or any resale or other transfer in connection with a distribution of the
New Notes.Bonds. In the event that Avista Corp.'s belief is not correct, Holders of
the New NotesBonds who transfer New NotesBonds in violation of the prospectus delivery
provisions of the Securities Act and without an exemption from registration
thereunder may incur liability thereunder. Avista Corp. does not assume or
indemnify Holders against such liability.
Each broker-dealer that receives New NotesBonds for its own account in
exchange for Old NotesBonds which were acquired by such broker-dealer as a result of
market-making activities or other trading activities must, and must agree to,
deliver a prospectus in connection with any resale of such New Notes.Bonds. This
prospectus may be used for such purpose. Any such broker-dealer may be deemed to
be an "underwriter" within the meaning of the Securities Act. The foregoing
interpretation of the staff of the SEC does not apply to, and this prospectus
may not be used in connection with, the resale by any broker-dealer of any New
NotesBonds received in exchange for an unsold allotment of Old NotesBonds purchased
directly from Avista Corp.
Avista Corp. has not entered into any arrangement or understanding with
any person to distribute the New NotesBonds to be received in the Exchange Offer.
The Exchange Offer is not being made to, nor will Avista Corp. accept
tenders for exchange from, Holders of Old NotesBonds in any jurisdiction in which the
Exchange Offer or the acceptance thereof would not be in compliance with the
securities or blue sky laws of such jurisdiction.
See PLAN OF DISTRIBUTION.
18
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this
prospectus and in the letter of transmittal, Avista Corp. will accept any and
all Old NotesBonds properly tendered and not withdrawn prior to 5:00 p.m., New York
City time, on the Expiration Date. Avista Corp. will issue $1,000 in principal
amount of New NotesBonds in exchange for each $1,000 in principal amount of
outstanding Old NotesBonds surrendered in the Exchange Offer. However, Old NotesBonds may
be tendered only in integral multiples of $1,000.
The form and terms of the New NotesBonds will be the same as the form and
terms of the Old Notes.Bonds. The New NotesBonds will evidence the same debt as the Old
Notes.Bonds. The New NotesBonds will be issued under and entitled to the benefits of the
Indenturemortgage pursuant to which the Old NotesBonds were issued. The New NotesBonds will be
registered under the Securities Act while the Old NotesBonds were not.
As of the date of this prospectus, $400,000,000$150,000,000 in aggregate principal
amount of the Old NotesBonds is outstanding. This prospectus, together with the
letter of transmittal, is being sent to all registered Holders of the Old Notes.Bonds.
Avista Corp. will be deemed to have accepted validly tendered Old NotesBonds
when, as and if Avista Corp. shall have given oral (promptly confirmed in
writing) or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering Holders for the purpose of receiving the New
NotesBonds from Avista Corp.
Old NotesBonds that are not tendered for exchange in the Exchange Offer will
remain outstanding and will be entitled to the rights and benefits such Holders
have under the Indenture.mortgage. If any tendered Old NotesBonds are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old NotesBonds will be
returned, without expense, to the tendering Holder thereof as promptly as
practicable after the Expiration Date.
Holders who tender Old NotesBonds in the Exchange Offer will not be required
to pay brokerage commissions or fees or, subject to the instructions in the
letter of transmittal, transfer taxes with respect to the exchange pursuant to
the
16
Exchange Offer. Avista Corp. will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange Offer.
EXPIRATION DATE; EXTENSIONS; AMENDMENTS TO THE EXCHANGE OFFER
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
, 2001,2002, unless Avista Corp., in its sole discretion, extends the Exchange Offer,
in which case the term "Expiration Date" shall mean the latest date and time to
which the Exchange Offer is extended.
In order to extend the Exchange Offer, Avista Corp. will notify the
Exchange Agent of any extension by oral (promptly confirmed in writing) or
written notice and will mail to the registered Holders an announcement thereof,
prior to 9:00 a.m., New York City time, on the next business day after the then
Expiration Date.
Avista Corp. reserves the right, in its sole discretion,
(a) to delay accepting any Old Notes,Bonds, to extend the Exchange
Offer or to terminate the Exchange Offer if any of the conditions set
forth below under "--Conditions to the Exchange Offer" shall not have
been satisfied by giving oral (promptly confirmed in writing) or
written notice of such delay, extension or termination to the Exchange
Agent or
(b) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptances, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered Holders. If the Exchange Offer is amended in a manner determined by
Avista Corp. to constitute a material change, Avista Corp. will promptly
disclose such amendment by means of a prospectus supplement that will be
19
distributed to the registered Holders of the Old Notes,Bonds, and Avista Corp. will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which Avista Corp. may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, Avista Corp. will have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the Exchange
Offer, Avista Corp. will accept, promptly after the Expiration Date, all Old
NotesBonds properly tendered and will issue the New NotesBonds promptly after acceptance
of the Old Notes.Bonds. See "--Conditions to the Exchange Offer." For purposes of the
Exchange Offer, Avista Corp. will be deemed to have accepted properly tendered
Old NotesBonds for exchange when, as and if Avista Corp. shall have given oral
(promptly confirmed in writing) or written notice thereof to the Exchange Agent.
In all cases, issuance of the New NotesBonds for Old NotesBonds that are accepted
for exchange pursuant to the Exchange Offer will be made only after timely
receipt by the Exchange Agent of a properly completed and duly executed letter
of transmittal (or facsimile thereof or an Agent's message in lieu thereof) and
all other required documents; provided, however, that Avista Corp. reserves the
absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer. If any tendered Old NotesBonds are not accepted for
any reason set forth in the terms and conditions of the Exchange Offer or if Old
NotesBonds are submitted for a greater principal amount or a greater principal
amount, respectively, than the Holder desires to exchange, then such unaccepted
or non-exchanged Old NotesBonds evidencing the unaccepted portion, as appropriate,
will be returned without expense to the tendering Holder thereof as promptly as
practicable after the expiration or termination of the Exchange Offer.
17
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other term of the Exchange Offer, Avista Corp. will
not be required to exchange any New NotesBonds for any Old NotesBonds and may terminate
the Exchange Offer before the acceptance of any Old NotesBonds for exchange, if:
(a) any action or proceeding is instituted or threatened in any
court or by or before any governmental agency with respect to the
Exchange Offer which, in Avista Corp.'s reasonable judgment, might
materially impair the ability of Avista Corp. to proceed with the
Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted
or enacted, or any existing law, statute, rule or regulation is
interpreted by the staff of the SEC, which, in Avista Corp.'s
reasonable judgment, might materially impair the ability of Avista
Corp. to proceed with the Exchange Offer.
If Avista Corp. determines in its sole discretion that any of these
conditions are not satisfied, Avista Corp. may
(c) refuse to accept any Old NotesBonds and return all tendered Old
NotesBonds to the tendering Holders,
(d) extend the Exchange Offer and retain all Old NotesBonds tendered
prior to the expiration of the Exchange Offer, subject, however, to
the rights of Holders who tendered such Old NotesBonds to withdraw their
tendered Old Notes,Bonds, or
(e) waive such unsatisfied conditions with respect to the
Exchange Offer and accept all properly tendered Old NotesBonds which have
not been withdrawn. If such waiver constitutes a material change to
the Exchange Offer, Avista Corp. will promptly disclose such waiver by
means of a prospectus supplement that will be distributed to the
registered Holders, and Avista Corp. will extend the Exchange Offer
for a period of five to ten business days, depending upon the
20
significance of the waiver and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
PROCEDURES FOR TENDERING--REGISTERED HOLDERS AND DTC PARTICIPANTS
REGISTERED HOLDERS OF OLD NOTES,BONDS, AS WELL AS BENEFICIAL OWNERS WHO ARE
DIRECT PARTICIPANTS IN DTC, WHO DESIRE TO PARTICIPATE IN THE EXCHANGE OFFER
SHOULD FOLLOW THE DIRECTIONS SET FORTH BELOW AND IN THE LETTER OF TRANSMITTAL.
ALL OTHER BENEFICIAL OWNERS SHOULD FOLLOW THE INSTRUCTIONS RECEIVED FROM
THEIR BROKER OR NOMINEE AND SHOULD CONTACT THEIR BROKER OR NOMINEE DIRECTLY. THE
INSTRUCTIONS SET FORTH BELOW AND IN THE LETTER OF TRANSMITTAL DO NOT APPLY TO
SUCH BENEFICIAL OWNERS.
Registered Holders
To tender in the Exchange Offer, a Holder must complete, sign and date
the letter of transmittal, or facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver such letter of transmittal or such facsimile to the Exchange Agent prior
to the Expiration Date. In addition, either
(a) certificates for such Old NotesBonds must be received by the
Exchange Agent along with the letter of transmittal, or
(b) the Holder must comply with the guaranteed delivery
procedures described below.
18
To be tendered effectively, the letter of transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "--Exchange Agent" prior to the Expiration Date.
The tender by a Holder which is not withdrawn prior to the Expiration
Date will constitute an agreement between such Holder and Avista Corp. in
accordance with the terms and subject to the conditions set forth herein and in
the letter of transmittal.
THE METHOD OF DELIVERY OF OLD NOTES,BONDS, THE LETTER OF TRANSMITTAL AND ALL
OTHER REQUIRED DOCUMENTS TO THE EXCHANGE AGENT IS AT THE ELECTION AND RISK OF
THE HOLDER, BUT THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED OR
CONFIRMED BY THE EXCHANGE AGENT. INSTEAD OF DELIVERY BY MAIL, IT IS RECOMMENDED
THAT HOLDERS USE AN OVERNIGHT OR HAND DELIVERY SERVICE. IN ALL CASES, SUFFICIENT
TIME SHOULD BE ALLOWED TO ASSURE DELIVERY TO THE EXCHANGE AGENT BEFORE THE
EXPIRATION DATE. NO LETTER OF TRANSMITTAL OR OLD NOTESBONDS SHOULD BE SENT TO AVISTA
CORP. HOLDERS MAY REQUEST THEIR RESPECTIVE BROKERS, DEALERS, COMMERCIAL BANKS,
TRUST COMPANIES OR NOMINEES TO EFFECT THE ABOVE TRANSACTIONS FOR SUCH HOLDERS.
Signatures on a letter of transmittal or a notice of withdrawal, as the
case may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old NotesBonds tendered pursuant thereto is tendered
(a) by a registered Holder who has not completed the box
entitled "Special Payment Instructions" or "Special Delivery Instructions"Instruc-
tions" on the letter of transmittal or
(b) for the account of an Eligible Institution (as defined
below).
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantor
must be a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (an "Eligible
Institution").
21
If the letter of transmittal is signed by a person other than the
registered Holder of any Old NotesBonds listed therein, such Old NotesBonds must be
endorsed or accompanied by a properly completed bond power signed by such
registered Holder as such registered Holder's name appears on such Old Notes.Bonds.
If the letter of transmittal or any Old NotesBonds or bond or stock powers
are signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
Avista Corp., evidence satisfactory to Avista Corp. of their authority to so act
must be submitted with the letter of transmittal.
Holders who wish to tender their Old NotesBonds and
(a) whose Old NotesBonds are not immediately available,
(b) who cannot deliver their Old Notes,Bonds, the letter of transmittaltrans-
mittal or any other required documents to the Exchange Agent prior to
the ExpirationEthe xpiration Date, or
(c) who cannot complete the procedures for book-entry tender on
a timely basis
may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the Expiration Date, the Exchange Agent
receives from such Eligible Institution a properly completed and
duly executed Notice of Guaranteed Delivery (by facsimile
transmission, mail or hand delivery), setting forth the name and
address of the Holder, the certificate number(s) of such Old
NotesBonds (unless tender is to be made
19
by book-entry transfer) and
the principal amount of Old NotesBonds tendered, stating that the
tender is being made thereby and guaranteeing that, within five
New York Stock Exchange trading days after the date of delivery
of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes,Bonds, in proper form for transfer, or
Book-Entry Confirmation (as defined in the letter of
transmittal), as the case may be, together with a properly
completed and duly executed letter of transmittal (or facsimile
thereof or Agent's Message in lieu thereof), with any required
signature guarantees and all other documents required by the
letter of transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(3) the certificates and/or other documents referred to in
clause (2) above must be received by the Exchange Agent within
the time specified above.
Upon request to the Exchange Agent a Notice of Guaranteed Delivery will
be sent to Holders who wish to tender their Old NotesBonds according to the
guaranteed delivery procedures set forth above.
DTC Participants
Any financial institution that is a participant in DTC's systems may
make book-entry delivery of Old NotesBonds by causing DTC to transfer such Old NotesBonds
into the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfer. Such delivery must be accompanied by either
(a) the letter of transmittal or facsimile thereof, with any
required signature guarantees or
(b) an Agent's Message (as hereinafter defined),
and any other required documents, and must, in any case, be transmitted to and
received by the Exchange Agent at the address set forth below under "--Exchange
Agent" prior to the Expiration Date or the guaranteed delivery procedures
22
described above must be complied with. The Exchange Agent will make a request to
establish an account with respect to the Old NotesBonds at DTC for purposes of the
Exchange Offer within two business days after the date of this prospectus.
The term "Agent's Message" means a message, electronically transmitted
by DTC to and received by the Exchange Agent, and forming a part of the
Book-Entry Confirmation, which states that DTC has received an express
acknowledgement from a Holder of Old NotesBonds stating that such Holder has received
and agrees to be bound by, and makes each of the representations and warranties
contained in, the Letter of Transmittal and, further, that such Holder agrees
that the Company may enforce the Letter of Transmittal against such Holder.
Miscellaneous
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old NotesBonds and withdrawal of tendered Old NotesBonds
will be determined by Avista Corp. in its sole discretion, which determination
will be final and binding. Avista Corp. reserves the absolute right to reject
any and all Old NotesBonds not properly tendered or any Old NotesBonds Avista Corp.'s
acceptance of which would, in the opinion of counsel for Avista Corp., be
unlawful. Avista Corp. also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes.Bonds. Avista
Corp.'s interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old NotesBonds must be cured within such time as Avista
Corp. shall determine. Although Avista Corp. intends to notify Holders of
defects or irregularities with respect to tenders of Old Notes,Bonds, none of Avista
Corp., the Exchange Agent, or any other person shall incur any liability for
failure to give such notification. Tenders of Old NotesBonds will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old NotesBonds received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
20
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
Expiration Date.
By tendering, each Holder or the Person receiving the New Notes,Bonds, as the
case may be will be deemed to represent to Avista Corp. that, among other
things,
o the New NotesBonds acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the Person
receiving such New Notes,Bonds, whether or not such person is the
Holder,
o neither the Holder nor any such other person is engaged or
intends to engage in, or has an arrangement or understanding with
any person to participate in, the distribution of such New Notes,Bonds,
and
o neither the Holder nor any such other Person is an "affiliate,"
as defined in Rule 405 of the Securities Act, of Avista Corp.
In all cases, issuance of New NotesBonds pursuant to the Exchange Offer will
be made only after timely receipt by the Exchange Agent of certificates for the
Old NotesBonds tendered for exchange or a timely Book-Entry Confirmation of such Old
NotesBonds into the Exchange Agent's account at DTC, a properly completed and duly
executed letter of transmittal (or facsimile thereof or Agent's Message in lieu
thereof) and all other required documents. If any tendered Old NotesBonds are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old NotesBonds are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old NotesBonds will be
returned without expense to the tendering Holder thereof (or, in the case of Old
NotesBonds tendered by book-entry transfer into the Exchange Agent's account at DTC
pursuant to the book-entry transfer procedures described below, such
non-exchanged Old NotesBonds will be credited to an account maintained with DTC) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Avista Corp. reserves the right in its sole discretion to purchase or
make offers for any Old NotesBonds that remain outstanding subsequent to the
Expiration Date or, as set forth above under "--Conditions to the Exchange
Offer," to terminate the Exchange Offer and, to the extent permitted by
applicable law, purchase Old NotesBonds in the open market, in privately negotiated
23
transactions or otherwise. The terms of any such purchases or offers could
differ from the terms of the Exchange Offer.
WITHDRAWAL OF TENDERS OF OLD NOTESBONDS
Except as otherwise provided herein, tenders of Old NotesBonds may be
withdrawn at any time prior to 5:00 p.m., New York City time, on the Expiration
Date.
To withdraw a tender of Old NotesBonds in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time, on
the Expiration Date. Any such notice of withdrawal must
(a) specify the name of the person having deposited the Old
NotesBonds to be withdrawn (the "Depositor"),
(b) identify the Old NotesBonds to be withdrawn (including the
certificate number (unless tendered by book-entry transfer),
(c) be signed by the Holder in the same manner as the original
signature on the letter of transmittal by which such Old NotesBonds were
tendered (including any required signature guarantees) or be
accompanied by documents of transfer sufficient to have the Trustee
with respect to the Old NotesBonds register the transfer of such Old NotesBonds
in the name of the person withdrawing the tender, and
(d) specify the name in which any such Old NotesBonds are to be
registered, if different from that of the Depositor. If Old NotesBonds have
been tendered pursuant to book-entry transfer, any notice of
withdrawal must specify the name and number of the account at DTC to
be credited with the withdrawn Old Notes,Bonds, in which case a notice of
withdrawal will be effective
21
if delivered to the Exchange Agent by any
method of delivery described in this paragraph.
All questions as to the validity, form and eligibility (including time
of receipt) of such notices will be determined by Avista Corp., whose
determination shall be final and binding on all parties. Any Old NotesBonds so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal; and no New NotesBonds will be issued
with respect thereto unless the Old NotesBonds so withdrawn are validly retendered.
Properly withdrawn Old NotesBonds may be retendered by following one of the
procedures described above under "-- Procedures for Tendering" at any time prior
to the Expiration Date.
EXCHANGE AGENT
Chase Manhattan Bank and Trust Company, National AssociationCitibank, N.A. has been appointed as Exchange Agent of the Exchange
Offer. Requests for additional copies of this prospectus or of the letter of
transmittal and requests for Notice of Guaranteed Delivery with respect to the
exchange of the Old NotesBonds should be directed to the Exchange Agent addressed as
follows:
Chase Manhattan Bank andCitibank, N.A.
111 Wall Street
14th Floor/Zone 3
New York, New York 10043
Attention: Global Agency & Trust Company, National Association
101 California Street, Suite 2725
San Francisco, California 94111-5830
Attention: Karen LeiServices
By Telephone: (415) 954-95181-800-422-2066
By Facsimile: (415) 693-8850(212) 825-3483
24
FEES AND EXPENSES
The expenses of soliciting tenders will be paid by Avista Corp. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopier, telephone or in person by officers and regular
employees of Avista Corp. and its affiliates.
Avista Corp. has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers-dealers or others
soliciting acceptances of the Exchange Offer. Avista Corp., however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer
will be paid by Avista Corp. and are estimated in the aggregate to be
approximately $250,000.$125,000. Such expenses include registration fees, fees and
expenses of the Exchange Agent, accounting and legal fees and printing costs,
among others.
Avista Corp. will pay all transfer taxes, if any, applicable to the
exchange of the Old NotesBonds pursuant to the Exchange Offer. If, however,
certificates representing New NotesBonds for principal amounts not tendered or
accepted for exchange are to be delivered to, or are to be issued in the name
of, any person other than the registered Holder of Old NotesBonds tendered, or if
tendered Old NotesBonds are registered in the name of, any person other than the
person signing the letter of transmittal, or if a transfer tax is imposed for
any reason other than the exchange of the Old NotesBonds pursuant to the Exchange
Offer, then the amount of any such transfer taxes (whether imposed on the
registered Holder or any other persons) will be payable by the tendering Holder.
If satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the letter of transmittal, the amount of such transfer taxes will
be billed directly to such tendering Holder.
22
DESCRIPTION OF THE NEW NOTES
You can find the definitions of certain terms used in this description
under the subheading "--Certain Definitions."BONDS
In this description, the words "Avista Corp." refer only to Avista
Corporation and not to any of its subsidiaries, except for purposes of financial
data determined on a consolidated basis. The Old NotesBonds and the New NotesBonds are
sometimes collectively called the "notes""bonds".
GENERAL
Avista Corp. issued the Old NotesBonds under an indenture,its Mortgage and Deed of Trust,
dated as of April 3,
2001, between itself and Chase Manhattan Bank and Trust Company, National
Association,June 1, 1939, as trustee,supplemented, under which Citibank, N.A., is
trustee. The Old Bonds were issued in a private transaction that was not subject
to the registration requirements of the Securities Act. The bonds, together with
all other bonds outstanding under the mortgage, are hereinafter called,
collectively, the first mortgage bonds. The statements herein concerning the
bonds and the mortgage are merely a summary and do not purport to be complete.
Such statements make use of terms defined in the mortgage and are qualified in
their entirety by express reference to the cited sections and articles of the
mortgage. Sections 125 to 150 of the mortgage appear in the first supplemental
mortgage. The terms of the notesbonds include those stated in the indenturemortgage and those
made part of the indenturemortgage by reference to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").Act.
The following description is a summary of the material provisions of
the indenturemortgage relating to the Old Notes.Bonds. It does not restate the indenturemortgage in its
entirety. We urge you to read the indenturemortgage because it, and not this description,
defines your rights as holders of the Old Notes.Bonds. Some defined terms used in this
description but not defined below under "--Certain Definitions" have the meanings assigned to them in the indenture.mortgage.
The registered holder of a notebond will be treated as the owner of it for
all purposes. Only registered holders will have rights under the indenture.
RANKINGmortgage.
25
PRINCIPAL, MATURITY AND INTEREST
Avista Corp. will issue bonds in denominations of $1,000 and integral
multiples of $1,000. The bonds will mature on January 1, 2007. Interest on the
bonds will accrue at the rate of 7.75% per annum and will be payable
semi-annually in arrears on January 1 and July 1, commencing on July 1, 2002.
Avista Corp. will make each interest payment to the holders of record on the
immediately preceding December 15 and June 15.
Interest on the bonds will accrue from the date of original issuance
or, if interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Avista Corp. may not redeem the bonds in whole or in part prior to
maturity, and there is no sinking fund for the bonds.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
The notes:
o are general unsecured obligationsBONDS
Interest on each bond payable on each interest payment date will be
paid by check mailed to the registered holder of such bond on the record date
relating to such interest payment date; provided, however, that if such holder
is a securities depositary, such payment may be made by such other means in lieu
of check as shall be agreed upon by Avista Corp.;
o are pari passu, the trustee and such holder;
and provided, further, that interest payable at maturity (whether at stated
maturity, upon redemption or otherwise, hereinafter "Maturity") will be paid to
the person to whom principal is paid.
Principal of and premium, if any, and interest on the bonds due at
Maturity will be payable upon presentation of the bonds at the principal office
of the trustee which has been designated by Avista Corp. as its office or agency
for such payment. Avista Corp. may change such office or agency, and may
designate any additional office or agency, in rightits discretion.
TRANSFER AND EXCHANGE
The transfer of bonds may be registered, and bonds may be exchanged for
other bonds, upon surrender thereof at the principal office of the trustee which
has been designated by Avista Corp. as its office or agency for such purposes.
Avista Corp. may change such office or agency, and may designate an additional
office or agency, in its discretion. No service charge will be made for any
registration of transfer or exchange of bonds, but Avista Corp. may require
payment of a sum sufficient to cover any tax or other governmental charge
incident thereto. Avista Corp. will not be required to make any transfer or
exchange of any bonds for a period of 10 days next preceding any selection of
bonds for redemption, nor will it be required to make transfers or exchanges of
any bonds which have been selected for redemption in whole or in part or as to
which Avista Corp. shall have received a notice for the redemption thereof in
whole or in part at the option of the owner.
SECURITY
The bonds, together with all existing and future
unsecured senior Indebtedness of Avista Corp.; and
o are senior in right of payment to all current and future subordinated
Indebtedness of Avista Corp., if any.
As of April 30, 2001, Avista Corp. had outstanding $203.5 million principal
amount ofother first mortgage bonds which arenow or
hereafter issued under the mortgage, will be secured by the mortgage, which
constitutes a first mortgage lien on Avista Corp.'s facilities for the
generation, transmission and distribution of electric energy and the storage and
distribution of natural gas and substantially all of Avista Corp.'s utility plant assets
(currently owned or hereafter acquired)(except as stated below), and $120 millionsubject to
o leases of secured short-term bank debt (secured by a pledgeminor portions of the stockCompany's property to others for
uses that do not interfere with the Company's business;
o leases of Avista Capital) under Credit Facilities with remaining available
commitmentscertain property of $110 million. On May 31, 2001the Company not used in its utility
business;
o excepted encumbrances, as defined in the mortgage; and
26
o encumbrances, defects and irregularities deemed immaterial by the
Company in the operation of the Company's business.
There are excepted from the lien all cash and securities (including
without limitation securities issued by Avista Corp. renewed's subsidiaries);
merchandise, equipment, materials or supplies held for sale or consumption in
the Company's operations; receivables, contracts, leases and operating
agreements; electric energy, and other material or products (including gas)
generated, manufactured, produced or purchased by the Company, for sale,
distribution or use in the ordinary course of its committed
line of credit and repaid all outstanding borrowings under that facility. By
reason, andbusiness. (Mortgage, Granting
Clauses.)
The mortgage contains provisions for subjecting to the extent,lien thereof all
property (other than property of thesethe kinds excepted from such lien) acquired by
the Company after the execution and delivery thereof, subject to purchase money
liens and liens existing thereon at the firsttime of acquisition, and, subject to
limitations in the case of consolidation, merger or sale of substantially all of
the Company's assets. (Mortgage, Granting Clauses and Art. XV.)
The mortgage bonds and secured
bank debt rankprovides that the trustee shall have a lien upon the
mortgaged property, prior to the notes. Asbonds, for the payment of April 30, 2001, Avista Corp. also had
outstanding $876 million of unsecured long-term debtits reasonable
compensation and $75.4 million of
current portion of unsecured long-term debt. All of such unsecured indebtedness
is pari passu in right of payment with the notes. In addition, Avista Corp. had
subordinated debentures in a net principal amount outstanding of $103.4 million
which are held by the trusts which issued $100 million of outstanding preferred
trust securities. The notes are senior in right of payment to these debentures.
The amounts of indebtedness discussed in this paragraph relate to Avista Corp.
onlyexpenses and not to its subsidiaries.
As of the date of this prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "--Certain Other Covenants--Designation of Restrictedfor indemnity. (Mortgage, Secs. 92 and Unrestricted Subsidiaries", we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the indenture.97; First
Supplemental, Art. XXV.)
Although its utility operations are conducted directly by Avista Corp.,
all of the other operations of Avista Corp. are conducted through its
subsidiaries. The noteslien of the mortgage does not cover the assets of the
subsidiaries or the securities of the subsidiaries held by Avista Corp. In
addition, the bonds will be effectively subordinated in right of payment to all
Indebtednessindebtedness and other liabilities and commitments (including trade payables and
lease obligations) of Avista Corp.'s subsidiaries. Any right of Avista Corp. to
receive assets of any of its subsidiaries upon the subsidiary's liquidation or
23
reorganization (and the consequent right of the holders of the notesbonds to
participate in those assets) will be effectively subordinated to the claims of
that subsidiary's creditors, except to the extent that Avista Corp. is itself
recognized as a creditor of the subsidiary, in which case the claims of Avista
Corp. would still be subordinate in right of payment to any security in the
assets of the subsidiary and any indebtedness of the subsidiary senior to that
held by Avista Corp. In addition, Avista Corp.'s ability to access the cash flow
of its subsidiaries is subject to substantial restrictions. See BANK CREDIT
AGREEMENTS. As of MarchDecember 31, 2001, Avista Corp.'s subsidiaries had
approximately $3.7$22.9 million of Indebtedness, $639.4indebtedness, $440.4 million of payables and
other liabilities, and $9.3 billion$673.8 million of energy commodity liabilities (energy
commodity liabilities are held in a portfolio containing $9.5 billion$860.5 million of
energy commodity assets) outstanding.
PRINCIPAL, MATURITY AND INTEREST
Avista Corp. has limited the aggregate principal amountAs of notes which can
be issued under the indenture to $600 million, of which Avista Corp. has issued
$400 million aggregate principal amount. Avista Corp. may issue additional notes
(the "Additional Notes") from time to time. Any offering of Additional Notes is
subject to the covenant described below under the caption "--Certain Other
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock." The
notes and any Additional Notes subsequently issued under the indenture would be
treated as a single class for all purposes under the indenture, including,
without limitation, waivers, amendments, redemptions and offers to purchase.
Avista Corp. will issue notes in denominations of $1,000 and integral multiples
of $1,000. The notes will mature on June 1, 2008.
Interest on the notes will accrue at the rate of 9.75% per annum and will
be payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 2001. Avista Corp. will make each interest payment to the holders of
record on the immediately preceding May 15 and November 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basisthis prospectus, $533.5 million of a 360-day year comprisedfirst mortgage
bonds are outstanding. This amount includes $220 million of twelve
30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder has given wire transfer instructions to Avista Corp. at least
ten business days priornon-transferable
first mortgage bonds which were issued in September 2001 to the applicable payment date,agent bank under
Avista Corp. will pay
all principal, interest and premium, if any, on that holder's notes's primary credit facility in accordance with those instructions. All other payments onorder to provide the notes will be made
at the office or agencybenefit of the
paying agentlien of the mortgage to secure Avista Corp.'s obligations. The indebtedness
under the credit facility (including the collateral bonds) are included in
Avista Corp.'s short-term debt. See BANK CREDIT AGREEMENTS.
MAINTENANCE AND REPLACEMENT FUND
Annual Maintenance and registrar for the notes within
the City and State of New York unless Avista Corp. elects to make interestReplacement Fund payments by check mailed to the holders at their addresses set forth in the
register of holders.
PAYING AGENT AND REGISTRAR FOR THE NOTES
The trustee will initially act as paying agent and registrar. Avista Corp.
may change the paying agent or registrar without prior notice to the holders,
and Avista Corp. or any of its Subsidiaries may act as paying agent or
registrar.
TRANSFER AND EXCHANGE
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will beare required to pay all taxes due on transfer. Avista Corp. is not
required to transfer or exchange any note selected for redemption.
OPTIONAL REDEMPTION
The notes are redeemable in whole or in part, at the option of Avista Corp.
at any time, at a redemption price equal to the greater of (i) 100% of the
principal amount of the notes being redeemed or (ii) the sum of the present
values of the remaining scheduled payments of principal of and interest on the
notes being redeemed discounted to the date of redemption on a semiannual basis
24
(assuming a 360-day year consisting of twelve 30-day months) at a discount rate
equal to the Treasury Yield plus 50 basis points, plus, for (i) or (ii) above,
whichever is applicable, accrued interest on such notes to the date of
redemption.
"Treasury Yield" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed as
a percentage of its principal amount) equal to the Comparable Treasury Price for
such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such notes to be
redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the H.15 Daily
Update of the Federal Reserve Bank of New York or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
business day, the Reference Treasury Dealer Quotation for such redemption date.
"H.15(519)" means the weekly statistical release entitled "Statistical
Release H.15 (519)", or any successor publication, published by the Board of
Governors of the Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519) available through
the worldwide website of the Board of Governors of the Federal Reserve System or
any successor site or publication.
"Independent Investment Banker" means an independent investment banking
institution of national standing appointed by Avista Corp. and reasonably
acceptable to the trustee.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by the
trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount and quoted in
writingmade to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date).
"Reference Treasury Dealer" means a primary U.S. Government securities
dealer in New York City appointed by Avista Corp. and reasonably acceptable to
the trustee.
Notice of redemption shall be given not less than 15 days nor more than 60
days prior to the date fixed for redemption.
Unless Avista Corp. defaults in payment of the Redemption Price (as defined
below), from and after the Redemption Date, the notes or portions thereof called
for redemption will cease to bear interest, and the holders thereof will have no
right in respect to such notes except the right to receive the Redemption Price
thereof.
Under the procedures set forth above, the price (the "Redemption Price")
payable upon the optional redemption at any time of notes is determined by
calculating the present value (the "Present Value") at such time of each
remaining payment of principal of or interest on such notes and then totaling
such Present Values. If the sum of such Present Values is equal to or less than
100% of the principal amount of such notes, the Redemption Price of such notes
will be 100% of its principal amount (redemption at par). If the sum of such
Present Values is greater than 100% of the principal amount of such notes, the
Redemption Price of such notes will be such greater amount (redemption at a
premium). In no event may a note be redeemed optionally at less than 100% of its
principal amount.
The Present Value at any time of a payment of principal of or interest on a
note is calculated by applying to such payment the discount rate (the "Discount
Rate") applicable to such payment. The Discount Rate applicable at any time to a
25
payment of principal of or interest on a note equals the equivalent yield to
maturity at such time of a fixed rate United States treasury security having a
maturity comparable to the maturity of such payment plus 50 basis points; such
yield being calculated on the basis of the interest rate borne by such United
States treasury security and the price at such time of such security. The United
States treasury security employed in the calculation of a Discount Rate (a
"Relevant Security") as well as the price and equivalent yield to maturity of
such Relevant Security will be selected or determined by an investment banker of
national standing selected by Avista Corp. which is reasonably acceptable to the
trustee.
Whether the sum of the Present Values of the remaining payments of
principal of and interest on a note to be redeemed optionally will or will not
exceed 100% of its principal amount and, accordingly, whether such notes will be
redeemed at par or at a premium will depend on the Discount Rate used to
calculate such Present Values. Such Discount Rate, in turn, will depend upon the
equivalent yield to maturity of a Relevant Security which yield will itself
depend on the interest rate borne by, and the price of, the Relevant Security.
While the interest rate borne by the Relevant Security is fixed, the price of
the Relevant Security tends to vary with interest rate levels prevailing from
time to time. In general, if at a particular time the prevailing level of
interest rates for a newly issued United States treasury security having a
maturity comparable to that of a Relevant Security is higher than the level of
interest rates for newly issued United States treasury securities having a
maturity comparable to such Relevant Security prevailing at the time the
Relevant Security was issued, the price of the Relevant Security will be lower
than its issue price. Conversely, if at a particular time the prevailing level
of interest rates for a newly issued United States treasury security having a
maturity comparable to that of a Relevant Security is lower than the level of
interest rates prevailing for newly issued United States treasury securities
having a maturity comparable to the Relevant Security at the time the Relevant
Security was issued, the price of the Relevant Security will be higher than its
issue price.
Because the equivalent yield to maturity on a Relevant Security depends on
the interest rate it bears and its price, an increase or a decrease in the level
of interest rates for newly issued United States treasury securities with a
maturity comparable to that of a Relevant Security above or below the levels of
interest rates for newly issued United States treasury securities having a
maturity comparable to the Relevant Security prevailing at the time of issue of
the Relevant Security will generally result in an increase or a decrease,
respectively, in the Discount Rate used to determine the Present Value of a
payment of principal of or interest on a note. As noted above, if the sum of the
Present Values of the remaining payments of principal of and interest on a note
proposed to be redeemed is less than its principal amount, such note may only be
redeemed at par.
MANDATORY REDEMPTION
Avista Corp. is not required to make any mandatory redemption or sinking
fund payments with respect to the notes.
SELECTION AND NOTICE
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
(2) if the notes are not listed on any national securities exchange,
on a pro rata basis, by lot or by such method as the trustee shall deem
fair and appropriate.
No portion of a note less than $1,000 will be redeemed. Notices of
redemption will be mailed by first class mail at least 15 but not more than 60
days before the redemption date to each holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that note
that is to be redeemed. A new note in principal amount equal to the unredeemed
26
portion of the original note will be issued in the name of the holder thereof
upon cancellation of the original note. Notes called for redemption become due
on the date fixed for redemption. On and after the redemption date, interest
ceases to accrue on notes or portions of them called for redemption.
REPURCHASE AT THE OPTION OF HOLDERS
CHANGE OF CONTROL
In the event of a Change of Control, each holder of notes will have the
right to require Avista Corp. to repurchase all or any part (equal to $1,000 or
an integral multiple of $1,000) of that holder's notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the Change of Control
Offer, Avista Corp. will offer a Change of Control Payment in cash equal to 101%
of the aggregate principal amount of notes repurchased plus accrued and unpaid
interest, if any, thereon, to the date of purchase. Within ten days following
any Change of Control, Avista Corp. will mail a notice to each holder describing
the transaction or transactions that constitute the Change of Control and
offering to repurchase notes on the Change of Control Payment Date specified in
the notice, pursuant to the procedures required by the indenture and described
in such notice. Avista Corp. will comply with the requirements of Rule 14e-1
under the Exchange Act and any other securities laws and regulations thereunder
to the extent those laws and regulations are applicable in connection with the
repurchase of the notes as a result of a Change of Control.
On the Change of Control Payment Date, Avista Corp. will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly
tendered pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Changeexcess, if any, of Control Paymentthe amount
which, in respectthe opinion of all notes or portions of notes properly
tendered; and
(3) deliver or cause to bean engineer expressed in a certificate delivered to the
trustee, should have been expended during the notes so
accepted together with an Officers' Certificate statingpreceding calendar year for
repairs, maintenance, renewals or replacements of, or substitutions for, the
aggregate
principalmortgaged property over the amount actually expended for such purposes. Any
annual requirement may be satisfied (a) in cash or (b) by credit for the amount
of notesfirst mortgage bonds that would otherwise be issuable on the basis of either
property additions or portions of notes being purchasedfirst mortgage bonds or prior lien bonds theretofore
retired; provided, however, that the Company is not permitted to satisfy any
Maintenance and Replacement Fund requirement by Avista
Corp.
The paying agent will promptly mailthe deposit of cash if, at the
time such requirement is to each holderbe satisfied, it has unfunded property additions
having a cost or fair value (whichever is less) equal to or greater than 110% of
notes properly
tendered the Change of Control Payment for such notes, andrequirement. Cash deposited with the trustee will
promptly authenticatepursuant to the Maintenance
and mail (or causeReplacement Fund may, among other things, be applied to be transferredthe purchase of
first mortgage bonds or to the redemption of first mortgage bonds which are, by
book entry) to
each holder a new note equal in principal amount to any unpurchased portiontheir terms, redeemable before maturity.
27
In every year since the execution and delivery of the notes surrendered, if any; providedmortgage, the
Company has made all necessary expenditures for the aforesaid purposes and an
engineer has so certified, with the result that the Company has never been
required to make any payment to the trustee under the Maintenance and
Replacement Fund.
In addition, the mortgage contains a covenant pursuant to which the
Company is required for each new note will be in a
principal amount of $1,000calendar year to expend or an integral multiple of $1,000. Avista Corp. will
publicly announce the resultsaccrue for maintenance
or to appropriate for property retirement or for property amortization 13 1/2%
of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require Avista Corp. to make a Change
of Control Offer following a Change of Control will be applicable regardless of
whether any other provisionsgross operating revenues of the indenture are applicable. ExceptCompany, as described above with respect todefined therein; provided,
however, that the Company may so expend, accrue or appropriate a Change of Control,lesser amount
if a regulatory authority determines that such lesser amount is adequate. Excess
amounts expended, accrued or appropriated in any year may be credited against
the indenturefive succeeding years' requirements. This covenant does not containrequire the
deposit of cash with the trustee.
The Company amended the mortgage, effective as of the Modification
Effective Date referred to below, to eliminate the provisions that permitfor property
maintenance and retirement described above. No consent of the holders of the
notesbonds is required in order for this amendment to requirebecome effective. See
"--Modification."
(Mortgage, Sec. 38; First Supplemental, Article XXV; Second
Supplemental, Sec. 9; Eighteenth Supplemental, Sec. 4; Twenty-sixth
Supplemental, Sec. 2; Twenty-ninth Supplemental, Art. II.)
SPECIAL PROVISIONS FOR RETIREMENT OF BONDS
If, during any 12-month period, any of the mortgaged property is taken
by eminent domain and/or sold to any governmental, authority and/or sold
pursuant to an order of a governmental authority, with the result that Avista
Corp. repurchasethe
Company receives $15,000,000 or redeemmore in cash or in principal amount of purchase
money obligations, the notesCompany is required to apply such cash and the proceeds
of such obligations (subject to certain conditions and deductions, and to the
extent not otherwise applied) to the redemption of first mortgage bonds which
are, by their, terms, redeemable before maturity by the application of such cash
and proceeds. (Mortgage, Sec. 64; Tenth Supplemental, Sec. 4.)
ISSUANCE OF ADDITIONAL BONDS
The present maximum principal amount of first mortgage bonds which may
be outstanding under the mortgage is $10,000,000,000. However, the Company has
reserved the right to amend the mortgage (without any consent of or other action
of holders of any bonds now or hereafter outstanding) to remove this limitation.
First mortgage bonds of any series may be issued from time to time on
the basis of:
(1) 60% of cost or fair value of property additions (whichever is less)
after adjustments to offset retirements;
(2) retirement of first mortgage bonds; and
(3) deposit of cash.
The Old Bonds were issued upon the basis of unfunded property additions
and retired first mortgage bonds and New Bonds will only be issued in exchange
for a like principal amount of Old Bonds tendered in the eventExchange Offer.
The Company has amended the mortgage, effective as of a takeover,
recapitalization or similar transaction. Accordingly, the indenture may not
affordModification
Effective Date referred to below, to (x) change 60% in the preceding sentence to
70% and (y) make correlative changes in provisions relating to, among other
things, the release of property from the lien of the mortgage and the withdrawal
of cash held by the trustee. No consent of the holders of notes protectionthe bonds is required
in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring, mergerorder for this amendment to become effective.
See "--Modification."
No first mortgage bonds may be issued as described in clause (1) or similar transaction.
Avista Corp. will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer(3)
in the manner, at the times and otherwise in compliance with the requirements set forth
in the indenture applicable to a Change of Control Offer made by Avista Corp.
and purchases all notes properly tendered and not withdrawn under such Change of
Control Offer.
The definition of Change of Control includes a phrase relating to the
direct or indirect sale, lease, transfer, conveyance or other disposition of
"all or substantially all"preceding paragraph unless net earnings for 12 consecutive months out of
the properties or assetspreceding 15 calendar months (before income taxes, depreciation and
amortization of Avista Corp.property, property losses and its
Subsidiaries taken as a whole. Although there is a limited bodyinterest on any indebtedness and
amortization of case law
interpretingdebt discount and expense) are at least twice the phrase "substantially all", there is no precise established
27annual
28
definition of the phrase under applicable law. Accordingly, it may be uncertain
whether a holder of notes can require Avista Corp. to repurchase those notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
thaninterest requirements on all of the assets of Avista Corp. and its Subsidiaries taken as a whole.
ASSET SALES
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless:
(1) Avista Corp. (or the Restricted Subsidiary, as the case may be)
receives considerationfirst mortgage bonds at the time outstanding,
including the additional issue, and on all indebtedness of the Asset Sale at least equalprior rank. Such net
earnings test generally need not be satisfied prior to the fair market valueissuance of first
mortgage bonds as described in clause (2) in the assets or Equity Interestspreceding paragraph unless (x)
the annual requirements on the retired first mortgage bonds on the basis of
which the bonds are to be issued or sold or
otherwise disposed of, as determined by Avista Corp.'s Board of Directors
and evidenced byhave been excluded from a resolution of the Board of Directors set forth in an
Officers' Certificatenet earnings
certificate delivered to the trustee beforesince the retirement of such first mortgage
bonds or a reasonable time
after such Asset Sale; and
(2) at least 75%(y)(i) the retired first mortgage bonds on the basis of which the consideration received in such Asset Sale by
Avista Corp. or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following shall be
deemedbonds
are to be cash:
(a) any liabilities (as shown on Avista Corp.'s or such
Restricted Subsidiary's most recent balance sheet) of Avista Corp. or
any Restricted Subsidiary (other than contingent liabilities and
liabilities that areissued mature by their terms subordinated in rightat a date more than two years after the
date for authentication and delivery of payment
tosuch bonds and (ii) the notes) that are assumed bybonds bear
interest at a higher rate than such retired first mortgage bonds.
The Company has amended the transferee or purchaser of any
such assets pursuant to an agreement that releases Avista Corp. or
such Restricted Subsidiary from further liability; and
(b) any securities, notes or other obligations received by
Avista Corp. or any such Restricted Subsidiary from such transferee
that are contemporaneously (subject to ordinary settlement periods)
converted by Avista Corp. or such Restricted Subsidiary into cash (to
the extentmortgage, effective as of the cash received in that conversion, sale or exchange).
Within 360 days afterModification
Effective Date referred to below:
o to modify the receipt of any Net Proceeds from an Asset Sale
that is consummated at a time when the Rating Condition is not satisfied, Avista
Corp. may apply those Net Proceeds:
(1) to repay Indebtedness (other than intercompany Indebtedness) of
Avista Corp., or a Restricted Subsidiary of Avista Corp., and to
correspondingly reduce commitments if such Indebtedness constitutes
revolving credit borrowings;
(2) to make capital expenditures; or
(3) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, Avista Corp. may temporarily
reduce revolving credit borrowings or otherwise invest Net Proceeds in any
manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are consummated at a time when the
Rating Condition is not satisfied that are not applied or invested as provided
abovenet earnings test described in the preceding
paragraph will constitute "Excess Proceeds." Whento, among other things:
o provide that the aggregate amount of Excess Proceeds exceeds $15 million, Avista Corp. will make
an Asset Sale Offer to all holders of notes (and to all holders of other
Indebtedness thatperiod over which net earnings is pari passu with the notes and that contains provisions
similar to those set forth in the indenture relating to the notes with respect
to offers to purchase or redeem with the proceeds of sales of assets) to
purchase the maximum principal amount of notes and such other pari passu
28
Indebtedness that maycomputed
shall be purchased12 out of the Excess Proceeds. The offer pricepreceding 18 months;
o specifically permit the inclusion in any Asset Sale Offer will be equalnet earnings of
revenues collected or accrued subject to 100%possible refund;
specifically permit the inclusion in net earnings of principal amount (or 100% of
the accreted value thereof, in the case of Indebtedness sold at a discount) plus
accrued and unpaid interest to the date of purchase, and will be payable in
cash. If any Excess Proceeds remain after consummation of an Asset Sale Offer,
Avista Corp. may use those Excess Proceeds for any purpose not otherwise
prohibited by the indenture. If the aggregate principal amount of notes and
other Indebtedness tendered into such Asset Sale Offer exceeds the amount of
Excess Proceeds, Avista Corp. will allocate the Excess Proceeds on a pro rata
basis to the notes and such other Indebtedness tendered, and the trustee will
select the notes to be purchased on a pro rata basis based on the principal
amount of notes tendered. Upon completion of each Asset Sale Offer, the amount
of Excess Proceeds will be reset at zero.
Notwithstanding the foregoing,
(1) Avista Corp. may (i) dispose of all or any
portion of its
transmission assets in one or more RTO Transactions, or (ii) effect, or
permitthe allowance for funds used during construction,
and any Restricted Subsidiary to effect, an Asset Sale in which the
Capital Stock of Avista Communications, Avista Advantage or Avista Labs
(provided such Person is operating substantially the same business as at
the dateportion of the indenture)allowance for funds used to conserve
energy (or any analogous amount), which is exchanged for Capital Stocknot included in
"other income" (or any analogous item) in the Company's
books of account;
o provide that, in calculating net earnings, no deduction from
revenues or other securities of another Person if, upon completion thereof, the subject or
transferee Person is no longer a Subsidiary of Avista Corp.; provided,
however, that if the Rating Condition is not satisfied at the time of such
transaction, Avista Corp. shall apply any Net Proceeds therefrom in
accordance with the foregoing provisions; provided, further, that if Avista
Corp. or any Restricted Subsidiary thereafter disposes of any Capital Stock
or other securities or ownership interest in the subject or transferee
Person received in, or retained subsequent to, any such transaction, any
cash realized therefromincome shall be treated as Net Proceeds from an Asset Sale
and applied in accordance with the foregoing provisions; and
(2) thesemade for (1) expenses or
provisions shall not apply to any Asset Sale which
constitutes a transfer, conveyance, sale, lease or other disposition of all
or substantially all of Avista Corp.'s properties or assets. See below
under "--Certain Other Covenants--Merger, Consolidation or Sale of Assets."
Avista Corp. will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the indenture, Avista Corp. will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
CERTAIN OTHER COVENANTS
Set forth below are certain other covenants contained in the indenture.
During any period of time that (i) Moody's and S&P have issued credit ratings of
Avista Corp.'s senior unsecured debt of at least Baa2 and BBB, respectively, in
each case with a stable or improving outlook and (ii) no Default has occurred
and is continuing under the indenture (which we refer to collectively as the
"Rating Condition"), Avista Corp. and its Restricted Subsidiaries will not be
subject to the provisions of the Indenture described above under "Repurchase at
the Option of Holders--Asset Sales", and the provisions described below under
"--Restricted Payments", "--Incurrence of Indebtedness and Issuance of Preferred
Stock", "--Dividend and Other Payment Restrictions Affecting Subsidiaries", and
"--Transactions with Affiliates", and clause (4) of the "--Merger, Consolidation
and Sale of Assets" covenant (collectively, the "Suspended Covenants"). If
Avista Corp. and its Restricted Subsidiaries are not subject to the Suspended
Covenants with respect to the notes for any periodnon-recurring charge to income of
time as a result of the
preceding sentence and, subsequently, onewhatever kind or both of Moody's and S&P withdraw
their ratings or downgrade the ratings assigned to the notes below the specified
ratings, then Avista Corp. and each of its Restricted Subsidiaries (except to
the extent that any Restricted Subsidiary is not subject to any such covenant
pursuant to the terms thereof) will thereafter again be subject to the Suspended
Covenants for the benefit of the notes and compliance with the Suspended
Covenants with respect to Restricted Payments made after the time of such
withdrawal or downgrade will be calculated in accordance with the terms of the
covenant described below under "--Restricted Payments" as if such covenant had
been in effect during the entire period of time from the date of the indenture.
RESTRICTED PAYMENTS
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly:
29
(1) declare or pay any dividend or make any other payment or
distribution on account of Avista Corp.'s Equity Interestsnature (including without limitation any payment in connection with any merger or
consolidation involving Avista Corp. or anythe
recognition of its Restricted Subsidiaries)
orexpense due to the directnon-recoverability of
investment) or indirect holders of Avista Corp.'s or any of its
Restricted Subsidiaries' Equity Interests in their capacity as such (other
than dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Avista Corp. or dividends or distributions to Avista
Corp. or a Restricted Subsidiary of Avista Corp.);
(2) purchase, redeem or otherwise acquire or retire for value
(including, without limitation, in connection with any merger or
consolidation involving Avista Corp.) any Equity Interests of Avista Corp.
or any Person that beneficially owns, directly or indirectly, a majority of
the Capital Stock of Avista Corp.;
(3) make any payment on or with respect to, or purchase, redeem,
defease or otherwise acquire or retire for value any Indebtedness that is
subordinated in right of payment to the notes, except a payment of interest
or principal at or after the Stated Maturity thereof or a refinancing
thereof within one year of the final maturity date thereof; or
(4) make any Restricted Investment (all such payments and other
actions set forth in these clauses (1) through (4) being collectively
referred to as "Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof;
(2) Avista Corp. would, at the time of such Restricted Payment and
after giving pro forma effect thereto as if such Restricted Payment had
been made at the beginning of the applicable four-quarter period, have been
permitted to incur at least $1.00 of additional Indebtedness pursuant to
the Fixed Charge Coverage Ratio test set forth in the first paragraph of
the covenant described below under the caption "-- Incurrence of
Indebtedness and Issuance of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of
all other Restricted Payments made by Avista Corp. and its Subsidiaries
after the date of the indenture (excluding Restricted Payments permitted by
clauses (2) through (7) and (9) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Avista Corp. for the
period (taken as one accounting period) from the beginning of the
first fiscal quarter commencing prior to the date of the indenture to
the end of Avista Corp.'s most recently ended fiscal quarter for which
internal financial statements are available at the time of such
Restricted Payment (or, if such Consolidated Net Income for such
period is a deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by Avista
Corp. since the date of the indenture as a contribution to its common
equity capital or from the issue or sale of Equity Interests of Avista
Corp. (other than Disqualified Stock) or upon the exercise of any
options, warrants or other rights to purchase Capital Stock (other
than Disqualified Capital Stock) of Avista Corp. or from the issuance
or sale of convertible or exchangeable Disqualified Stock or
convertible or exchangeable debt securities of Avista Corp. that have
been converted into or exchanged for such Equity Interests (other than
Equity Interests (or Disqualified Stock or debt securities) sold to a
Subsidiary of Avista Corp.), plus
(c) 100% of the net reduction in any Restricted Investment that
was made after the date of the indenture resulting from payments of
interest on Indebtedness, dividends, repayment of loans or advances,
or other transfers of assets, in each case to Avista Corp. or any
Restricted Subsidiary, and the cash return of capital with respect to
any Restricted Investment (less the cost of disposition, if any), plus
30
(d) to the extent that any Unrestricted Subsidiary of Avista
Corp. is redesignated as a Restricted Subsidiary after the date of the
indenture, the fair market value of Avista Corp.'s Investment in such
Subsidiary as of the date of such redesignation, plus
(e) any amount which previously qualified as a Restricted
Payment on account of any Guarantee entered into by Avista Corp. or
any Restricted Subsidiary; provided that such Guarantee has not been
called upon and the obligation arising under such Guarantee no longer
exists; less
(f) the after-tax amount of any power and natural gas cost
deferrals for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing prior to the date of
the indenture to the end of Avista Corp.'s most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment; plus
(g) the after-tax amount of any amortization of power and
natural gas deferrals for the period (taken as one accounting period)
from the beginning of the first fiscal quarter commencing prior to the
date of the indenture to the end of Avista Corp.'s most recently ended
fiscal quarter for which internal financial statements are available
at the time of such Restricted Payment.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Avista Corp. or of any
Equity Interests of Avista Corp. in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary
of Avista Corp.) of, Equity Interests of Avista Corp. (other than
Disqualified Stock); provided that the amount of any such net cash proceeds
that are utilized for any such redemption, repurchase, retirement,
defeasancerefund of revenues
previously collected or other acquisition will be excluded from clause (3)(b) of the
preceding paragraph;
(3) the defeasance, redemption, repurchaseaccrued subject to possible refund,
and
o provide that, in calculating annual interest requirements,
(1) if any first mortgage bonds or other acquisition of
subordinated Indebtedness of Avista Corp. with the net cash proceeds from
an incurrence of Permitted Refinancing Indebtedness;
(4) the repurchase, redemption, retirement, refinancing, acquisition
for value or payment of any Disqualified Stock in exchange for, or out of
the net cash proceeds of, the substantially concurrent issuance of new
Disqualified Stock of Avista Corp.; provided that any such new Disqualified
Stock:
(a) shall have an aggregate liquidation preference that does not
exceed the aggregate liquidation preference of the amount so
refinanced;
(b) has a Weighted Average Life to Maturity greater than the
remaining Weighted Average Life to Maturity of the Disqualified
Capital Stock being refinanced; and
(c) has a Stated Maturity later than the Stated Maturity of the
Disqualified Stock being refinanced;
(5) the repurchase of any subordinated Indebtedness of Avista Corp.prior ranking
indebtedness bears interest at a purchase price not greater than 101% ofvariable rate, the principal amount of such
subordinated Indebtedness in the event of a Change of Control pursuant to a
provision similar to "Repurchase at the Option of Holders--Change of
Control"; provided that prior to consummating any such repurchase, Avista
Corp. has made the Change of Control Offer required by the indenture and
has repurchased all notes validly tendered for payment in connection with
such Change of Control Offer;
(6) the repurchase of any subordinated Indebtedness of Avista Corp.
at a purchase price not greater than 100% of the principal amount of such
Indebtedness in the event of an Asset Sale pursuant to a provision similar
31
to the "--Repurchase at the Option of Holders--Asset Sales" covenant;
provided that prior to consummating any such repurchase, Avista Corp. has
made the Asset Sale Offer required by the indenture and has repurchased all
notes validly tendered for payment in connection with such Asset Sale
Offer;
(7) repurchases of Capital Stock (or warrants or options convertible
into or exchangeable for such Capital Stock) deemed to occur upon exercise
of stock options to the extent that shares of such Capital Stock (or
warrants or options convertible into or exchangeable for such Capital
Stock) represent a portion of the exercise price of such options;
(8) the declaration and payment of regular quarterly cash dividends
in respect of Avista Corp.'s common stock in a per share amount not to
exceed 105% of the quarterly dividend for the immediately preceding
calendar quarter, and in respect of Avista Corp.'s preferred stock in an
aggregate amount not to exceed $2.5 million per calendar quarter; provided
that the aggregate amount of such cash dividends will be included as
Restricted Payments for purposes of determining the amount of Restricted
Payments that may be made pursuant to clause (3) of the preceding
paragraph; or
(9) other Restricted Payments by Avista Corp. or any Restricted
Subsidiary in an aggregate amount not to exceed $10 million since the date
of the indenture.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or securities
proposed to be transferred or issued to or by Avista Corp. or such Subsidiary,
as the case may be, pursuant to the Restricted Payment. The fair market value of
any assets or securities that are required to be valued by this covenant willannual
interest requirements thereon shall be determined by
the Board of Directors whose resolution with respect thereto shall
be deliveredreference to the trustee.
INCURRENCE OF INDEBTEDNESS AND ISSUANCE OF PREFERRED STOCK
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, directlyrate or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt), and Avista Corp. will not
issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided, however, that
Avista Corp. may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock, and Avista Corp.'s Restricted Subsidiaries may incur
Indebtedness or issue preferred stock, if the Fixed Charge Coverage Ratio for
Avista Corp.'s most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or the preferred stock or
Disqualified Stock had been issued, as the case may be, at the beginning of such
four-quarter period.
This covenant will not prohibit the incurrence of any of the following
items of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Avista Corp. or any of its Restricted
Subsidiaries of Indebtedness and letters of credit under one or more Credit
Facilities in an aggregate principal amount at any one time outstanding
under this clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of Avista Corp.
and its Restricted Subsidiaries thereunder) equal to $600 million
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving loans and letters
of credit under any Credit Facility (in each case, other than in connection
with an amendment, refinancing, refunding, replacement, renewal or
modification) made after the date of the Indenture;
(2) the incurrence by Avista Corp. or any of its Restricted
Subsidiaries of the Existing Indebtedness;
(3) the incurrence by Avista Corp. of Indebtedness represented by the
notes;
32
(4) the incurrence by Avista Corp. or any of its Restricted
Subsidiaries of Permitted Refinancing Indebtedness in exchange for, or the
net proceeds of which are used to refund, refinance or replace,
Indebtedness (other than intercompany Indebtedness) that was permitted by
the indenture to be incurred under the first paragraph of this covenant or
clauses (2), (3), (8), (11) or (12) of this paragraph;
(5) the incurrence by Avista Corp. or any of its Restricted
Subsidiaries of intercompany Indebtedness between or among Avista Corp. and
any of its Restricted Subsidiaries; provided, however, that:
(a) if Avista Corp. is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in
full in cash of all Obligations with respect to the notes; and
(b)(i) any subsequent issuance or transfer of Equity Interests
that results in any such Indebtedness being held by a Person other
than Avista Corp. or a Restricted Subsidiary thereof and (ii) any sale
or other transfer of any such Indebtedness to a Person that is not
either Avista Corp. or a Restricted Subsidiary thereof, shall be
deemed, in each case, to constitute an incurrence of such Indebtedness
by Avista Corp. or such Restricted Subsidiary, as the case may be,
that was not permitted by this clause (5);
(6) the incurrence by Avista Corp. or any of its Restricted
Subsidiaries of:
(a) Hedging Obligations that are incurred for the purpose of
fixing or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the indenture to be
outstanding;
(b) Currency Hedging Obligations relating to Indebtedness of
Avista Corp. or any Restricted Subsidiary and/or to obligations to
purchase or sell assets or properties; provided that such Currency
Hedging Obligations do not increase the Indebtedness or other
obligations of Avista Corp. or any Restricted Subsidiary other than as
a result of fluctuations in foreign currency exchange rates or by
reason of fees, indemnities and compensation payable thereunder;
(c) Commodity Price Protection Obligations; provided that such
Commodity Price Protection Obligations do not increase the amount of
Indebtedness or other obligations of Avista Corp. or any Restricted
Subsidiary other than as a result of fluctuations in commodity prices
or by reason of fees, indemnities and compensation payable thereunder;
and
(d) the Guarantee by any Restricted Subsidiary of Avista Corp.
of Indebtedness of Avista Corp. if such Restricted Subsidiary
guarantees the notes by executing a guarantee and supplemental
indenture in the forms prescribed by the indenture;
(7) the Guarantee by Avista Corp. or any Subsidiary of Avista Corp.
of Indebtedness of a Restricted Subsidiary of Avista Corp. that was
permitted to be incurred by another provision of this covenant;
(8) Indebtedness of Avista Corp. or any Restricted Subsidiary of
Avista Corp., represented by Capital Lease Obligations, or preferred stock
of a Restricted Subsidiary issued, or Indebtedness of Avista Corp. or a
Restricted Subsidiary incurred or assumed (i) to finance capital
expenditures or (ii) in connection with the acquisition or development of
real property, plant or equipment or the Capital Stock of a Restricted
Subsidiary that owns such property, plant or equipment in each case
incurred for the purpose of financing all or any part of the purchase price
of such property, plant or equipment or Capital Stock, in each case in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding pursuant to this clause (8), including all Permitted
Refinancing Indebtedness incurred to refund, refinance or replace any
Indebtedness incurred pursuant to this clause (8), not to exceed $275
million;
(9) Indebtedness incurred to finance power and natural gas cost
deferrals pursuant to, and in accordance with, state statutory or public
utility commission authorization, in an amount not to exceed the amount of
the deferrals so financed;
33
(10) Indebtedness of Avista Corp. or any of its Restricted
Subsidiaries arising from the honoring by a bank or other financial
institution of a check, draft or similar instrument inadvertently (except
in the case of daylight overdrafts) drawn against insufficient funds in the
ordinary course of business; provided, however, that such Indebtedness is
extinguished within five business days of incurrence;
(11) shares of preferred stock of a Restricted Subsidiary of Avista
Corp. issued to Avista Corp. or another Restricted Subsidiary of Avista
Corp.; provided that any subsequent transfer of any Capital Stock or any
other event that results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such shares
of preferred stock (except to Avista Corp. or another Restricted Subsidiary
of Avista Corp.) shall be deemed, in each case, to be an issuance of
preferred stock that was not permitted by this clause (11); and
(12) the incurrence by Avista Corp. or any of its Restricted
Subsidiaries of additional Indebtedness (including under a Credit Facility)
in an aggregate principal amount (or accreted value, as applicable) at any
time outstanding, including all Permitted Refinancing Indebtedness incurred
to refund, refinance or replace any Indebtedness incurred pursuant to this
clause (12), not to exceed $25 million.
In addition, Avista Corp. will not incur any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of payment to any
other Indebtedness of Avista Corp. unless such Indebtedness is also
contractually subordinated in right of payment to the notes pursuant to terms no
less favorable to the holders of the notes; provided, however, that no
Indebtedness of Avista Corp. shall be deemed to be contractually subordinated in
right of payment to any other Indebtedness of Avista Corp. solely by virtue of
being unsecured.
For purposes of determining compliance with this "Incurrence of
Indebtedness and Issuance of Preferred Stock" covenant:
(1) in the event that an item of proposed Indebtedness meets the
criteria of more than one of the categories of Permitted Debt described in
clauses (1) through (12) above, or is entitled to be incurred pursuant to
the first paragraph of this covenant, Avista Corp. will be permitted to
classify such item of Indebtedness on the date of its incurrence in any
manner that complies with this covenant;
(2) Indebtedness under Credit Facilities outstanding on the date of
the indenture shall be deemed to have been incurred on the date of the
indenture in reliance on the exception provided by clause (1) of the
definition of Permitted Debt;
(3) the accrual of interest, the accretion or amortization of
original issue discount, the payment of interest on any Indebtedness in the
form of additional Indebtedness with the same terms, and the payment of
dividends on Disqualified Stock in the form of additional shares of the
same class of Disqualified Stock will not be deemed to be an incurrence of
Indebtedness or an issuance of Disqualified Stock for purposes of this
covenant; provided, in each such case, that the amount thereof is included
in Fixed Charges of Avista Corp. as accrued; and
(4) for purposes of determining compliance with any
dollar-denominated restriction on the incurrence of Indebtedness
denominated in a foreign currency, the dollar-equivalent principal amount
of such Indebtedness incurred pursuant thereto shall be calculated based on
the relevant currency exchange rate in effect on the date that such
Indebtedness was incurred.
Notwithstanding the foregoing, Avista Corp. will not incur or suffer to
exist, or permit any of its Restricted Subsidiaries or Unrestricted Subsidiaries
to incur or suffer to exist, any Obligations with respect to an Unrestricted
Subsidiary that would violate the provisions set forth in the definition of
Unrestricted Subsidiary. Specifically, without limiting the generality of the
foregoing, if an Unrestricted Subsidiary incurs Indebtedness that is not
Non-Recourse Debt or any Indebtedness of an Unrestricted Subsidiary ceases to be
Non-Recourse Debt, such Unrestricted Subsidiary will then cease to be an
Unrestricted Subsidiary for purposes of the indenture and any Indebtedness of
such Subsidiary will be deemed to be incurred by a Restricted Subsidiary of
Avista Corp. as of such date.
34
LIENS
Avista Corp. will not and will not permit any of its Restricted
Subsidiaries to, create, incur, assume or otherwise cause or suffer to exist or
become effective any consensual Lien of any kind securing Indebtedness or trade
payables (other than Permitted Liens) upon any of their property or assets, now
owned or hereafter acquired, unless all payments due under the indenture and the
notes are secured on an equal and ratable basis with the obligations so secured
until such time as such obligations are no longer secured by a Lien; provided,
however, that Avista Corp. and its Restricted Subsidiaries may incur other Liens
to secure Indebtedness or trade payables as long as the sum of (x) the amount of
outstanding Indebtedness and trade payables secured by Liens incurred pursuant
to this proviso plus (y) the Attributable Debt with respect to all outstanding
leases in connection with Sale/Leaseback Transactions entered into pursuant to
the second paragraph of the covenant described below under the caption "--Sale
and Leaseback Transactions", does not exceed $25 million.
DIVIDEND AND OTHER PAYMENT RESTRICTIONS AFFECTING SUBSIDIARIES
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, create
or permit to exist or become effective any consensual encumbrance or restriction
on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital
Stock to Avista Corp. or any of its Restricted Subsidiaries, or with
respect to any other interest or participation in, or measured by, its
profits, or pay any indebtedness owed to Avista Corp. or any of its
Restricted Subsidiaries;
(2) make loans or advances to Avista Corp. or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Avista Corp. or any
of its Restricted Subsidiaries.
However, thenext
preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness and Indebtedness under Credit Facilities as
in effect on the date of the indenturenew issue of first mortgage bonds
and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, restructurings
(including(2) if the new issue of first mortgage bonds is to bear
interest at a variable rate increases), replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, restructurings, replacementrates, the annual interest
requirements thereon shall be determined by reference to the
rate or refinancings are
not materially more restrictive, taken as a whole, with respectrates to such
dividend and other payment restrictions than those contained in such
Indebtedness, as in effect on the date of the indenture;
(2) the indenture and the notes;
(3) applicable law or any requirement of any regulatory body;
(4) any instrument governing Indebtedness or Capital Stock of a
Person acquired by Avista Corp. or any of its Restricted Subsidiaries asbe in effect at the time of the initial
issuance thereof.
No consent of the holders of the bonds is required in order for this
amendment to become effective. See "--Modification."
Property additions generally include electric, natural gas, steam or
water property acquired after May 31, 1939, but may not include property used
principally for the production or gathering of natural gas. Any such acquisition (exceptproperty
additions may be used if their ownership and operation is within the corporate
purposes of the Company regardless of whether or not the Company has all
necessary permission it may need at any time from governmental authorities to
operate such property additions.
The holders of the bonds will be deemed to have consented to an
amendment to the extent such
Indebtedness was incurredprovision of the mortgage which requires that Avista Corp.
deliver an opinion of counsel as to the status of the lien of the mortgage on
Property Additions being certified to the Trustee. The amendment permits us to
deliver to the Trustee, in connection with or in contemplationlieu of such acquisition), which encumbrance or restriction isopinion, title insurance with respect to
such Property Additions in an amount not applicable to any
Person, or the properties or assets of any Person, otherless than the Person,
or the property or assets35% of the Person, socost or fair value
to Avista Corp. (whichever is less) of such Property Additions. Such amendment
could not be made without the requisite consent of the holders of outstanding
bonds as described under "--Modification."
No first mortgage bonds may be issued on the basis of property
additions subject to prior liens, unless the prior lien bonds secured thereby
have been qualified by being deducted from the first mortgage bonds otherwise
29
issuable and do not exceed 50% of such property additions, and unless the first
mortgage bonds then to be outstanding which have been issued against property
subject to continuing prior liens and certain other items would not exceed 15%
of the first mortgage bonds outstanding. The Company has amended the mortgage,
effective as of the Modification Effective Date referred to below, to change 50%
in the foregoing sentence to 70%. No consent of the holders of the bonds is
required in order for this amendment to become effective. See "--Modification."
The amount of prior liens on mortgaged property acquired after the date
of delivery of the mortgage may be increased subsequent to the acquisition of
such property provided that, in the
case of Indebtedness, such Indebtedness was permitted by the terms of the
indenture to be incurred;
(5) customary non-assignment provisions of (a)if any leases governing a
leasehold interest, (b) any supply, license or other agreement entered into
in the ordinary course of business of Avista Corp. or any of its Restricted
Subsidiaries, or (c) any security agreement relating to a Lien incurred
pursuant to clause (10) of the definition of Permitted Liens;
35
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary or assets that restricts distributions by that Subsidiary or of
such assets pending such sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the
restrictions contained in the agreements governing such Permitted
Refinancing Indebtedness are not materially more restrictive, taken as a
whole, than those contained in the agreements governing the Indebtedness
being refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien;prior lien shall
have been made the basis of any application under the mortgage, all the
additional obligation are deposited with the trustee or other holder of a prior
lien.
(Mortgage, Secs. 4 to 8, 20 to 30 and (10)46; First Supplemental, Sec. 2;
Eleventh Supplemental, Sec. 5; Twelfth Supplemental, Sec. 1; Fourteenth
Supplemental, Sec. 4; Seventeenth Supplemental, Sec. 3; Eighteenth Supplemental,
Secs. 1, 2 and 6; Twenty-sixth Supplemental, Sec. 2; Twenty-ninth Supplemental,
Art. II.)
RELEASE AND SUBSTITUTION OF PROPERTY
Property may be released from the lien of the mortgage upon the basis
of (1) deposit of cash or, to a limited amount, purchase money mortgages, (2)
property additions and (3) waiver of the right to issue first mortgage bonds.
Cash may be withdrawn upon the bases stated in clauses (2) and (3) above. When
property released has not been made the basis of any application under the
mortgage, the property additions used to effect the release may again, in
certain cases, become available as credits under the mortgage, and the waiver of
the right to issue first mortgage bonds, to effect the release made in certain
cases, cease to be effective as such a waiver. Similar provisions are in effect
as to cash proceeds of such property. The mortgage contains special provisions
with respect to prior lien bonds pledged, and disposition of moneys received on
pledged bonds secured by prior lien. (Mortgage, Secs. 5; 31, 32, 46 to 50, 59,
60, 61, 118 and 134.)
MODIFICATION
In general, the disposition or distribution of
assets or property in asset sale agreements entered into inmortgage, the ordinary
course of business.
MERGER, CONSOLIDATION OR SALE OF ASSETS
Avista Corp. may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not Avista Corp. is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially allrights and obligations of the propertiesCompany and
the rights of the bondholders may be modified with the consent of 75% in
principal amount of the first mortgage bonds outstanding, and, if less than all
series of first mortgage bonds are affected, the consent also of 75% in
principal amount of the first mortgage bonds of each series affected. However,
no modification of the terms of payment of principal or assets of Avista Corp.interest, and its
Restricted Subsidiaries taken as a whole, in oneno
modification affecting the lien or more related transactions,reducing the percentage required for
modification, is effective against any bondholder without his consent. The
Company has the right to another Person; unless:
(1) either:
(a) Avista Corp. ismake certain specific amendments and amendments
necessary from time to time to qualify the surviving corporation; or
(b) the Person formed by or surviving any such consolidation or
merger or to which such sale, assignment, transfer, conveyance or
other disposition shall have been made is either (i) a corporation
organized or existingmortgage under the lawsTrust Indenture
Act of the United States, any state
thereof or the District of Columbia or (ii) a partnership or limited
liability company organized or existing under the laws of the United
States, any state thereof or the District of Columbia,1939 as in either case,
that has at least one Restricted Subsidiary that is a corporation
organized or existing under the laws of the United States, any state
thereof or the District of Columbia which corporation becomes a
co-issuer of the notes pursuant to a supplemental indenture in form
reasonably satisfactory to the trustee;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Avista Corp.) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Avista Corp. under the notes and, the indenture pursuant
to agreements in form reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) either:
(a) Avista Corp. or the Person formed by or surviving any such
consolidation or merger (if other than Avista Corp.), or to which such
sale, assignment, transfer, conveyance or other disposition shall have
been made will,force on the date of such amendments without the consent of
bondholders. (Mortgage, Art. XVIII, Secs. 120 and 149; First Supplemental, Sec.
10.)
The Company has amended the mortgage, effective as of the Modification
Effective Date referred to below, so as to provide that the mortgage, the rights
and obligations of the Company and the rights of the bondholders may be modified
with the consent of 60% in principal amount of the first mortgage bonds
outstanding or, if less than all series of first mortgage bonds are affected,
then the consent only, of 60% in principal amount of the first mortgage bonds
outstanding of the series so affected, considered as one class. (Twenty-sixth
Supplemental, Sec. 2; Twenty-ninth Supplemental, Art. II.) No consent of the
holders of the bonds is required in order for these amendments to become
effective.
In addition to all other amendments to the mortgage described above
which will become effective as of the Modification Effective Date referred to
below, the Company has amended the mortgage, effective as of the Modification
Effective Date referred to below, in the following respects:
o to specifically provide that no reduction in the book value of
property recorded in the plant account of the Company shall
constitute a property retirement, otherwise than in connection
with physical retirements of property abandoned, destroyed or
disposed of, and otherwise than in connection with the removal of
such property in its entirety from the plant account;
30
o to provide that the lien of the mortgage shall not automatically
attach to the properties of another corporation which shall have
consolidated or merged with the Company in a transaction after giving pro forma
effect thereto and any related financing transactions asin which
the Company shall be the surviving or resulting corporation;
o to provide that if the same
had occurred atCompany shall have appointed a successor
trustee, meeting the beginning of the applicable four-quarter period,
be permitted to incur at least $1.00 of additional Indebtedness,
either pursuant to the Fixed Charge Coverage Ratio testrequirements therefor set forth in the
first paragraphmortgage, which shall have accepted such appointment, the trustee
shall be deemed to have resigned; and
o to specifically provide that the mortgage may be amended without
the consent of the covenant described aboveholders of the first mortgage bonds:
o to evidence the succession of a successor trustee;
o to add additional covenants of the Company and additional
defaults, which may be applicable only to the first mortgage
bonds of specified series;
o to correct the description of property subject to the lien
of the mortgage or to subject additional property to such
lien;
o to change or eliminate any provision of the mortgage or to
add any new provision to the mortgage; provided, that no
such change, elimination or addition shall adversely affect
the interests of the holders of first mortgage bonds of any
series in any material respect;
o to establish the form or terms of first mortgage bonds of
any series;
o to provide for procedures to utilize a non-certificated
system of registration for all or any series of first
mortgage bonds;
o to change any place or places for payment, registration of
transfer or exchange, or notices to and demands upon the
Company, with respect to all or any series of first mortgage
bonds;
o to increase or decrease the maximum principal amount of
bonds issuable under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or
because the Rating Condition is then satisfied; or
36
(b) on the date of such transaction after giving pro forma
effect thereto and any related financing transactions, as if the same
had occurred at the beginning of the applicable four-quarter period,
the pro forma Fixed Charge Coverage Ratio of the surviving Person (if
other than Avista Corp.) will exceed the actual Fixed Charge Coverage
Ratio of Avista Corp. as of such date.
In addition, Avista Corp. may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
TRANSACTIONS WITH AFFILIATES
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiariesmortgage; to make any other changes
which do not adversely affect the interests of the holders
of first mortgage bonds of any series in any material
respect;
o or to evidence any change required or permitted under the
Trust Indenture Act of 1939, as amended.
(Twenty-sixth Supplemental, Sec. 2; Twenty-ninth Supplemental, Art. II)
No consent of the holders of the bonds is required in order for these
amendments to become effective.
As used herein, the term "Modification Effective Date" means the first
time at which certain first mortgage bonds which mature May 29, 2002 are no
longer outstanding (unless the holders of such first mortgage bonds consent to
the foregoing amendments).
COMPLETED DEFAULTS; REMEDIES
Completed Defaults include default in payment of principal; default for
60 days in payment of interest; default in payment of interest or principal of
qualified prior lien bonds continued beyond any grace period; certain events in
bankruptcy, insolvency or reorganization; and default in complying with other
covenants for 90 days after notice. The trustee may withhold notice of default
(except in payment of principal, interest or funds for retirement of first
31
mortgage bonds) if it determines that it is in the interest of the bondholders.
(Mortgage, Secs. 44, 65 and 135.)
The mortgage provides that, upon the occurrence of a Completed Default,
the trustee may, and upon written request of the holders of a majority in
principal amount of first mortgage bonds then outstanding shall, declare the
principal of and accrued interest on all outstanding bonds immediately due and
payable; provided, however, that if, before any sale of the mortgaged property,
all defaults have been cured, the holders of a majority in principal amount of
outstanding first mortgage bonds may annul such declaration. (Mortgage, Sec.
65.)
No holder of first mortgage bonds may enforce the lien of the mortgage
unless such holder shall have given the trustee written notice of a default and
unless the holders of 25% in principal amount of the first mortgage bonds have
requested the trustee in writing to act and have offered the trustee adequate
security and indemnity and a reasonable opportunity to act. Holders of a
majority in principal amount of the first mortgage bonds may direct the time,
method and place of conducting any proceedings for any remedy available to the
trustee, or sell,
lease, transferexercising any trust or power conferred upon the trustee, or may
direct the trustee to take certain action. (Mortgage, Secs. 65, 68, 69, 79, 92
and 138(d) and Art. XXV.)
Notwithstanding any other provision of the mortgage, the right of any
holder of any bond to receive payment of the principal of and interest on such
bond, or to institute suit for the enforcement of any such payment, shall not be
impaired or affected without the consent of such holder. (Mortgage, Sec. 148).
The laws of the various states in which the property subject to the
lien of the mortgage is located may limit or deny the ability of the trustee
and/or the bondholders to enforce certain rights and remedies provided in the
mortgage in accordance with their terms.
CONCERNING THE TRUSTEE
The Trustee has, and is subject to, all the duties and responsibilities
specified with respect to an indenture trustee under the Trust Indenture Act of
1939, as amended. Subject to such provisions, the Trustee is not under any
obligation to take any action in respect of any default or otherwise, disposeor toward
the execution or enforcement of any of its propertiesthe trusts created by the mortgage, or assets to
institute, appear in or purchasedefend any propertysuit or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or forother proceeding in connection
therewith, unless requested in writing so to do by the benefitholders of any Affiliate (each, an "Affiliate Transaction"),
unless:
(1)a majority in
principal amount of the terms of such Affiliate Transaction or series of related
Affiliate Transactions are no less favorable to Avista Corp. or such
Restricted Subsidiary, asbonds then outstanding. Anything in the case may be, than those that would be
obtainable in a comparable transaction or series of related transactions in
arm's-length dealings with an unrelated third party; and
(2) Avista Corp. deliversmortgage to the
trustee (i) with respectcontrary notwithstanding, the Trustee is under no obligation or duty to perform
any Affiliate Transactionact thereunder (other than the delivery of notices) or series of related Affiliate Transactions involving
aggregate consideration in excess of $10 million, a resolution of the Board
of Directors set forth in an Officers' Certificate certifying that such
Affiliate Transaction complies with clause (l) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors and (ii) with respect to institute or
defend any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $25 million, a written opinion of a nationally
recognized investment banking, accounting or appraisal firm stating that
such transaction or series of transactions is fair to the holders from a
financial point of view.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, compensation or indemnification arrangement
entered into by Avista Corp. or any of its Restricted Subsidiaries in the
ordinary course of business with employees, directors, officers or
consultants;
(2) loans or advances to officers, directors, consultants and
employees in the ordinary course of business or guaranteessuit in respect thereof or otherwise made on their behalf (including any payments on such
guarantees);
(3) any redemption of Capital Stock held by employees upon death,
disability or termination of employment at a price not in excess of the
fair market value thereof;
(4) the grant of stock options or similar rightshereof, unless properly indemnified to employees and
directors of Avista Corp.;
(5) payment of reasonable directors fees;
(6) transactions between or among Avista Corp. and/or its
Restricted
Subsidiaries; and
(7) Restricted Payments and Permitted Investments that are permitted
by the provisions of the indenture described above under the caption
"--Restricted Payments."
37
SALE AND LEASEBACK TRANSACTIONS
Avista Corp. will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale/Leaseback Transaction with respect to any
property owned on the date of the indenture or thereafter acquired unless:
(1) Avista Corp. or such Restricted Subsidiary would be entitled to
create a Lien on such property securing Indebtedness in an amount at least
equal to the Attributable Debt with respect to such transaction without
equally and ratably securing the notes pursuant to the covenant described
above under the caption "--Liens";
(2) the Net Proceeds of the sale are at least equal to the fair
market value (as determined by the Board of Directors) of the property sold
and Avista Corp. or such Restricted Subsidiary applies an amount in cash
equal to the net proceeds of such sale to the retirement, within 180 days
of the effective date of any such arrangement, of Indebtedness of Avista
Corp. or a Restricted Subsidiary or purchases other property having a fair
market value at least equal to the fair market value of the assets or
property sold in such transactions; or
(3) such Sale/Leaseback Transaction is between Avista Corp. and any
of its Restricted Subsidiaries or between any Restricted Subsidiaries of
Avista Corp.
In addition to the transactions permitted pursuant to the preceding paragraph,
Avista Corp. or any Restricted Subsidiary may enter into any other
Sale/Leaseback Transaction as long as the sum of:
(a) the Attributable Debt with respect to such Sale/Leaseback
Transaction and all other Sale/Leaseback Transactions entered into pursuant
to this proviso, plus
(b) the amount of outstanding Indebtedness secured by Liens incurred
pursuant to the final proviso to the covenant described under "--Liens",
does not exceed $25 million.
DESIGNATION OF RESTRICTED AND UNRESTRICTED SUBSIDIARIESsatisfaction. (Mortgage, Sec. 92).
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the aggregate
fair market value of all outstanding Investments owned by Avista Corp. and its
Restricted Subsidiaries in the Subsidiary so designated will be deemed to be an
Investment made as of the time of such designation and will either reduce the
amount available for Restricted Payments under the first paragraph of the
covenant described above under the caption "--Restricted Payments" or reduce the
amount available for future Investments under one or more clauses of the
definition of Permitted Investments, or both, as Avista Corp. shall determine.
That designation will be permitted only if such Investment would be permitted at
that time and if such Restricted Subsidiary otherwise meets the definition of an
Unrestricted Subsidiary. The Board of Directors may redesignate any Unrestricted
Subsidiary to be a Restricted Subsidiary if the redesignation would not cause a
Default. Any designation by the Board of Directors shall be evidenced to the
trustee by filing with the trustee a certified copy of the board resolution
giving effect to the designation and an Officer's Certificate certifying that
the designation complied with these conditions and was permitted by the
"Restricted Payments" covenant.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements of the definition of an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of the Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of Avista Corp. as of that date (and, if such Indebtedness
is not permitted to be incurred as of that date under the covenant describes
under the caption "--Incurrence of Indebtedness and Issuance of Preferred
Stock", Avista Corp. will be in default of such covenant).
38
The Board of Directors of Avista Corp.Trustee may at any time designateresign and be discharged of the trusts
created by the mortgage by giving written notice to the Company and thereafter
publishing notice thereof, specifying a date when such resignation shall take
effect, as provided in the mortgage, and such resignation shall take effect upon
the day specified in such notice unless previously a successor trustee shall
have been appointed by the bondholders or the Company. The Trustee may be
removed at any Unrestricted Subsidiarytime by the holders of a majority in principal amount of the
bonds then outstanding. (Mortgage, Secs. 100 and 101).
EVIDENCE OF COMPLIANCE WITH MORTGAGE PROVISIONS
Compliance with mortgage provisions is evidenced by written statements
of the Company's officers or persons selected or paid by the Company. In certain
major matters the accountant or engineer must be independent. Various
certificates and other papers are required to be a Restricted Subsidiary; provided that such
designation will be deemedfiled annually and upon the
happening of certain events, including an annual certificate with reference to
be an incurrence of Indebtedness by a Restricted
Subsidiary of Avista Corp. of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will be permitted only if (i) such Indebtedness
is permitted undercompliance with the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock", calculated on a pro forma basis
as if the designation had occurred at the beginningterms of the four-quarter period,mortgage and (ii) no Default or Eventabsence of Default would be in existence following the
designation.Defaults.
32
REPORTS
Whether or not required by the rules and regulations of the SEC, so
long as any notesbonds are outstanding, Avista Corp. will furnish to the holders of
notes,bonds, within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would
be required to be contained in a filing with the SEC on Forms 10-Q and
10-K, including a "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and, with respect to the annual
information only, a report on the annual financial statements by Avista
Corp.'s certified independent accountants; and
(2) all current reports that would be required to be filed
with the SEC on Form 8-K.
In addition, whether or not required by the rules and regulations of
the SEC, Avista Corp. will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the SEC for public availability
within the time periods specified in the SEC's rules and regulations (unless the
SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. Avista Corp. has
also agreed that, for so long as any Old Notesbonds remain outstanding, it will furnish
to the holders and to securities analysts and prospective investors, upon their
request, the information required to be delivered pursuant to Rule 144A(d)(4)
under the Securities Act.
EVENTS OF DEFAULT AND REMEDIES
Each of the following is an Event of Default:
(1) default continued for 30 days in the payment when due of interest
on, the notes;
(2) default in payment when due of the principal of, or premium, if
any, on the notes;
(3) failure by Avista Corp. or any of its Restricted Subsidiaries to
comply with any of the provisions described under the captions"--Repurchase
at the Option of Holders--Change of Control", "--Repurchase at the Option
of Holders--Assets Sales" or "Certain Other Covenants--Merger,
Consolidation or Sale of Assets;"
(4) default in performance of any other agreements in the indenture
or in the notes for 30 days after written notice to Avista Corp. by the
trustee or to Avista Corp. and the trustee by the holders of at least 25%
in principal amount on the notes then outstanding;
(5) there shall have occurred either (i) a default by Avista Corp. or
any Restricted Subsidiary under any instrument or instruments under which
there is or may be secured or evidenced any Indebtedness of Avista Corp. or
any Restricted Subsidiary of Avista Corp. (other than the notes) having an
outstanding principal amount of $25 million or more that has caused the
holders thereof to declare such Indebtedness to be due and payable prior to
its maturity or (ii) a default by Avista Corp. or any Restricted Subsidiary
39
in the payment at maturity of the principal under any such instrument, and
such unpaid portion exceeds $25 million and is not paid, or such default is
not cured or waived, within any grace period applicable thereto, unless
such acceleration is rescinded or annulled or such Indebtedness is
discharged within 20 days of Avista Corp. or a Restricted Subsidiary
becoming aware of such default; provided, however, that this clause (5)
shall not apply to any default on Non-Recourse Debt;
(6) any final judgment or order for the payment of money shall be
rendered against Avista Corp., or any Restricted Subsidiary of Avista Corp.
that is a Significant Subsidiary, in an amount in excess of $25 million and
shall not be discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order in excess of $25
million during which a stay of enforcement of such final judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;
(7) certain events of bankruptcy or insolvency with respect to Avista
Corp. or any Restricted Subsidiary of Avista Corp. that is a Significant
Subsidiary; and
(8) except as permitted by the indenture, any guarantee of the notes
is held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any guarantor, or
any Person acting on behalf of any guarantor, shall deny or disaffirm its
obligations under such guarantor's guarantee of the notes.
In the case of an Event of Default arising from certain events of
bankruptcy or insolvency, with respect to Avista Corp. or any Restricted
Subsidiary that is a Significant Subsidiary of Avista Corp., all outstanding
notes will become due and payable immediately without further action or notice.
If any other Event of Default occurs and is continuing, the trustee or the
holders of at least 25% in principal amount of the then outstanding notes may
declare all the notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a majority
in principal amount of the then outstanding notes may direct the trustee in its
exercise of any trust or power. The trustee may withhold from holders of the
notes notice of any continuing Default or Event of Default (except a Default or
Event of Default relating to the payment of principal or interest if it
determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, the notes.
Avista Corp. is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Avista Corp. is required to deliver to the trustee a statement
specifying such Default or Event of Default.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator, controlling person or
stockholder of Avista Corp., as such, shall have any liability for any
obligations of Avista Corp. under the notes or the indenture, or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all such liability.
The waiver and release are part of the consideration for issuance of the notes.
The waiver may not be effective to waive liabilities under the federal
securities laws.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
Avista Corp. may, at its option and at any time, elect to have all of its
obligations discharged with respect to all or a portion of the outstanding notes
("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium, if any, on such notes,
when such payments are due from the trust referred to below;
40
(2) Avista Corp.'s obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee,
and Avista Corp.'s obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Avista Corp. may, at its option and at any time, elect to have
the obligations of Avista Corp. released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with respect to the notes. In the event Covenant Defeasance occurs,
certain events (not including non-payment, bankruptcy, receivership,
rehabilitation and insolvency events) described under "-Events of Default" will
no longer constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Avista Corp. must irrevocably deposit with the trustee, in trust,
for the benefit of the holders of the notes (or, in the case of Legal
Defeasance, a specified principal amount thereof), cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants to pay the principal of, premium, if
any, and interest on the notes (or in the case of Legal Defeasance, such
specified principal amount thereof) on the stated maturity or prior
Redemption Date thereof, as the case may be,
(2) in the case of Legal Defeasance, Avista Corp. shall have
delivered to the trustee:
(a) an opinion of counsel in the United States reasonably
acceptable to the trustee confirming that (i) Avista Corp. has
received from, or there has been published by, the Internal Revenue
Service a ruling or (ii) since the date of the indenture, there has
been a change in the applicable federal income tax law, in either case
to the effect that, and based thereon such opinion of counsel shall
confirm that, the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the
same amounts, in the same manner and at the same times as would have
been the case if such Legal Defeasance had not occurred; or
(b)(i) an instrument wherein Avista Corp., notwithstanding the
satisfaction and discharge of its Indebtedness in respect of the notes
or a portion of the principal amount thereof, shall assume the
obligation (which shall be absolute and unconditional) to irrevocably
deposit with the trustee such additional sums of money, if any, or
additional Government Securities, if any, or any combination thereof,
at such time or times, as shall be necessary, together with the money
and/or Government Securities theretofore so deposited, to pay when due
the principal of and premium, if any, and interest due and to become
due on such notes or portions thereof, provided, however, that such
instrument may state that the obligation of Avista Corp. to make
additional deposits as aforesaid shall arise only upon the delivery to
Avista Corp. by the trustee of a notice asserting the deficiency and
showing the calculation thereof and shall continue only until Avista
Corp. shall have delivered to the trustee a further opinion of an
independent public accountant of nationally recognized standing to the
effect that no such deficiency exists and showing the calculation of
the sufficiency of the deposits then held by the trustee; and (ii) an
opinion of recognized tax counsel in the United States reasonably
acceptable to the trustee to the effect that the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
41
(3) in the case of Covenant Defeasance, Avista Corp. shall have
delivered to the trustee an opinion of counsel reasonably acceptable to the
trustee confirming that the holders of the outstanding notes will not
recognize income, gain or loss for federal income tax purposes as a result
of such Covenant Defeasance and will be subject to federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material
agreement or instrument (other than the indenture) to which Avista Corp. or
any of it Subsidiaries is a party or by which Avista Corp. or any of its
Subsidiaries is bound;
(6) Avista Corp. must deliver to the trustee an opinion of counsel to
the effect that (assuming that no holder of any notes would be considered
an insider of Avista Corp. under applicable bankruptcy or insolvency law)
after the 123rd day following the deposit, the trust funds will not
constitute a "voidable preference" under Section 547 of the Bankruptcy
Code;
(7) Avista Corp. must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Avista Corp. with the intent of
preferring the holders of notes over the other creditors of Avista Corp. or
with the intent of defeating, hindering, delaying or defrauding creditors
of Avista Corp. or others; and
(8) Avista Corp. must deliver to the trustee an Officers' Certificate
and an opinion of counsel (with usual and customary exceptions acceptable
to the trustee), each stating that all conditions precedent relating to the
Legal Defeasance or the Covenant Defeasance have been complied with.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent
to an amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note;
(3) reduce the rate of or change the time for payment of interest on
any note;
(4) waive a Default or Event of Default in the payment of principal
of, or interest or premium, if any, on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in
aggregate principal amount of the then outstanding notes and a waiver of
the payment default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the
notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of, or interest or premium, if any, on the notes; and
(7) make any change in the preceding amendment and waiver provisions.
42
Notwithstanding the preceding, without the consent of any holder of notes,
Avista Corp. and the trustee may amend or supplement the indenture or the notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Avista Corp.'s obligations to
holders of notes in the case of a merger or consolidation or sale of all or
substantially all of Avista Corp.'s assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the
legal rights under the indenture of any such holder;
(5) to comply with requirements of the SEC in order to effect or
maintain the qualification of the indenture under the Trust Indenture Act,
or
(6) to evidence and provide the acceptance of the appointment of a
successor trustee under the indenture.
SATISFACTION AND DISCHARGE
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder except as to:
(1) Avista Corp.'s right to redeem the notes at its option;
(2) substitution of apparently mutilated, defaced, destroyed, lost or
stolen notes;
(3) rights of holders to receive payment of principal of and premium,
if any, and interest on the notes;
(4) rights, obligations an immunity of the trustee under the
indenture; and
(5) rights of the holder of notes with respect to any property
deposited with the trustee payable to all or any of them,
if:
(1) either (a) all notes that have been authenticated (except lost,
stolen or destroyed notes that have been replaced or paid and notes for
whose payment money has theretofore been deposited in trust and thereafter
repaid to Avista Corp.) have been delivered to the trustee for
cancellation; or (b) a Legal Defeasance has been effected with respect to
all notes that have not been so delivered;
(2) no Default or Event of Default shall have occurred and be
continuing on the date Legal Defeasance has occurred or shall occur as a
result of such Legal Defeasance and such Legal Defeasance will not result
in a breach or violation of, or constitute a default under, any other
material instrument to which Avista Corp. is a party or by which Avista
Corp. is bound;
(3) Avista Corp. has paid or caused to be paid all sums payable by it
under the indenture; and
(4) Avista Corp. has delivered irrevocable instructions to the
trustee under the indenture to apply the deposited money toward the payment
of the notes at the maturity date of the notes.
In addition, Avista Corp. must deliver an Officers' Certificate and an
Opinion of Counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
43
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of Avista Corp., the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
BOOK-ENTRY, DELIVERY AND FORM
The New NotesBonds initially will be represented by one or more notesbonds in
registered, global form without interest coupons (collectively, the "Global
Notes"Bonds"). Upon issuance, the Global NotesBonds will be deposited upon issuance with the trustee as
custodian for The Depository Trust Company ("DTC"), in New York, New York, and
registered in the name of DTC or its nominee, in each case for credit to an
account of a direct or indirect participant in DTC as described below.
Except as set forth below, the Global NotesBonds may be transferred, in
whole and not in part, only to another nominee of DTC or to a successor of DTC
or its nominee. Beneficial interests in the Global NotesBonds may not be exchanged
for notesbonds in certificated form except in the limited circumstances described
below. See "--Exchange of Global NotesBonds for Certificated Notes.Bonds." Except in the
limited circumstances described below, owners of beneficial interests in the
Global NotesBonds will not be entitled to receive physical delivery of notesbonds in
certificated form. In addition, transfers of beneficial interests in the Global
NotesBonds will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those of the Euroclear
System
("Euroclear") and Clearstream Banking ("Clearstream"))Clearstream), which may change from time to time.
DEPOSITORY PROCEDURES
The following description of the operations and procedures of DTC,
Euroclear and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. Avista
Corp. takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
DTC has advised Avista Corp. that DTC is a limited-purpose trust
company organized under the laws of the State of New York, a member of the
Federal Reserve System, a "clearing corporation" within the meaning of the
Uniform Commercial Code and a "Clearing Agency" registered pursuant to the
provisions of Section 17A of the Exchange Act. DTC was created to hold
securities for its participating organizations (collectively, the
"Participants") and to facilitate the clearance and settlement of transactions
in those securities between Participants through electronic book-entry changes
in accounts of its Participants. The Participants include securities brokers and
dealers (including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
33
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised Avista Corp. that, pursuant to procedures
established by it:
44
(1) Uponupon deposit of the Global NotesBonds representing the Old Notes,Bonds,
DTC credited the accounts of Participants designated by the initial purchasers
of the Old NotesBonds with portions of the principal amount of suchthe Global Notes;Bonds; and
(2) ownership of these interests in the Global Notes representing Old NotesBonds are, and
ownership of interests in New NotesBonds will be, shown on, and the transfer of
ownership thereof will be effected only through, records maintained by DTC (with
respect to the Participants) or by the Participants and the Indirect
Participants (with respect to other owners of beneficial interest in the Global
Notes)Bonds).
Investors in the Global NotesBonds who are Participants in DTC's system may
hold their interests therein directly through DTC. Investors in the Global NotesBonds
who are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream will hold interests in the Global NotesBonds
on behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositories, which are
Euroclear Bank, S.A./N.V., as operator of Euroclear, and Citibank, N.A., as
operator of Clearstream. All interests in a Global Note,Bond, including those held
through Euroclear or Clearstream, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Clearstream may
also be subject to the procedures and requirements of such systems. The laws of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a Global NoteBond to such Persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in turn act on
behalf of Indirect Participants, the ability of a Person having beneficial
interests in a Global NoteBond to pledge such interests to Persons that do not
participate in the DTC system, or otherwise take actions in respect of such
interests, may be affected by the lack of a physical certificate evidencing such
interests.
EXCEPT AS DESCRIBED BELOW, OWNERS OF INTERESTS IN THE GLOBAL NOTESBONDS WILL
NOT HAVE NOTESBONDS REGISTERED IN THEIR NAMES, WILL NOT RECEIVE PHYSICAL DELIVERY OF
NOTESBONDS IN CERTIFICATED FORM AND WILL NOT BE CONSIDERED THE REGISTERED OWNERS OR
"HOLDERS" THEREOF UNDER THE INDENTUREMORTGAGE OR THE NOTESBONDS FOR ANY PURPOSE.
Payments in respect of the principal of, and interest and premium, if
any, on a Global NoteBond registered in the name of DTC or its nominee will be
payable to DTC in its capacity as the registered Holder under the indenture.mortgage.
Under the terms of the indenture,mortgage, Avista Corp. and the trustee will treat the
Persons in whose names the notes,bonds, including the Global Notes,Bonds, are registered as
the owners thereof for the purpose of receiving payments and for all other
purposes. Consequently, neither Avista Corp., the trustee nor any agent of
Avista Corp. or the trustee has or will have any responsibility or liability
for:
(1) any aspect of DTC's records or any Participant's or
Indirect Participant's records relating to or payments made on account
of beneficial ownership interests in the Global NotesBonds or for
maintaining, supervising or reviewing any of DTC's records or any
Participant's or Indirect Participant's records relating to the
beneficial ownership interests in the Global Notes;Bonds; or
(2) any other matter relating to the actions and practices
of DTC or any of its Participants or Indirect Participants.
DTC has advised Avista Corp. that its current practice, upon receipt of
any payment in respect of securities such as the bonds (including principal and
interest), is to credit the accounts of the relevant Participants with the
payment on the payment date unless DTC has reason to believe it will not receive
payment on such payment date. Each relevant Participant is credited with an
amount proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notesbonds
34
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will not
be the responsibility of DTC, the trustee or Avista Corp. Neither Avista Corp.
nor the trustee will be liable for any delay by DTC or any of its Participants
in identifying the beneficial owners of the notes,bonds, and Avista Corp. and the
trustee may conclusively rely on and will be protected in relying on
instructions from DTC or its nominee for all purposes.
45
DTC has also advised Avista Corp. that transfers between Participants in DTC
will be effected in accordance with DTC's procedures, and will be settled in
same-day funds, and transfers between participants in Euroclear and Clearstream
will be effected in accordance with their respective rules and operating
procedures.
Subject to compliance with the applicable transfer and exchange restrictions
described herein, cross-market transfers between the Participants in DTC, on the
one hand, and Euroclear or Clearstream participants, on the other hand, will be
effected through DTC in accordance with DTC's rules on behalf of Euroclear or
Clearstream, as the case may be, by its respective depositary; however, such
cross-market transactions will require delivery of instructions to Euroclear or
Clearstream, as the case may be, by the counterparty in such system in
accordance with the rules and procedures and within the established deadlines
(Brussels time) of such system. Euroclear or Clearstream, as the case may be,
will, if the transaction meets its settlement requirements, deliver instructions
to its respective depositary to take action to effect final settlement on its
behalf by delivering or receiving interests in the relevant Global NoteBond in DTC,
and making or receiving payment in accordance with normal procedures for
same-day funds settlement applicable to DTC. Euroclear participants and
Clearstream participants may not deliver instructions directly to the
depositories for Euroclear or Clearstream.
DTC has advised Avista Corp. that it will take any action permitted to
be taken by a Holder of notesbonds only at the direction of one or more Participants
to whose account DTC has credited the interests in the Global NotesBonds and only in
respect of such portion of the aggregate principal amount of the notesbonds as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes,bonds, DTC reserves the right
to exchange the Global NotesBonds for legended notesbonds in certificated form, and to
distribute such notesbonds to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global NotesBonds among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. Neither Avista Corp. nor the trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
EXCHANGE OF GLOBAL NOTESBONDS FOR CERTIFICATED NOTESBONDS
A Global NoteBond is exchangeable for definitive notesbonds in registered
certificated form ("Certificated Notes"Bonds") if:
(1) DTC (a) notifies Avista Corp. that it is unwilling or unable
to continue as depositary for the Global NotesBonds and Avista Corp. fails
to appoint a successor depositary or (b) has ceased to be a clearing
agency registered under the Exchange Act and Avista Corp. fails to
appoint a successor depositary; or
(2) Avista Corp., at its option, notifies the trustee in writing
that it elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged forBonds.
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated NotesBonds delivered in exchange for any Global NoteBond or
beneficial interests in Global NotesBonds will be registered in the names, and issued
in any approved denominations, requested by or on behalf of DTCthe depositary (in
accordance with its customary procedures). Any such exchange will be effected
through the DTC Deposit/Withdraw at Custodian system and an appropriate
adjustment will be made to reflect a decrease in the principal amount of the
relevant Global Note.Bond.
35
SAME DAY SETTLEMENT AND PAYMENT
Avista Corp. will make payments in respect of the notesbonds represented by
the Global NotesBonds (including principal, premium, if any, and interestinterest) by wire
transfer of immediately available funds to the accounts specified by the Global
46
NoteBond Holder. Avista Corp. or its paying agent will make all payments of
principal, interest and premium with respect to Certificated NotesBonds by wire
transfer of immediately available funds to the accounts specified by the Holders
thereof or, if no such account is specified, by mailing a check to each such
Holder's registered address. The notesbonds represented by the Global NotesBonds are
expected to trade in DTC's Same-Day Funds Settlement System, and any permitted
secondary market trading activity in such notesbonds will, therefore, be required by
DTC to be settled in immediately available funds. Avista Corp. expects that
secondary trading in any Certificated NotesBonds will also be settled in immediately
available funds.
Because of time zone differences, the securities account of a Euroclear
or Clearstream participant purchasing an interest in a Global NoteBond from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
Avista Corp. that cash received in Euroclear or Clearstream as a result of sales
of interests in a Global NoteBond by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
GOVERNING LAW
The internal lawsBANK CREDIT AGREEMENTS
AVISTA CORP.
Avista Corp. has a $220 million line of credit with various banks under
a credit agreement that expires May 29, 2002. We have pledged our shares of
common stock of Avista Capital as security for our indebtedness under this
agreement. As of December 31, 2001, $55 million was outstanding under this line
of credit. This agreement contains customary covenants and default provisions,
including covenants not to permit (1) the stateratio of New York will govern and be used to
construe the indenture without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
CERTAIN DEFINITIONS
Set forth below are certain"consolidated total debt" (as
defined terms used in the indenture. Reference
is madeAvista Corp. credit agreement) to "consolidated total
capitalization" (as defined in the indenture for a full disclosureAvista Corp. credit agreement) of all such terms, as well as any
other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respectAvista
Corp. to any specified Person:
(1) Indebtednessbe, at the end of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of suchfiscal quarter, greater than certain specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person;ratios; and (2) Indebtedness secured by a Lien encumbering any asset acquired by
such specified Person.
"Affiliate"the ratio of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control",
as used with respect to any Person, shall mean"consolidated cash flow" (as defined in the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of the
Voting Stock of a Person shall be deemed to be control. For purposes of this
definition, the terms "controlling", "controlled by" and "under common control
with" shall have correlative meanings.
"Asset Sale" means any sale, transfer or other disposition (including by
way of merger, consolidation or Sale/Leaseback Transaction) in one or a series
of transactions by Avista
Corp. or any Restricted Subsidiarycredit agreement) to any Person other
than"consolidated fixed charges" (as defined in the
Avista Corp. or any Restricted Subsidiary of Avista Corp., of:
(1) all or any of the Capital Stock of any Restricted Subsidiary of
Avista Corp.;
(2) all or substantially all of the assets of any operating unit,
Facility, division or line of businesscredit agreement) of Avista Corp. or Avista Utilities for any
Restricted
Subsidiary; or
47
(3)four-fiscal-quarter period ending on any other property or assets or rights to acquire property or
assets of Avista Corp. or any Restricted Subsidiary of Avista Corp. outside
of the ordinary course of business of Avista Corp. or such Restricted
Subsidiary.
Notwithstanding the preceding, the following items shall not be deemeddate set forth below to be Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than
$10 million;
(2) an issuance of Equity Interests by a Restricted Subsidiarycertain specified ratios.
In August 2001 we determined that we would not comply with the fixed
charge coverage covenant with respect to Avista Corp. described above for the
four-fiscal-quarter period ending September 30, 2001 or to another Restricted Subsidiary of Avista Corp.;
(3)for any sale or lease of obsolete equipment or other assets that are
no longer being used by Avista Corp. or any of its Restricted Subsidiaries;
(4) any primary offering of Common Stock of Avista Communications,
Avista Advantage or Avista Labs, or any Subsidiary of any of them, provided
thatsubsequent
period through the issuer of such Common Stock is operating substantially the same
business as is conducted by such issuer (or in case of a Subsidiary, all or
a portion of the same business as is conducted by the respective parent
company named above in this clause (4)) as of theexpiration date of the indenture;
(5)agreement. Accordingly, Avista Corp.
requested, and obtained, a Restricted Payment or Permitted Investment that iswaiver of this covenant. The failure to comply with
the covenant for these periods will not prohibitedconstitute an event of default under the
agreement. In connection with this waiver, on September 21, 2001 Avista Corp.
issued to the agent bank $220 million in principal amount of non-transferable
first mortgage bonds under the mortgage in order to provide the benefit of the
lien of the mortgage to secure Avista Corp.'s obligations under the credit
agreement.
AVISTA ENERGY
Avista Energy and its subsidiary, Avista Energy Canada, Ltd., as
co-borrowers, have a credit agreement with various banks in the aggregate amount
of $135 million expiring June 28, 2002. The credit agreement may be terminated
by the covenant described abovebanks at any time and all extensions of credit under the caption "-Certain
Covenants--Restricted Payments";agreement are
payable upon demand, in either case at the lenders' sole discretion. The
agreement also provides, on an uncommitted basis, for the issuance of letters of
credit to secure contractual obligations to counterparties. The facility is
guaranteed by Avista Capital and (6) any disposition of property or assetsis secured by a Restricted Subsidiarysubstantially all of Avista
Corp. to Avista Corp. or by Avista Corp. or a Restricted
Subsidiary of Avista Corp. to a Restricted Subsidiary of Avista Corp.
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction, as
of the time of determination, the present value discounted at the interest rate
assumed in making calculations in accordance with GAAP of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction, including any period for which such
lease has been extended or may be extended at the option of the lessor.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act.Energy's assets. The terms "Beneficially Owns" and
"Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation or any duly authorized committee of such board of directors;
(2) with respect to a partnership, the Board of Directors of the
general partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, themaximum amount of the liability in respect of a capital lease that would
at that time be required to be capitalized on a balance sheet in accordance with
GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents, however designated, of corporate stock or
other equity participations, including partnership interests, whether general or
limited, of the Person.
"Cash Equivalents" means:
48
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insuredcredit extended by the United States government or any agency or instrumentality thereof
(provided that the full faithlenders for cash
advances is $30 million. At December 31, 2001, there were no cash advances
(demand notes payable) outstanding, and letters of credit of the United States is pledged in
support thereof) having maturities of not more than twelve months from the
date of acquisition;
(3) certificates of depositoutstanding totaled
approximately $40 million.
36
The Avista Energy agreement contains customary covenants and eurodollar time deposits with
maturities of twelve months or less from the date of acquisition, bankers'
acceptances with maturities not exceeding twelve monthsdefault
provisions, including covenants to maintain "minimum net working capital" and
overnight bank
deposits, in each case, issued or accepted by any financial institution
organized under the laws of the United States or any state thereof or the
District of Columbia that either (x) has a long-term deposit rating of at
least A-2 from Moody's and A from S&P or (y) is at least "adequately
capitalized""minimum net worth" (as defined in the regulations of its primary federal banking
regulator)Avista Energy credit agreement) and (b) has Tier 1 Capital (as defined in such regulations) of
not less than $100,000,000;
(4) repurchase obligations with a
term of not more than seven days
for underlying securities of the types described in clauses (2) and (3)
above entered into with any financial institution meeting the
qualifications specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from
Moody's or S&P (or in their absence an equivalent rating from another
nationally recognized securities rating agency) and in each case maturing
within twelve months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of Avista Corp. and its Restricted Subsidiaries taken
as a whole to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution
of Avista Corp. other than in a transaction that complies with the
provisions of the covenant described above under "-Certain
Covenants--Merger, Consolidation or Sale of Assets";
(3) the consummation of any transaction (including, without
limitation, any merger or consolidation) the result of which is that any
"person" (as defined above) becomes the Beneficial Owner, directly or
indirectly, of more than 35% of the Voting Stock of Avista Corp., measured
by voting power rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Avista Corp. are not Continuing Directors; or
(5) Avista Corp. consolidates with, or merges with or into, any
Person, or any Person consolidates with, or merges with or into, Avista
Corp., in any such event pursuant to a transaction in which any of the
outstanding Voting Stock of Avista Corp. or such other Person is converted
into or exchanged for cash, securities or other property, other than any
such transaction where the Voting Stock of Avista Corp. outstanding
immediately prior to such transaction is converted into or exchanged for
Voting Stock (other than Disqualified Stock) of the surviving or transferee
Person constituting a majority of the outstanding shares of such Voting
Stock of such surviving or transferee Person (immediately after giving
effect to such issuance).
"Commodity Price Protection Obligation" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value of which is dependent on, fluctuations in
commodity prices entered into in the ordinary course of business.
49
"Common Stock" of any Person means any class of Capital Stock of such
Person that has no preference, as to dividends or upon liquidation, over any
other class of Capital Stock of such Person and that is not convertible into or
exchangeable for any other class of Capital Stock or other securities of such
Person.
"Consolidated Cash Flow" means, with respect to any specified Person for
any period, the Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and
its Restricted Subsidiaries for such period, to the extent that such
provision for taxes was deducted in computing such Consolidated Net Income;
plus
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs (other than those in existence on or created on the date of the
indenture) and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations,
imputed interest with respect to Attributable Debt, commissions, discounts
and other fees and charges incurred in respect of letter of credit or
bankers' acceptance financings, and net of the effect of all payments made
or received pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill
and other intangibles but excluding amortization of prepaid cash expenses
that were paid in a prior period, and excluding amortization of power and
natural gas cost deferrals, to the extent such deferrals were previously
financed with Indebtedness permitted by clause (9) of the definition of
Permitted Debt) and other non-cash expenses (excluding any such non-cash
expense to the extent that it represents an accrual of or reserve for cash
expenses in any future period or amortization of a prepaid cash expense
that was paid in a prior period) of such Person and its Restricted
Subsidiaries for such period to the extent that such depreciation,
amortization and other non-cash expenses were deducted in computing such
Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such
period (including power and natural gas cost deferrals, but only to the
extent not financed with Indebtedness permitted by clause (9) of the
definition of Permitted Debt) in each case, on a consolidated basis and
determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the net income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the net income (but not loss) of any Person that is not a
Restricted Subsidiary or that is accounted for by the equity method of
accounting shall be included only to the extent oflimiting the amount of dividends
or distributions paid in cash to the specified Person or a Wholly Owned
Subsidiary thereof;
(2) the net income of any Restricted Subsidiary shall be excluded to
the extent that the declaration or payment of dividends or similar
distributions by the Restricted Subsidiary of that net income is not at the
date of determination permitted without any prior governmental approval
(that has not been obtained) or, directly or indirectly, by operation of
the terms of its charter or any agreement, instrument, judgment, decree,
order, statute, rule or governmental regulation applicable to that
Restricted Subsidiary or its stockholders;
(3) the net income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall
be excluded;
50
(5) all extraordinary or nonrecurring gains and losses (including
without limitation any one-time costs incurred in connection with
acquisitions, or regulatory disallowances or write-offs of regulatory
assets) shall be excluded; and
(6) any gain or loss realized upon the sale or other disposition of
any property, plant or equipment of Avista Corp. or its Restricted
Subsidiaries (including pursuant to any sale-and-leaseback arrangement)
which is not sold or otherwise disposed of in the ordinary course of
business and any gain or loss realized upon the sale or other disposition
by Avista Corp. or any Restricted Subsidiary of any Capital Stock of any
Person shall be excluded.
"Continuing Directors" means, as of any date of determination, any member
of the Board of Directors of Avista Corp. who:
(1) was a member of such Board of Directors on the date of the
indenture; or
(2) was nominated for election or elected to such Board of Directors
with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Credit Facilities" means one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing for
revolving credit loans, term loans, or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, restructured, supplemented,
replaced or refinanced in whole or in part from time to time, including without
limitation any amendment increasing the amount of Indebtedness incurred or
available to be borrowed thereunder, extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby or deleting, adding or substituting
one or more parties thereto (whether or not with banks or other institutional
lenders).
"Currency Hedging Obligations" means any foreign exchange contract,
currency swap agreement or other similar agreement or arrangement designed to
protect against the fluctuations in currency values entered into in the ordinary
course of business and not for speculative purposes.
"Debt Rating" shall mean the rating assigned to the notes offered hereby by
Moody's or S&P, as the case may be.
"Default" means any event that is, or with the passage of time or the
giving of notice or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series
of related transactions, a member of the Board of Directors of Avista Corp. who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date onindebtedness which the notes mature.
Notwithstanding the preceding sentence, any Capital Stock that would constitute
Disqualified Stock solely because the holders thereof have the right to require
Avista Corp. to repurchase such Capital Stock upon the occurrence of a change of
control or an asset sale shall not constitute Disqualified Stock if the terms of
such Capital Stock provide that Avista Corp.co-borrowers may not repurchase or redeem any
such Capital Stock pursuant to such provisions unless such repurchase or
redemption complies with the covenant described above under the caption
"--Certain Covenants--Restricted Payments."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less that $500 million or its equivalent in
foreign currency, whose debt is rated "A" or higher (or the equivalent rating or
higher), according to Moody's or S&P (or such similar equivalent rating by at
least one "nationally recognized statistical rating organization" (as defined in
51
Rule 436 under the Securities Act)), respectively, at the time as of which any
investment or rollover therein is made.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Avista Corp. and its
Subsidiaries in existence on the date of the indenture, other than amounts
outstanding under Credit Facilities, until such amounts are repaid.
"Facility" means retail electric and natural gas distribution and storage
facilities, electric transmission facilities and electric generation and
production facilities, and assets related to or used in the operation of such
facilities.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its
Restricted Subsidiaries for such period, whether paid or accrued,
including, without limitation, amortization of debt issuance costs (other
than those in existence on or created on the date of the indenture) and
original issue discount, non-cash interest payments, the interest component
of any deferred payment obligations, the interest component of all payments
associated with Capital Lease Obligations, imputed interest with respect to
Attributable Debt, commissions, discounts and other fees and charges
incurred in respect of letter of credit or bankers' acceptance financings,
and net of the effect of all payments made or received pursuant to Hedging
Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period (excluding interest
capitalized in connection with the construction of a new Facility or
addition to a Facility, in each case, to the extent such interest is
capitalized during the construction of such Facility); plus
(3) any interest expense actually paid on Indebtedness of another
Person that is Guaranteed by such Person or one of its Restricted
Subsidiaries or secured by a Lien on assets of such Person or one of its
Restricted Subsidiaries, whether or not such Guarantee or Lien is called
upon; plus
(4) the product of (a) all dividends, whether paid or accrued and
whether or not in cash, on any series of preferred stock of such Person or
any of its Restricted Subsidiaries, other than dividends on Equity
Interests payable solely in Equity Interests of such Person (other than
Disqualified Stock) or to such Person or a Restricted Subsidiary of such
Person, times (b) a fraction, the numerator of which is one and the
denominator of which is one minus the then current combined federal, state
and local statutory tax rate of such Person, expressed as a decimal; in
each case, calculated on a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person
for any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock subsequent
to the commencement of the period for which the Fixed Charge Coverage Ratio is
being calculated and on or prior to the date of the event for which the
calculation of the Fixed Charge Coverage Ratio is made (the "Calculation Date"),
including the incurrence of the Indebtedness giving rise to the need to make
such calculation, then the Fixed Charge Coverage Ratio shall be calculated
giving pro forma effect to such incurrence, assumption, Guarantee, repayment,
repurchase or redemption of Indebtedness, or such issuance, repurchase or
redemption of preferred stock, and the use of the proceeds therefrom including
to refinance other Indebtedness as if the same had occurred at the beginning of
the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any
of its Subsidiaries, including through mergers or consolidations and
including any related financing transactions, during the four-quarter
52
reference period or subsequent to such reference period and on or prior to
the Calculation Date shall be given pro forma effect as if they had
occurred on the first day of the four-quarter reference period and
Consolidated Cash Flow for such reference period shall be calculated on a
pro forma basis (calculated in accordance with Regulation S-X under the
Securities Act), but without giving effect to clause (3) of the proviso set
forth in the definition of Consolidated Net Income;
(2) the consolidated interest expense attributable to interest on any
Indebtedness computed on a pro forma basis and (a) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (b) that
was not outstanding during the period for which the computation is being
made but which bears, at the option of such Person, a fixed or floating
rate of interest, shall be computed by applying at the option of such
Person either the fixed or floating rate;
(3) the consolidated interest expense attributable to interest on any
working capital borrowings under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average daily balance of
such working capital borrowings during the applicable period; and
(4) acquisitions and dispositions that have been made by any Person
that has become a Restricted Subsidiary of Avista Corp. or been merged with
or into Avista Corp. or any Restricted Subsidiary of Avista Corp. during
the four-quarter reference period, or subsequent to the four-quarter
reference period but prior to the Calculation Date, shall be calculated on
a pro forma basis, including all of the calculations referred to above,
assuming that such acquisitions and dispositions had occurred on the first
day of the reference period.
In addition, in calculating the Fixed Charge Coverage Ratio, discontinued
operations will be given pro forma effect as follows:
(1) the Consolidated Cash Flow attributable to discontinued
operations, as determined in accordance with GAAP, and operations or
businesses disposed of on or prior to the Calculation Date, shall be
excluded, and
(2) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed
of on or prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of Avista Corp. or any of its Restricted Subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect (i) with respect to periodic reporting
requirements, from time to time, and (ii) otherwise on the date of the
indenture.
"Government Securities" means securities issued directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof).
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
53
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any
indebtedness of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) representing banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase
price of any property, except any such balance that constitutes an accrued
expense or trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) appears as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP.incur.
In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness
issued with original issue discount; and
(2) the principal amount thereof, together with any interest thereon
that is more than 30 days past due, in the case of any other Indebtedness;
provided that for purposes of determining the amount of any Indebtedness,
if recourse with respect to such Indebtedness is limited to such asset, the
amount of such Indebtedness shall be limited to the lesser of the fair
market value of such asset or the amount of such Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees of Indebtedness or other obligations), advances
or capital contributions (excluding commission, travel, entertainment, moving
and similar advances or loans to officers, directors, consultants and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance sheet
prepared in accordance with GAAP. The term "Investment" shall exclude extensions
of trade credit on commercially reasonable terms in accordance with normal trade
terms. If Avista Corp. or any Subsidiary of Avista Corp. sells or otherwise
disposes of any Equity Interests of any direct or indirect Subsidiary of Avista
Corp. such that, after giving effect to any such sale or disposition, such
Person is no longer a Subsidiary of Avista Corp., Avista Corp. shall be deemed
to have made an Investment on the date of any such sale or disposition equal to
the fair market value of the Equity Interests of such Subsidiary not sold or
disposed of in an amount determined as provided in the final paragraph of the
covenant described above under the caption "--Certain Covenants--Restricted
Payments." The acquisition by Avista Corp. or any Subsidiary of Avista Corp. of
a Person that holds an Investment in a third Person shall be deemed to be an
Investment by Avista Corp. or such Subsidiary in such third Person in an amount
equal to the fair market value of the Investment held by the acquired Person in
such third Person in an amount determined as provided in the final paragraph of
the covenant described above under the caption "--Certain Covenants--Restricted
Payments."
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"Lancaster Project" means a 270 MW combined cycle project, presently under
construction, in Rathdrum, Idaho, in which Avista Power owns an indirect 49%
interest through its wholly-owned subsidiary Avista Rathdrum, LLC. The project
is presently scheduled to begin commercial operation in August 2001. All of the
output has been sold to Avista Energy under a 25-year capacity sales contract,
under which Avista Energy is responsible for dispatch and delivery of fuel to
the project.
"Lien" means, with respect to any asset, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such asset,
whether or not filed, recorded or otherwise perfected under applicable law,
including any conditional sale or other title retention agreement any lease in
the nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement under
the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidity Condition Date" means the date on which Avista Corp. obtains
funding in cash from completed financing transactions, or contractual
entitlement to such funding on such date pursuant to definitive credit
facilities then in effect and available to be drawn pursuant to arrangements put
into effect (or amendments increasing the amount available under existing credit
facilities) after the date of the indenture, in an aggregate amount that, when
added to the net proceeds of the offering of the Old Notes, is not less than
$475 million.
"Marketable U.S. Securities" means: (i) any time deposit account, money
market deposit and certificate of deposit maturing not more that 365 days after
the date of acquisition issued by, or time deposit of, an Eligible Institution;
(ii) commercial paper maturing not more than 365 days after the date of
acquisition issued by a corporation (other than an Affiliate of Avista Corp.)
with a rating, at the time as of which any investment therein is made, of "P-1"
or higher according to Moody's or "A-1" or higher according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)); (iii)
any banker's acceptances or money market deposit accounts issued or offered by
an Eligible Institution; (iv) repurchase obligations with a term of not more
than 7 days for Government Securities entered into with an Eligible Institution;
and (v) any fund investing exclusively in investments of the types described in
clauses (i) through (iv) above and or Government Securities.
"Moody's" mean Moody's Investors Service, Inc., and its successors.
"Net Proceeds" means the aggregate cash proceeds and Cash Equivalents
received by Avista Corp. or any of its Restricted Subsidiaries in respect of any
Asset Sale (including, without limitation, any cash received upon the sale or
other disposition of any non-cash consideration received in any Asset Sale), net
of the direct costs relating to such Asset Sale, including, without limitation,
legal, accounting and investment banking fees, and sales commissions, and any
relocation expenses incurred as a result thereof, taxes paid or payable as a
result thereof, in each case, after taking into account any available tax
credits or deductions and any tax sharing arrangements, any amounts that Avista
Corp. may be required by any regulatory authority to refund or repay to
customers in respect of or as a result of such Asset Sale, any amounts required
to be applied to the repayment of Indebtedness secured by a Lien on the asset or
assets that were the subject of such Asset Sale and any reserve for adjustment
in respect of the sale price of such asset or assets established in accordance
with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Avista Corp. nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness but
excluding any agreement to provide managerial support), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender; and
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of Avista Corp. or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause thecontains certain restricted payment thereof to be accelerated or payable prior to its stated
maturity.
55
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Peaker Turbine Project" means a 95 MW simple cycle project presently under
development, currently expected to be located in southwest Washington and
currently 100% owned by Avista Power. A letter of intent has been signed for the
purchase of the output of the facility for five years under a capacity sales
contract for a fixed price per KW-month. The purchaser will be financially
responsible for purchasing natural gas to fuel the turbines and for contracting
for gas transportation. The turbines are General Electric simple cycle LM6000.
"Permitted Business" means the business of acquiring, developing,
constructing, expanding, managing, improving, owning and operating Facilities,
as well as any other activities reasonably related, complimentary or ancillary
to the foregoing activities (including acquiring and holding reserves),
including but not limited to investing in Persons engaged in one or more
Permitted Businesses.
"Permitted Debt" has the meaning set forth under "-Certain Other
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Permitted Investments" means:
(1) any Investment in Avista Corp. or in a Restricted Subsidiary of
Avista Corp.; provided, that prior to the Liquidity Condition Date, Avista
Corp. and its Restricted Subsidiaries will not make Investments in
Subsidiaries of Avista Corp. (other than Avista Energy or Avista Power)
exceeding $35 million in the aggregate; provided further that Avista Corp.
may nonetheless make reimbursement to a Subsidiary, pursuant to the Tax
Sharing Agreement as in effect on the date of the indenture, in an amount
not to exceed the net tax benefit realized by Avista Corp. in any period,
as reflected in its consolidated federal income tax return, by reason of
losses incurred by such Subsidiary;
(2) any Investment in cash or Cash Equivalents or Marketable U.S.
Securities;
(3) any Investment by Avista Corp. or any Subsidiary of Avista Corp.
in a Person, if as a result of such Investment:
(a) such Person becomes a Restricted Subsidiary of Avista Corp.;
or
(b) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or
is liquidated into, Avista Corp. or a Restricted Subsidiary of Avista
Corp.;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in
compliance with the covenant described above under the caption
"--Repurchase at the Option of Holders--Asset Sales";
(5) any Investment in exchange for the issuance of Equity Interests
other than Disqualified Stock of Avista Corp.;
(6) Hedging Obligations;
(7) Investments in any of the notes;
(8) Indebtedness of Avista Corp. or a Restricted Subsidiary of Avista
Corp. described under clause (5) of the definition of Permitted Debt;
(9) Investments in existence on the date of the indenture or made
pursuant to a legally binding written commitment in existence on the date
of the indenture;
56
(10) Guarantees of Indebtedness of a Restricted Subsidiary of Avista
Corp. given by Avista Corp. or another Restricted Subsidiary of Avista
Corp., in each case, in accordance with the terms of the indenture;
(11) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance and
other similar deposits provided to third parties in the ordinary course of
business;
(12) Hedging Obligations, Currency Hedging Obligations and Commodity
Price Protection Obligations permitted by the indenture that are entered
into in the ordinary course of business;
(13) Investments representing Capital Stock or obligations issued to
Avista Corp. or any Restricted Subsidiary of Avista Corp. (i) in settlement
of claims against any other Person by reason of a composition or
readjustment of debt or a reorganization of any debtor (including customers
and suppliers) of Avista Corp. or such Restricted Subsidiary, or (ii) as a
result of an Asset Sale in which the Capital Stock of Avista
Communications, Avista Advantage or Avista Labs is exchanged for Capital
Stock or other securities of another Person, upon completion of which the
subject or transferee Person is not a Subsidiary of Avista Corp.;
(14) Investments in the Lancaster Project and the Peaker Turbine
Project in an aggregate amount not to exceed $40 million;
(15) Investments by Avista Corp. or any Restricted Subsidiary in
Avista -STEAG, LLC; and
(16) loans or advances, or performance guarantees in support of Avista
Energy or Avista Power to customers or suppliers in the ordinary course of
business.
"Permitted Liens" means:
(1) Liens securing Indebtedness and other Obligations of Avista Corp.
and its Restricted Subsidiaries under Credit Facilities (to the extent that
such Indebtedness and Obligations under such Credit Facilities were
permitted by the terms of the indenture to be incurred);
(2) Liens in favor of Avista Corp. or a Restricted Subsidiary of
Avista Corp.;
(3) Liens on assets or Equity Interests of a Person existing at the
time such Person is merged with or into or consolidated with Avista Corp.
or any Restricted Subsidiary of Avista Corp.; provided that such Liens were
in existence prior to the contemplation of such merger or consolidation and
do not extend to any assets other than those of the Person merged into or
consolidated with Avista Corp. or the Restricted Subsidiary;
(4) Liens on assets existing at the time of acquisition thereof by
Avista Corp. or any Restricted Subsidiary of Avista Corp., provided that
such Liens were in existence prior to the contemplation of such
acquisition;
(5) Liens to secure the performance of statutory obligations, surety
or appeal bonds, performance bonds, performance bids, tenders or contracts,
statutory and common law landlord's liens or other obligations of a like
nature incurred in the ordinary course of business;
(6) Liens existing on the date of the indenture;
(7) Liens for taxes, assessments or governmental charges or claims
that are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(8) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals
or replacements) as a whole, or in part, of any Indebtedness secured by any
57
Lien referred to in the foregoing clauses (3), (4), or (6), provided,
however, that (x) such new Lien shall be limited to all or part of the same
assets that secured the original Lien (plus improvements on such property)
and (y) the Indebtedness secured by such Lien at such time is not increased
(other than by an amount necessary to pay fees and expenses, including
premiums, related to the refinancing, refunding, extension, renewal or
replacement of such Indebtedness);
(9) any Lien securing Indebtedness permitted to be incurred under
Hedging Obligations or otherwise incurred to hedge interest rate risk or
risks of commodity price fluctuations;
(10) Liens securing Indebtedness relating to governmental obligations
the interest on which is not included in gross income for purposes of
federal income taxation pursuant to Section 103 of the Internal Revenue
Code of 1986, as amended (or any successor provision of law), for the
purpose of financing or refinancing, in whole or in part, costs of
acquisition or construction of property to be used by Avista Corp., to the
extent that the Lien which secures such secured Indebtedness is required
either by applicable law or by the issuer of such governmental obligations
or is otherwise necessary in order to establish or maintain such exclusion
from gross income;
(11) any Lien securing Capital Lease Obligations or other Indebtedness
incurred pursuant to clause (8) of the definition of Permitted Debt; and
(12) any Lien securing Indebtedness permitted to be incurred pursuant
to clause (9) of the definition of Permitted Debt.
"Permitted Refinancing Indebtedness" means any Indebtedness of Avista Corp.
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, restructure,
supplement, defease or refund other Indebtedness of Avista Corp. or any of its
Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, restructured, supplemented, defeased or refunded (plus
all accrued interest thereon and the amount of all expenses and premiums
incurred in connection therewith);
(2) if the Indebtedness being extended, refinanced, renewed,
replaced, defeased or refunded is subordinated in right of payment to the
notes, such Permitted Refinancing Indebtedness is subordinated in right of
payment to the notes on terms at least as favorable to the holders of notes
as those contained in the documentation governing the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded; and
(3) Indebtedness is incurred by Avista Corp. if the Indebtedness
being extended, refinanced, renewed, replaced, defeased or refunded was
Indebtedness of Avista Corp.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, government, governmental subdivision or other entity.
"Restricted Investment" means an Investment other than a Permitted
Investment. "Restricted Subsidiary" means any Subsidiary of the referent Person
that is not an Unrestricted Subsidiary.
"RTO Transaction" means an Asset Sale entered into in connection with the
formation of a regional transmission organization pursuant to or in a manner
consistent with regulatory requirements applicable to Avista Corp.
"Sale/Leaseback Transaction" means an arrangement relating to property
owned as of the date of the indenture or thereafter acquired whereby Avista
Corp. or a Restricted Subsidiary transfers such property to a Person and leases
58
it back from such Person, other than leases for a term of not more than 36
months or between Avista Corp. and a Restricted Subsidiary or between Restricted
Subsidiaries.
"S&P" means Standard & Poor's, and its successors.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, or any redemption or similar payment in
respect of Disqualified Stock, the date on which such payment was scheduled to
be paid in the original documentation governing such Indebtedness or
Disqualified Stock, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal, or made such redemption of
other payment, prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which
more than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing
general partner of which is such Person or a Subsidiary of such Person or
(b) the only general partners of which are such Person or one or more
Subsidiaries of such Person (or any combination thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement among Avista Corp.
and its Subsidiaries as in effect on the date of the indenture.
"Unrestricted Subsidiary" means any Subsidiary of Avista Corp. that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to a
Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
(2) is not party to any agreement, contract, arrangement or
understanding with Avista Corp. or any Restricted Subsidiary of Avista
Corp. unless the terms of any such agreement, contract, arrangement or
understanding are no less favorable to Avista Corp. or such Restricted
Subsidiary than those that might be obtained at the time from Persons who
are not Affiliates of Avista Corp.;
(3) is a Person with respect to which neither Avista Corp. nor any of
its Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Avista Corp. or any of its
Restricted Subsidiaries.
Any designation of a Subsidiary of Avista Corp. as an Unrestricted
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under the
caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such Subsidiary
shall be deemed to be incurred by a Restricted Subsidiary of Avista Corp. as of
such date and, if such Indebtedness is not permitted to be incurred as of such
date under the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock", Avista
Corp. shall be in default of such covenant. The Board of Directors of Avista
59
Corp. may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of Avista Corp. of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock", calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock at any date, the number of years obtained by dividing (i)
the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
or principal or redemption or similar payment, including payment at final
maturity, in respect thereof, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the sum of all such payments.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of
such Person all of the outstanding capital stock or other ownership interests of
which (other than directors' qualifying shares) will at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.provisions
generally prohibiting distributions.
CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section describes the material United States federal income tax
consequences of exchanging the Old NotesBonds for New NotesBonds and of owning and
disposing of notes.bonds. This section reflects the opinion of Thelen Reid & Priest
LLP, counsel to Avista Corp. This section applies to you only if you acquired
the Old NotesBonds in the offering at the offering price and you hold your notesbonds as
capital assets for tax purposes. This section does not apply to you if you are a
member of a class of holders subject to special rules, such as:
o a dealer in securities or currencies,
o a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings,
o a bank,
o a life insurance company,
o a tax-exempt organization,
o a person that owns notesbonds that are a hedge or that are hedged against
interest rate risks,
o a person that owns notesbonds as part of a straddle or conversion
transaction for tax purposes, or
o a person whose functional currency for tax purposes is not the U.S.
dollar.
If you purchase notesbonds at a price other than the offering price, the
amortizable bond premium or market discount rules may also apply to you. You
should consult your tax advisor regarding this possibility.
This section is based on the Internal Revenue Code of 1986, as amended,
its legislative history, existing and proposed Treasury regulations, under the Internal
Revenue Code, published
rulings and court decisions, all as currently in effect. These lawsauthorities are
subject to change, possibly on a retroactive basis. 60
This section does not
discuss all aspects of taxation that may be relevant to you. Accordingly, you
should consult your tax advisor as to the application and effect of state and
local taxes, foreign taxes and other tax laws.
UNITED STATES HOLDERS
This subsection describes the tax consequences to a United States
holder. You are a United States holder if you are a beneficial owner of a notebond
and you are:
o a citizen or resident of the United States,
o a domestic corporation or partnership,
o an estate whose income is subject to United States federal income tax
regardless of its source, or
o a trust if a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
37
If you are not a United States holder, this subsection does not apply
to you and you should refer to "United"--United States Alien Holders" below.
Exchange of Old NotesBonds for New NotesBonds
An exchange of Old NotesBonds for New NotesBonds will not be a taxable event for
federal income tax purposes. Rather, the New NotesBonds will be treated as a
continuation of the Old NotesBonds in the hands of a United States holder. As a
result, you will not recognize any income, gain or loss for federal income tax
purposes upon an exchange of Old NotesBonds for New Notes,Bonds, and you will have the same
tax basis and holding period in the New NotesBonds as you had in the Old Notes.Bonds.
Payments of Interest
You will be taxed on interest on your notesbonds as ordinary income at the
time you receive the interest or when it accrues, depending on your method of
accounting for tax purposes.
Purchase, Sale and Retirement of the NotesBonds
Your tax basis in your Old NotesBonds generally will be their cost, and your
tax basis in any New NotesBonds acquired in the Exchange Offer will be equal to your
tax basis in the Old NotesBonds surrendered. You will generally recognize capital
gain or loss on the sale or retirement of notesbonds equal to the difference between
the amount you realize on the sale or retirement, excluding any amounts
attributable to accrued but unpaid interest, and your tax basis in your notes.bonds.
Capital gain of a noncorporate United States holder is generally taxed at a
maximum rate of 20% where the property is held more than one year.
UNITED STATES ALIEN HOLDERS
This subsection describes the tax consequences to a United States alien
holder. You are a United States alien holder if you are the beneficial owner of
a notebond and are, for United States federal income tax purposes:
o a nonresident alien individual,
o a foreign corporation,
o a foreign partnership,
o an estate unless its income is subject to United States federal income
tax regardless of its source, or
o a trust unless a United States court can exercise primary supervision
over the trust's administration and one or more United States persons
are authorized to control all substantial decisions of the trust.
61
If you are a United States holder, this section does not apply to you.
An exchange of Old NotesBonds for New NotesBonds will not constitute a taxable
event for federal income tax purposes. Rather, the New NotesBonds will be treated as
a continuation of the Old NotesBonds in the hands of a United States alien holder. As
a result, you will not recognize any income, gain or loss for federal income tax
purposes upon an exchange of Old NotesBonds for New Notes,Bonds, and you will have the same
tax basis and holding period in the New NotesBonds as you had in the Old Notes.Bonds.
Under United States federal income and estate tax law, and subject to
the discussion of backup withholding below, if you are a United States alien
holder of a note:bond:
o we and other U.S. payors generally will not be required to deduct
United States withholding tax from payments of principal, premium, if
any, and interest to you if, in the case of payments of interest:
38
(1) you do not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Avista
Corp. entitled to vote,
(2) you are not a controlled foreign corporation that is related to
Avista Corp. through stock ownership, and
(3) your income or gain from the note is not effectively connected
with a trade or business that you conduct within the United
States, and
(4) either (i)(1) you furnish the U.S. payor an Internal Revenue Service
Form W-8BEN certifying under penalties of perjury that you are
not a United States person, or (ii)(2) the payor can otherwise be
satisfied that you are not a United States person by relying on
account documentation or other evidence as prescribed in Treasury
regulations. You should consult your tax advisor regarding this
requirement. However, this requirement will not be considered
satisfied if the payor has actual knowledge or reason to know
that you are a United States person notwithstanding the
certificate or other documentation.
o no deduction for any United States federal withholding tax will be
made from any gain that you realize on the sale or exchange of your
note,bond, including the exchange of Old NotesBonds for New Notes.
We and other payors are required to report payments of interest on your
notes on Internal Revenue Service Form 1042-S even if the payments are not
otherwise subject to information reporting requirements.Bonds.
If you are engaged in a trade or business within the United States and
the interest on the notebond is effectively connected with your United States
business, the interest and any gain on the notebond will not be subject to
withholding if you have provided the payor an Internal Revenue Service Form W-8
as prescribed in the Treasury regulations. However, interest on a notebond that is
effectively connected with your United States business will be subject to United
States taxation in the same manner as applies to United States holders. In
addition, ifmany tax treaties with the United States provide that interest and
gain from United States sources are not taxable in the United States, unless
such amounts are attributable to a permanent establishment in the United States.
If you are entitled to the benefits of a tax treaty with the United States that
provides these benefits, then interest and gain from the notebond will generally not
be taxable, even if effectively connected with a United States trade or
business, unless you also have a permanent establishment in the United States to
which the interest or gain is attributable. In order to claim benefits under a
tax treaty with the United States, you must furnish an Internal Revenue Service
Form W-8BEN to the payor.
Further, a notebond held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's gross
estate for United States federal estate tax purposes if:
o the decedent did not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Avista Corp.
entitled to vote at the time of death, and
o the income on the notebond would not have been effectively connected with
a United States trade or business of the decedent at the same time.
62
BACKUP WITHHOLDING AND INFORMATION REPORTING
We and other payors, including brokers, may be required to report to
you and to the Internal Revenue Service any payments of principal, premium and
interest on your notebond and the amount of any proceeds from the sale or exchange
of your note.bond. As described more fully below, we and other payors may also be
required to make "backup withholding" from payments of principal, premium,
interest and sales proceeds if you fail to provide an accurate taxpayer
identification number or otherwise establish an exemption from backup
withholding.
Backup withholding is not an additional tax. If you are subject to
backup withholding, you may obtain a credit or refund of the amount withheld by
filing the required information with the Internal Revenue Service.
UNITED STATES HOLDERS
In general, if you are a noncorporate United States holder, we and
other payors are required to report to the Internal Revenue Service all payments
of principal, any premium and interest on your note.bond. In addition, we and other
39
payors are required to report to the Internal Revenue Service any payment of
proceeds of the sale of your notebond before maturity within the United States.
Additionally, backup withholding at a rate of 31%30% (subject to phase-in rate
reductions until the rate equals 28% for payments after 2005) will apply to any
payments if you fail to provide an accurate taxpayer identification number, or
you are notified by the Internal Revenue Service that you have failed to report
all interest and dividends required to be shown on your federal income tax
returns.
UNITED STATES ALIEN HOLDERS
In general, payments of principal, premium or interest made by us and
other payors to you will not be subject to backup withholding and information
reporting, provided that the certification requirements described above under
"United"--United States Alien Holders" are satisfied or you otherwise establish an
exemption.
We and other payors are required to report payments of interest on your
bonds on Internal Revenue Service Form 1042-S even if the payments are not
otherwise subject to information reporting requirements.
In general, proceeds of your sale of a notebond will not be subject to
backup withholding or information reporting if:
o you furnish your broker an Internal Revenue Service Form W-8BEN
certifying under penalties of perjury that you are not a United States
person, or
o your broker possesses other documentation concerning your account on
which the broker is permitted to rely under Treasury regulations to
establish that you are a non-United States person, or
o you otherwise establish an exemption.
If you are not exempted from backup withholding and information
reporting under the preceding paragraph:
o Backup withholding and information reporting will apply to the
proceeds of any sale that you make through the United States office of
any broker, foreign or domestic.
o Information reporting will also apply to the proceeds of sales that
are made through a foreign office of a broker if the proceeds are paid
into a United States account, or such proceeds or the confirmation of
the sale are mailed to you at a United States address, or if you have
opened an account with a United States office of your broker, or
regularly communicated with the broker from the United States
concerning the sale in question and other sales, or negotiated the
sale in question through the broker's United States office. Backup
withholding will also apply unless the proceeds of such a sale are
paid to an account maintained at a bank or other financial institution
located outside the United States.
o Information reporting, but not backup withholding, will apply to sales
made through a foreign office of a broker that is (1) a United States
person or that isas defined in the Internal Revenue Code, (2) a foreign corporationperson
that derived 50% or partnership controlled by
U.S. persons or that derives more than 50% of its gross income for certain periods from
U.S.
63
the conduct of a trade or business activities over a three-year period as specified in the Treasury regulations.United States, (3) a
controlled foreign corporation as defined in the Internal Revenue Code,
or (4) a foreign partnership with certain U.S. connections.
Notwithstanding any withholding certificate or documentary evidence in
a broker's possession, a broker who has actual knowledge or reason to know that
you are a United States person will be required to make backup withholdings and
file information reports with the Internal Revenue Service if the broker is a
U.S. person or is a foreign person that has a U.S. connection of the type
discussed in the last bullet point of the preceding paragraph.
PLAN OF DISTRIBUTION
As discussed under THE EXCHANGE OFFER, based on an interpretation of
the staff of the SEC, New NotesBonds issued pursuant to the Exchange Offer may be
offered for resale and resold or otherwise transferred by any Holder of such New
NotesBonds (other than any such Holder which is an "affiliate" of Avista Corp. within
the meaning of Rule 405 under the Securities Act and except as otherwise
discussed below with respect to Holders which are broker-dealers) without
compliance with the registration and prospectus delivery requirements of the
Securities Act so long as such New NotesBonds are acquired in the ordinary course of
40
such Holder's business and such Holder has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of such New Notes.Bonds.
Each broker-dealer that receives New NotesBonds for its own account in
exchange for Old NotesBonds which were acquired by such broker-dealer as a result of
market-making activities or other trading activities must, and must agree to,
deliver a prospectus in connection with any resale of such New Notes.Bonds. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New NotesBonds received in exchange
for Old NotesBonds where such Old NotesBonds were acquired as a result of market-making
activities or other trading activities. Avista Corp. will for a period of 90180
days after the Expiration Date make this prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
In
addition, until _____, 2001, all dealers effecting transactions in the New Notes
may be required to deliver a prospectus.
New NotesBonds received by broker-dealers for their own account in the
Exchange Offer as described above may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions, through
the writing of options on the New NotesBonds or a combination of such methods of
resale, at market prices prevailing at the time of resale, at prices related to
such prevailing market prices or at negotiated prices. Any such resale may be
made directly to purchasers or to or through brokers or dealers who may receive
compensation in the form of commissions or concessions from any such
broker-dealer and/or the purchasers of any such New Notes.Bonds. Any broker-dealer
that resells New NotesBonds that were received by it for its own account pursuant to
the Exchange Offer and any broker or dealer that participates in a distribution
of such New NotesBonds may be deemed to be an "underwriter" within the meaning of the
Securities Act and any profit on any such resale of New NotesBonds and any
commissions or concessions received by any such persons may be deemed to be
underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The interpretation of the staff of the SEC referred to in the first
paragraph of this section does not apply to, and this prospectus may not be used
in connection with, the resale by any broker-dealer of any New NotesBonds received in
exchange for an unsold allotment of Old NotesBonds purchased directly from Avista
Corp.
Avista Corp. will not receive any proceeds from the issuance of the New
NotesBonds pursuant to the Exchange Offer or from any subsequent sale of the New
Notes.Bonds. Avista Corp. has agreed to pay all expenses incident to the Exchange
Offer other than commissions or concessions of any brokers or dealers and
expenses of counsel for the holders of the New NotesBonds and will indemnify the
holders of the New NotesBonds (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
64
WHERE YOU CAN FIND MORE INFORMATION
Avista Corp. files annual, quarterly and special reports, proxy
statements and other information with the SEC. You may read and copy any
document Avista Corp. files at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for
further information on the public reference room. Avista Corp. SEC filings are
also available to the public from the SEC's website at http://www.sec.gov.
However, information on this website does not constitute a part of this
prospectus.
During 2001, Avista Corp. has filed the following documents with the SEC
pursuant to the Exchange Act:
o Annual Report on Form 10-K for the year ended December 31, 2000, as
amended by Form 10-K/A (the "Form 10-K").
o Quarterly Report on Form 10-Q for the quarterquarters ended March 31, June 30
and September 30, 2001.
o Current ReportReports on Form 8-K filed May 2, July 23, September 27,
October 22, October 31 and December 11, 2001.
41
These documents, as well as any other documents subsequently filed with
the SEC before the termination of the offering of the New Notes,Bonds, are
incorporated herein by reference and are considered to be part of this
prospectus. Later information contained in this prospectus updates and
supersedes the information set forth in the Form 10-K and any other incorporated
documents.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
We are including the following cautionary statements in this prospectus
to make applicable and to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, Avista Corp. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, projections
of future events or performance, and underlying assumptions (many of which are
based, in turn, upon further assumptions) and are all statements which are not
statements of historical fact. Forward-looking statements include statements
that are identified by the use of the words such as, but not limited to, "will,"
"anticipates," "seeks to," "estimates," "expects," "intends," "plans,"
"predicts," and similar expressions. From time to time, we may publish or
otherwise make available forward-looking statements of this nature. All such
subsequent forward-looking statements, whether written or oral and whether made
by or on behalf of Avista Corp., are also expressly qualified by these
cautionary statements.
Forward-looking statements involve risks and uncertainties which could
cause actual results or outcomes to differ materially from those expressed. Our
expectations, beliefs and projections are expressed in good faith and are
believed by us to have a reasonable basis, including without limitation
management's examination of historical operating trends, data contained in our
records and other data available from third parties, but there can be no
assurance that our expectations, beliefs or projections will be achieved or
accomplished. Furthermore, any forward-looking statement speaks only as of the
date on which such statement is made, and we undertake no obligation to update
or revise any forward-looking statement or statements to reflect any change in
our expectations or any change in events, conditions or circumstances on which
any such statement is based or to reflect the occurrence of unanticipated
events. New factors emerge from time to time, and it is not possible for
management to predict all of such factors, nor can it assess the impact of each
such factor on Avista Corp.'s business or the extent to which any such factor,
or combination of factors, may cause actual results to differ materially from
those contained in any forward-looking statement. In addition to other factors
and matters discussed elsewhere in this offering circular, the following are
some important factors that could cause actual results or outcomes from our
operations to differ materially from the forward-looking statements.
AVISTA UTILITIES' OPERATIONS
Important factors relating to Avista Utilities' operations include
continuing legislative developments, governmental policies and regulatory
actions with respect to allowed rates of return, financings, or industry and
rate structures (including the outcome of the general rate case filed in the
state of Washington to address, among other things, the prudence and recovery of
significant deferred power costs); weather conditions and future streamflow
conditions and their impact on the availability of hydroelectric resources;
outages of any of our thermal or other generating facilities; changes in demand
for energy due to weather conditions, customer growth and other factors;
wholesale and retail competition (including but not limited to electric retail
wheeling and transmission cost); availability of economic supplies of purchased
power and natural gas; competition in present or future natural gas distribution
or transmission (including but not limited to prices of alternative fuels and
system deliverability costs); the availability and costs of electric capacity
and energy and natural gas in wholesale markets as well as volatility and
illiquidity in these markets and the ability to recover purchased power and
purchased gas costs; the ability to make profitable sales of any surplus
electric capacity or energy in wholesale markets; present or prospective
generation, operations and construction of plant facilities; and acquisition and
disposal of assets or facilities.
ENERGY TRADING AND MARKETING OPERATIONS
Energy Trading and Marketing includes the operations of Avista Energy
and Avista Power. Important factors relating to our Energy Trading and Marketing
operations include further industry restructuring evolving from federal and/or
state legislation; federal and state regulatory and legislative actions;
governmental controls on market operations and prices (including FERC price
controls and possible retroactive price caps and resulting refunds); demand for
42
and availability of energy throughout the country; wholesale competition;
availability of economic supplies of natural gas; margins on purchased power;
changes in market factors; the formation of additional alliances or entities;
the availability of economically feasible generating projects; and the
availability of funding for new generating assets.
INFORMATION AND TECHNOLOGY, AND OTHER OPERATIONS
Important factors relating to the remaining Avista Corp. subsidiaries'
operations include competition from other companies and other technologies;
obsolescence of technologies; the inability to reduce costs of the technologies
down to economic levels; the inability to obtain new customers and loss of
significant customers or suppliers; reliability of customer orders; business
acquisitions; disposal of assets; the availability of funding from other
sources; research and development findings; and the availability of economic
expansion or development opportunities.
FACTORS COMMON TO ALL OPERATIONS
The business and profitability of Avista Corp. are also influenced by,
among other things, economic risks; changes in and compliance with environmental
and safety laws and policies; weather conditions; population growth rates and
demographic patterns; market demand for energy from plants or facilities;
changes in tax rates or policies; unanticipated project delays or changes in
project costs; unanticipated changes in operating expenses or capital
expenditures; labor negotiations or disputes; changes in credit ratings or
capital market conditions; inflation rates; inability of the various
counterparties to meet their obligations with respect to financial instruments;
failure to deliver on the part of any parties from which Avista Corp. purchases
capacity or energy; Avista Corp.'s ability to obtain debt or equity financing;
changes in accounting principles and/or the application of such principles to
Avista Corp.; changes in technology; changes in economic, business or political
conditions, including the continuing impact on the economy of the September 11,
2001 terrorist attacks; and legal proceedings.
LEGAL MATTERS
The validity of the New NotesBonds will be passed upon for Avista Corp. by
Thelen Reid & Priest LLP and Heller Ehrman White & McAuliffe LLP. In addition,
matters of federal income tax law and federal securities law will be passed upon
by Thelen Reid & Priest LLP. In giving their opinion, Thelen Reid & Priest LLP
may rely as to matters of Washington, California, Idaho, Montana and Oregon law
upon the opinion of Heller Ehrman White & McAuliffe LLP.
EXPERTS
The financial statements and the related financial statement schedules
incorporated in this prospectus by reference
from Avista Corp.'s Annual Report on Form 10-K for the year ended December 31,
2000 have been audited by Deloitte & Touche LLP, independent auditors, as stated
in their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the reportsreport of such firm given upon their authority
as experts in accounting and auditing.
6543
PART II.
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Article Seventh of the Registrant's Restated Articles of Incorporation
("Articles") provides, in part, as follows:
"The Corporation shall, to the full extent permitted by applicable law,
as from time to time in effect, indemnify any person made a party to, or
otherwise involved in, any proceeding by reason of the fact that he or she is or
was a director of the Corporation against judgments, penalties, fines,
settlements and reasonable expenses actually incurred by him or her in
connection with any such proceeding. The Corporation shall pay any reasonable
expenses incurred by a director in connection with any such proceeding in
advance of the final determination thereof upon receipt from such director of
such undertakings for repayment as may be required by applicable law and a
written affirmation by such director that he or she has met the standard of
conduct necessary for indemnification, but without any prior determination,
which would otherwise be required by Washington law, that such standard of
conduct has been met. The Corporation may enter into agreements with each
director obligating the Corporation to make such indemnification and advances of
expenses as are contemplated herein. Notwithstanding the foregoing, the
Corporation shall not make any indemnification or advance which is prohibited by
applicable law. The rights to indemnity and advancement of expenses granted
herein shall continue as to any person who has ceased to be a director and shall
inure to the benefit of the heirs, executors and administrators of such a
person. "
The Registrant has entered into indemnification agreements with each
director as contemplated in Article Seventh of the Articles.
Reference is made to Revised Code of Washington 23B.08.510, which sets
forth the extent to which indemnification is permitted under the laws of the
State of Washington.
Article IX of the Registrant's Bylaws contains an indemnification
provision similar to that contained in the Articles and, in addition, provides
in part as follows:
"SECTION 2. LIABILITY INSURANCE. The Corporation shall have the power
to purchase and maintain insurance on behalf of any person who is or was a
director, officer, employee, or agent of the Corporation or is or was serving at
the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust, other enterprise, or
employee benefit plan against any liability asserted against him and incurred by
him in any such capacity or arising out of his status as such, whether or not
the Corporation would have the power to indemnify him against such liability
under the laws of the State of Washington."
Insurance is maintained on a regular basis (and not specifically in
connection with this offering) against liabilities arising on the part of
directors and officers out of their performance in such capacities or arising on
the part of the Registrant out of its foregoing indemnification provisions,
subject to certain exclusions and to the policy limits.
ITEM 21. EXHIBITS.
Reference is made to the Exhibit Index on p. II-6II-5 hereof.
ITEM 22. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(1)1. That, for purposes of determining any liability under the
Securities Act, each filing of the registrant's annual report pursuant
to Section 13(a) or 15(d) of the Exchange Act (and, where applicable,
each
II-1
each filing of an employee benefit plan's annual report pursuant to
Section 15(d) of the Exchange Act) that is incorporated by reference
in this registration statement shall be deemed to be a new
registration statement relating to the securities offered herein, and
the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof;
(2)2. To respond to requests for information that is incorporated by
reference into the prospectus pursuant to item 4,10(b), 11 or 13 of
Form S-4, within one business day of receipt of such request, and to
send the incorporated documents by first class mail or other equally
prompt means. This includes information contained in documents filed
subsequent to the effective date of this registration statement
through the date of responding to the request.
Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suit or proceeding) is asserted against the
Registrant by such director, officer or controlling person in connection with
the securities being registered, such Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-2
POWER OF ATTORNEY
The Registrant hereby appoints Jon E. Eliassen and each Agent for
Service named in this registration statement, and each of them severally, as its
attorney-in-fact to sign in its name and behalf, and to file with the Securities
and Exchange Commission any and all amendments, including post effectivepost-effective
amendments, to this registration statement, and each director and/or officer of
the Registrant whose signature appears below hereby appoints Jon E. Eliassen and
each such Agent for Service, and each of them severally, as his or her
attorney-in-fact with like authority to sign in his or her name and behalf, in
any and all capacities stated below, and to file with the Securities and
Exchange Commission, any and all such amendments.
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended,
the Registrant has duly caused this registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Spokane and
State of Washington on the 31st11th day of May, 2001.February, 2002.
AVISTA CORPORATION
/s/ JONJon E. ELIASSEN
----------------------------------Eliassen
---------------------------
Jon E. Eliassen
Senior Vice President
and Chief Financial Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this registration statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATES
/s/ GARYGary G. ELYEly
- ------------------------------------------------------------------
Gary G. Ely Director and Principal May 31, 2001February 11, 2002
(Director, President and Chief Principal Executive Officer
Executive Officer) Officer
/s/ JONJon E. ELIASSENEliassen
- ------------------------------------------------------------------
Jon E. Eliassen Principal Financial and May 31, 2001February 11, 2002
(Senior Vice President and Chief and Accounting Officer
Financial Officer) Officer
/s/ ERIKErik. J. ANDERSONAnderson
- ------------------------------------------------------------------
Erik. J. Anderson Director May 31, 2001February 11, 2002
II-3
/s/ KRISTIANNE BLAKEKristianne Blake
- ------------------------------------------------------------------
Kristianne Blake Director May 31, 2001
II-3
February 11, 2002
/s/ D.A. CLACKDavid A. Clack
- ------------------------------------------------------------------
David A. Clack Director May 31, 2001February 11, 2002
/s/ S.M.R. JEWELLSarah M. R. (Sally) Jewell
- ------------------------------------------------------------------
Sarah M. R. (Sally) Jewell Director May 31, 2001February 11, 2002
/s/ J.F. KELLYJohn F. Kelly
- ------------------------------------------------------------------
John F. Kelly Director May 31, 2001February 11, 2002
/s/ JESSIEJessie J. KNIGHT JR.Knight, Jr.
- ------------------------------------------------------------------
Jessie J. Knight, Jr. Director May 31, 2001February 11, 2002
/s/ EUGENEEugene W. MEYERMeyer
- ------------------------------------------------------------------
Eugene W. Meyer Director May 31, 2001February 11, 2002
/s/ BOBBY SCHMIDTBobby Schmidt
- ------------------------------------------------------------------
Bobby Schmidt Director May 31, 2001February 11, 2002
/s/ R. JOHN TAYLORJohn Taylor
- ------------------------------------------------------------------
R. John Taylor Director May 31, 2001February 11, 2002
/s/ DANIELDaniel J. ZALOUDEKZaloudek
- ------------------------------------------------------------------
Daniel J. Zaloudek Director May 31, 2001February 11, 2002
II-4
EXHIBIT 23(B)
CONSENT
We consent to the incorporation by reference in this Registration Statement
of Avista Corporation on Form S-4 of our report dated February 2, 2001 (February
26, 2001 as to Note 22), appearing in the Annual Report on Form 10-K of Avista
Corporation for the year ended December 31, 2000 and to the reference to us
under the heading "Experts" in the Prospectus, which is part of this
Registration Statement.
/s/ Deloitte & Touche LLP
Seattle, Washington
June 1, 2001
II-5
EXHIBIT INDEX
Exhibit No. Description of Exhibit
----------- ----------------------
4(a) - IndentureMortgage and Deed of Trust dated as of April 3, 2001,June 1, 1939, by
and among Avista Corporation and Chase Manhattan Bank and Trust Company, National
Association,Citibank, N.A., as
Trustee (filed as Exhibit 4(f) to Quarterly
Report on Form 10-Q for quarter ended March 31, 2001)with registration number 2-4077 B-3).
4(b) - Twenty-ninth Supplemental Indenture to the Mortgage, dated
as of December 1, 2001.
4(c) - Exchange and Registration Rights Agreement betweenamong Avista
Corporation and Goldman Sachs & Co.
4(c)the Initial Purchasers.
4(d) - Form of Letter of Transmittal.
4(e) - Form of New Bond.
5(a) - Opinion of Heller Ehrman White & McAuliffe LLP.
5(b) - Opinion of Thelen Reid & Priest LLP.
8 - Opinion as to tax matters of Thelen Reid & Priest LLP
(contained in their opinion filed as Exhibit 5(b)) and 8.8).
23(a) - Consents of Heller Ehrman White & McAuliffe LLP and Thelen
Reid & Priest LLP are contained in their opinions filed as
Exhibits 5(a) and 5(b) and 8, respectively.
23(b) - Consent of Deloitte & Touche LLP (contained on page II-5).LLP.
24 - Power of Attorney (contained on page II-3).
25 - Statement of Eligibility of Trustee on Form T-1 of
Chase
Manhattan Bank and Trust Company, National Association.
II-6Citibank, N.A.
II-5