20080410Compliance Filing.pdf

2008 åPR f 0 Aí'¡ 8: II
~ll~'iI'STA'
Corp.
Case No. AVU-U-08-01
We are submitting the following information in compliance with the Commission's Order No.
30509 under Case No. AVU-U-08-01 for the sale of $250,000,000 debt securities, 5.95% due 2018.
Avista Corporation issued the $250,000,000 principal amount of secured debt securities 5.95%
due June 1, 2018 on April 3, 2008. Underwriters for this issuance were UBS Securities LLC, BNY Capital
Markets, Inc., Goldman, Sachs & Co., Banc of America Securities LLC, KeyBanc Capital Markets Inc.,
Wedbush Morgan Securities Inc. and Wells Fargo Securities, LLC. The 5.95% series was offered at a
price of 99.666%. The underwriter's fee for the issue was 0.65% leaving a net price to the Company of
99.016% or total net proceeds of $247,540,000. The net proceeds amount does not incorporate other
issuance costs such as legal, accounting, ratings and other. See enclosed Final Term Sheet and
Prospectus Supplement for more details on the transaction.
Please contact Paul Kimball at [phone] if you have any questions.
Sincerely,~C~
Diane C. Thoren
Assistant Treasurer
Enclosure
iiv 8: \2
iU\ìß ~?R \ \) f\fÎ
Issuer:
Issue:
Ratings*:
Offering Size:
Coupon:
Trade Date:
Settlement Date:
Stated Matuity:
Spread to Benchmark Treasury:
Yield to Maturity:
Benchmark Treasury Yield:
Benchmark Treasury:
Initial Public Offering Price:
Proceeds to Issuer (before expenses):
Optional Redemption:
Interest Payment Dates:
Joint Bookrnners:
Senior Co-Managers:
Co-Managers:
Filed Pursuant to Rule 433
Registration No. 333-139239
Final Term Sheet
A vista Corporation
First Mortgage Bonds, 5.95% Series due 2018
Baa2/BBB+/BBB (stable/stable/positive)
$250,000,000
5.95%
March 27, 2008
April 3, 2008 (T+5)
June 1,2018
T+250 bps
5.992%
3.492%
3.50% due February 15,2018
99.666%
$247,540,000
Make-Whole Call, 37.5 bps spread over U.S. Treasuries
Semi-annually in arrears on June 1 and December 1 of
each year, commencing on December 1,2008
VBS Securities LLC
BNY Capital Markets, Inc.
Goldman, Sachs & Co.
Banc of America Securities LLC
KeyBanc Capital Markets Inc.
Wedbush Morgan Securities Inc.
Wells Fargo Securities, LLC
*Note: Each security rating agency has its own methodology for assigning ratings. Security
ratings are not recommendations to buy, sell or hold securities. The ratings are subject to change
or withdrawal at any time by the respective credit rating agencies. Each credit rating should be
evaluated independently of any other ratings.
The issuer has fied a registration statement (including a prospectus) with the SEC for the
offering to which this communication relates. Before you invest, you should read the prospectus
in that registration statement and other documents the issuer has fied with the SEC for more
complete information about the issuer and this offering. You may get these documents for free
by visiting EDGAR on the SEC website at www.sec.gov. Alternatively, the issuer, any
underwriter or any dealer participating in the offering wil arrange to send you the prospectus if
you request it by callng VBS Securities LLC toll-free at 1-877-827-6444, extension 561-3884.
LA\1840376.i
$250,000,000 2H88 APR I 0 Ar'; 8= 12
Avista Corporation
First Mortgage Bonds, 5.95% Series dúe 2018
Our First Mortgage Bonds, 5.95% Series due 2018 (the "Offered Bonds"), constitute a series of our
Bonds described in the accompanying prospectus.
We wil pay interest on the Offered Bonds on June 1 and December 1 of each year. The first such
payment will be made on December 1, 2008. The Offered Bonds will mature on June 1, 2018, unless
redeemed on an earlier date. The Offered Bonds are redeemable at our option, in whole at any time or in
part from time to time, at a "make-whole" price as described herein. See "Description of the Offered
Bonds".
The Offered Bonds will be secured equally with all other bonds outstanding under our Mortgage (as
defined in the accompanying prospectus).
See "Risk Factors" on page S-3 of this prospectus supplement and on page 3 of the accompanying
prospectus to read about certain factors you should consider before buying the Offered Bonds.
Neither the Securities and Exchange Commission nor any other regulatory body has
approved or disapproved of these securities or passed upon the accuracy or adequacy of this
prospectus supplement or the accompanying prospectus. Any representation to the contrary is a
criminal offense.
Per Bond Total
Initial public offering price. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 99.666% $249,165,000
Underwriting discount. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 0.650% $ 1,625,000
Proceeds, before expenses, to Avista. . . . . . . . . . . . . . . . . . . . . . . . .. 99.016% $247,540,000
The initial public offering price set forth above does not include accrued interest, if any. Interest on
the Offered Bonds will accrue from April 3, 2008 and must be paid by the purchasers if the Offered Bonds
are delivered after April 3, 2008.
The underwriters expect to deliver the Offered Bonds to the purchasers through the facilities of The
Depository Trust Cbmpany against payment in New York, New York on April 3, 2008.
I
UBS InvestmJnt Bank
Joint Book-Running Managers
BNY Capital Markets, Inc.Goldman, Sachs & Co.
Senior Co-Managers
Banc of America Securities LLC KeyBanc Capital Markets
Co-Managers
Wed bush Morgan Securities Inc.Wells Fargo Securities
Prospectus Supplement dated March 27, 2008
This prospectus supplement and the accompanying prospectus incorporate by reference important
business and financial information about Avista Corporation that is not included in or delivered with the
prospectus. This information is available to you as set forth in the accompanying prospectus under "Where
You Can Find More Information".
TABLE OF CONTENTS
Prospectus Supplement
Risk Factors. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
Safe Harbor for Forward-Looking Statements. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-3
The Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-5
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Summary Financial Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-7
Capitalization. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-8
Description of the Offered Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . S-9
Underwriting ... . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. S-13
Legal Matters. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. S-14
Experts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. S-14
Prospectus
About this Prospectus. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Avista Corporation. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4
Description of the Bonds. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 4
Description of the Notes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 12
Description of Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., 21
Description of Common Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 23
Where You Can Find More Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ., 33
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 34
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 34
We have not authorized anyone to give you any information other than this prospectus supplement
and the accompanying prospectus. You should assume that the information contained or incorporated in
this prospectus supplement and the accompanying prospectus is accurate only as of their respective
dates. We are not offering to sell the Offered Bonds and we are not soliciting offers to buy the Offered
Bonds in any jurisdiction in which offers are not permitted.
S-2
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. We undertake no obligation to
update any forward-looking statement or statements to reflect events or circumstances that occur after the
date on which such statement is made or to reflect the occurrence of unanticipated events. New factors
emerge from time to time, and it is not possible for us to predict all of such factors, nor can we assess the
effect of each such factor on our 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.
S-4
RISK FACTORS
General
Investing in the Offered Bonds involves risk. You should review all the information contained or
incorporated by reference in this prospectus supplement and the accompanying prospectus before
deciding to invest. See "Where You Can Find More Information" in the accompanying prospectus. In
particular, you should carefully consider the risks and uncertainties discussed in Avista's Annual Report on
Form 10-K, incorporated herein by reference, in Item 1 A "Risk Factors" and under "Forward-Looking
Statements" in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of
Operations" .
In addition to the risks and uncertainties referred to above, there are certain risks associated with
the Offered Bonds as described below.
We cannot assure you that an active trading market for the Offered Bonds wil develop.
We do not intend to apply for listing of the Offered Bonds on any securities exchange or automated
quotation system. There can be no assurance as to the liquidity of any market that may develop for the
Offered Bonds, the ability of the bondholders to sell their Offered Bonds or the price at which the
bondholders will be able to sell the Offered Bonds. Future trading prices of the Offered Bonds will depend
on many factors including, among other things, prevailing interest rates, our operating results and the
market for similar securities.
The underwriters have informed us that they intend to make a market in the Offered Bonds.
However, the underwriters are not obligated to do so, and any such market making activity may be
terminated at any time without notice. If a market for the Offered Bonds does not develop, purchasers may
be unable to resell the Offered Bonds for an extended period of time. Consequently, a bondholder may not
be able to liquidate its investment readily, and the Offered Bonds may not be readily accepted as collateral
for loans. In addition, such market making activity will be subject to restrictions of the Securities Act of
1933, as amended, and the Securities Exchange Act of 1934, as amended.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
From time to time, we make forward-looking statements such as statements regarding projected or
future financial performance, capital expenditures, dividends, capital structure, other financial items,
strategic goals and objectives, and plans for operations. These statements have underlying assumptions
(many of which are based, in turn, upon further assumptions). Such statements are made both in our
reports fied under the Securities Exchange Act of 1934, as amended, and elsewhere. Forward-looking
statements are all statements except those of historical fact, including, without limitation, those that are
identified by the use of words such as, but not limited to, ''wil,'' "may," "could," "should," "intends;' "plans,"
"seeks," "anticipates;' "estimates," "expects," "projects," "predicts," and similar expressions.
Forward-looking statements are subject to a variety of risks and uncertainties and other factors.
Most of these factors are beyond our control and many of them could have a significant effect on our
operations, results of operations, financial condition or cash flows. This could cause actual results to differ
materially from those anticipated in our statements. Such risks, uncertainties and other factors include,
among others, those listed in "Management's Discussion and Analysis of Financial Condition and Results
of Operations" under "Forward-Looking Statements" in our annual and quarterly reports incorporated
herein by reference, as well as those discussed in "Risk Factors" in such reports incorporated herein by
reference.
Our expectations, beliefs and projections are expressed in good faith. We believe they are
reasonable based on, without limitation, an examination of historical operating trends, data contained
in our records and other data available from third parties. However, there can be no assurance that our
S-3
THE COMPANY
General
Avista Corporation, which was incorporated in the Territory of Washington in 1889 (sometimes
called "Avista" or the "Company"), is an energy company engaged in the generation, transmission and
distribution of energy and, through its subsidiaries, in other energy-related businesses. Our corporate
headquarters are in Spokane, Washington, the hub of the Inland Northwest geographic region. Agricul-
ture, mining and lumber were the primary industries in the Inland Northwest for many years; today health
care, education, finance, electronic and other manufacturing, tourism and service sectors are growing in
importance.
Through 2007, we had three reportable business segments, as follows:
· Avista Utilties - an operating division of Avista Corporation comprising our regulated utilty
operations that started in 1889. Avista Utilties generates, transmits and distributes electricity and
distributes natural gas. It also engages in wholesale purchases and sales of electricity and natural
gas.
· Energy Marketing and Resource Management - electricity and natural gas marketing, trading
and resource management. The activities of this business segment were conducted primarily by
Avista Energy, Inc. ("Avista Energy"), an indirect subsidiary of Avista Corporation. On June 30,
2007, Avista Energy and Avista Energy Canada, Ltd. ("Avista Energy Canada") completed the sale
of substantially all of their contracts and ongoing operations to Shell Energy North America (U.S.),
L.P. ("Shell Energy"), formerly known as Coral Energy Holding, L.P., as well as to certain other
subsidiaries of Shell Energy. Completion of this transaction effectively ended the majority of the
operations of this business segment. This segment still owns natural gas storage facilities and has
operating revenues and resource costs related to the power purchase agreement for a 270
megawatt ("MW') natural gas-fired combined cycle combustion turbine plant located in Idaho
("Lancaster Plant'). The Lancaster Plant is owned by an unrelated third-part and all of the output
from the plant is Contracted to Avista Energy through 2026. The majority of the rights and
obligations under the power purchase agreement were assigned to Shell Energy through the
end of 2009. Beginning in 2010, we expect these rights and obligations wil be transferred to Avista
Utilties, subject to future regulatory approvaL.
· Advantage IQ - a provider of facility information and cost management services for multi-site
customers throughout North America. This business segment's primary product lines include
consolidated billng, resource accounting, energy analysis and loan profiling services. The activ-
ities of this business segment are conducted by Advantage IQ, Inc. ("Advantage IQ"), an indirect
subsidiary of Avista Corporation.
Avista Corporation has other businesses, including sheet metal fabrication, venture fund invest-
ments and real estate investments. These activities do not represent a reportable business segment and
are conducted by various indirect subsidiaries of Avista Corporation. Over time as opportunities arise,
Avista plans to dispose of assets and phase out operations that do not fit with its overall corporate strategy.
However, Avista may invest incremental funds to protect its existing investments and invest in new
businesses that fit with its overall corporate strategy.
Avista Energy, Advantage IQ and the various other companies are subsidiaries of Avista Capital,
Inc. ("Avista Capital"), which is a wholly owned subsidiary of Avista Corporation.
Avista Utilties
Avista Utilities provides electric distribution and transmission as well as natural gas distribution
services in parts of eastern Washington and northern Idaho. It also provides natural gas distribution
service in parts of northeast and southwest Oregon. At December 31,2007, Avista Utilities supplied retail
S-5
electric service to approximately 352,000 customers and retail natural gas service to approximately
311,000 customers across its entire service territory.
In addition to providing electric transmission and distribution services, Avista Utilities generates
electricity from its generating facilities, which had a total net capability of approximately 1,771 MW at
December 31,2007. Avista Utilties owns and operates hydroelectric projects having a total net capabilty
of approximately 979 MW, a wood-waste fueled generating station having a net capabilty of 50 MW, gas-
fired generating facilities having a total net capability of 520 MW and an undivided interest in a coal-fired
generating station with entitlement to 222 MW of net capability. In addition to its own resources, Avista
Utilities is party to a number of long-term power purchase and exchange contracts that increase its
available resources.
Energy Marketing and Resource Management
On June 30, 2007, Avista Energy and Avista Energy Canada completed the sale of substantially all
of their contracts and ongoing operations to Shell Energy, as well as to certain other subsidiaries of Shell
Energy. Completion of this transaction effectively ended the majority of the operations of this business
segment.
Advantage IQ
Advantage 10 is a provider of facility information and cost management services for multi-site
customers throughout North America. Through invoice processing, auditing, payment services and
comprehensive reporting, our solutions at Advantage 10 are designed to provide companies with critical
and easy-to-access information that enables them to proactively manage and reduce their utilty, telecom
and waste management expenses.
As part of this process, Advantage 10 analyzes and audits invoices, then presents consolidated bills
on-line, as well as processing payments for these expenses. Information gathered from invoices, providers
and other customer-specific data allows Advantage 10 to provide its clients with in-depth analytical
support, real-time reporting and consulting services.
Other
Avista's other businesses include several subsidiaries, including Avista Ventures, Inc., Pentzer
Corporation, Avista Development, Inc. and certain other operations of Avista CapitaL. Also included is
Advanced Manufacturing and Development, a subsidiary of Pentzer Corporation.
S-6
USE OF PROCEEDS
We will use net proceeds from the sale of the Offered Bonds, together with other available funds, to
repay $272,860,000 of 9.75% Senior Unsecured Notes which mature on June 1, 2008. Pending use, such
proceeds will be invested by the Company in short-term investment vehicles or used to retire short-term
debt.
SUMMARY FINANCIAL INFORMATION
Set forth below is certain summary consolidated financial information for the years ended Decem-
ber 31, 2007, 2006 and 2005. This financial information has been derived from the consolidated financial
statements of Avista, which are incorporated herein by reference. This information should be read in
conjunction with our consolidated financial statements and related notes, management's discussion and
analysis of results of operations and other financial information which are incorporated by reference
herein.
Operating Revenues. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $1,418
Income from Operations. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 138
Net Income. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38
Year Ended December 31,
2007 2006 2005
(in milions)
$1,506
200
73
$1,360
152
45
Total Assets. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net Utilty Propert(1). . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total Debt. .. . . . . . .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Preferred Stock. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 914
(1) Substantially all utility properties owned by the Company are subject to the lien of the Company's Mortgage.
At December 31,
2007 2006~milli~
$3,190 $4,057
2,351 2,215
1,062 1,093
26
915
Year EndedDecember 31,
2007 2006
Ratios of Earnings to Fixed Charges(1) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 1 .71 2.17
(1) The ratios for the years 2005, 2004 and 2003 were 1.74, 1.60 and 1.88, respectively. The ratios are computed using the
consolidated earnings and fixed charges of Avista and its subsidiaries. Earnings consist of Income from Continuing Operations
increased by income tax expense and fixed charges. Fixed Charges consist of interest on debt, net amortization of debt expense
and premium, and the interest portion of rentals.
S-7
CAPITALIZATION
The following table sets forth our consolidated capitalization (including short-term debt and the
current portion of long-term debt) as of December 31, 2007, as well as our consolidated cash and cash
equivalents. The following data are unaudited and qualified in their entirety by our financial statements and
other information incorporated herein by reference. See "Use of Proceeds".
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
As of December 31, 2007
(in milions)
$11.8
Short-term debt ~including current portion of long-term debt)(1) . . . . . . . . .
Long-term debt(2 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Long-term debt to affiliated trusts .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Common equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
427.3
521.5
113.4
914.0
$1,976.2
(1)Short-term debt includes $272.9 millon of maturing unsecured senior notes and $45.0 millon of maturing secured medium-term
notes. Additionally, short-term debt includes $25.0 milion of secured medium-term notes with a maturity date of June 2028 that
are subject to redemption at the option of the security holders in June 2008 and $83.7 million of secured pollution control bonds
that are subject to remarketing on December 30,2008. If the secured pollution control bonds cannot be successfully remarketed
on that date, the Company will be required to purchase the bonds.
Avista Corp. has a committed line of credit agreement with various banks in the total amount of $320.0 million with an expiration
date of April 5, 2011. Avista Corp. has delivered $320.0 millon of non-transferable first mortgage bonds to the agent bank in
order to secure its obligations under the revolving credit agreement. There were no borrowings outstanding under the revolving
credit agreement at December 31,2007.
Long-term debt includes $513.0 milion of secured debt, which includes first mortgage bonds (or debt secured by first mortgage
bonds).
(2)
S-8
DESCRIPTION OF THE OFFERED BONDS
The following description of the particular terms of the Offered Bonds supplements the description
of the general terms and provisions of the Bonds set forth under "Description of the Bonds" in the
accompanying prospectus, to which description reference is hereby made. Certain capitalized terms used
and not defined in this prospectus supplement are defined under "Description of the Bonds" in the
accompanying prospectus.
General
The Offered Bonds will be issued as one series of Bonds under our Mortgage, which is more fully
described in the accompanying prospectus.
The Offered Bonds will be issued in fully registered form only, without coupons. The Offered Bonds
wil be initially represented by one or more fully registered global securities (the "Global Securities")
deposited with or on behalf of The Depository Trust Company ("DTC"), as depositary, and registered in the
name of DTC or DTC's nominee. A beneficial interest in a Global Security wil be shown on, and transfers or
exchanges thereof will be effected only through, records maintained by DTC and its participants, as
described below under "- Book-Entry Only Issuance - The Depository Trust Company". The authorized
denominations of the Offered Bonds will be $1,000 and any larger amount that is an integral multiple of
$1,000. Except in limited circumstances described below, the Offered Bonds will not be exchangeable for
Offered Bonds in definitive certificated form.
Principal, Maturity and Interest
We are issuing $250,000,000 aggregate principal amount of Offered Bonds. The Offered Bonds wil
mature on June 1, 2018. We may, without the consent of holders of the Offered Bonds, issue additional
bonds of the same series having the same interest rate, maturity and other terms (except the public
offering price and issue date) as the Offered Bonds. Interest on the Offered Bonds wil accrue at the rate of
5.95% per annum and will be payable semi-annually in arrears on June 1 and December 1 of each year
(each such date, an "Interest Payment Date"), and at maturity. The first such payment will be made on
December 1, 2008. We will make each interest payment to the holders of record on the immediately
preceding May 15 and November 15.
Interest on the Offered 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.
Optional Redemption
The Offered Bonds will be redeemable in whole at any time, or in part from time to time, at the option
of Avista, at a redemption price equal to the greater of:
· 100% of the principal amount of the Offered Bonds being redeemed; or
· the sum of the present values of the remaining scheduled payments of principal of and interest (not
including any portion of any scheduled payment of interest which accrued prior to the redemption
date) on the Offered Bonds being redeemed discounted to the redemption date on a semiannual
basis (assuming a 360-day year consisting of twelve 30-day months) at a discount rate equal to the
Treasury Yield plus 37.5 basis points,
plus, in either of the above cases, accrued interest on such Offered Bonds to the redemption date.
''Treasury Yield" means, with respect to any redemption of Offered Bonds, 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. The Treasury Yield will be calculated as of the third business day preceding the redemption
date or, if the Offered Bonds to be redeemed are to be defeased prior to the redemption date in accordance
S-9
with the terms of the Mortgage, then as of the third business day prior to the earlier of (x) the date notice of
such redemption is mailed to bondholders and (y) the date irrevocable arrangements with the Mortgage
Trustee for the mailing of such notice have been made, as the case may be (the "Calculation Date").
"Comparable Treasury Issue" means the United States Treasury security selected by an Indepen-
dent Investment Banker as having a maturity comparable to the remaining term of the Offered Bonds 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 Offered Bonds.
"Comparable Treasury Price" means (1) 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 the Calculation Date, as set forth in the H.15 Daily Update of the Federal Reserve Bank of New
York or (2) if such release (or any successor release) is not published or does not contain such prices on
the Calculation Date, the Reference Treasury Dealer Quotation for the Calculation 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 UBS Securities LLC, BNY Capital Markets, Inc., Gold-
man, Sachs & Co. or, if so determined by us, any other independent investment banking institution of
national standing appointed by Avista and reasonably acceptable to the Mortgage Trustee.
"Reference Treasury Dealer Quotation" means, with respect to the Reference Treasury Dealer, the
average, as determined by the Mortgage 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 writing to the
Mortgage Trustee by such Reference Treasury Dealer at 5:00 p.m. on the third business day preceding the
Calculation Date).
"Reference Treasury Dealer" means a primary U.S. Government securities dealer in New York City
appointed by Avista and reasonably acceptable to the Mortgage Trustee.
Book-Entry Only Issuance - The Depository Trust Company
DTC wil act as initial securities depositary for the Offered Bonds. The Offered Bonds will be issued
only as fully-registered securities registered in the name of Cede & Co. (DTC's nominee) or such other
name as may be requested by an authorized representative of DTC. One or more fully-registered global
certificates will be issued, representing in the aggregate the total principal amount of Offered Bonds and
will be deposited with DTC or a custodian therefor.
The following is based upon information furnished by DTC:
DTC is a limited-purpose trust company organized under the New York Banking Law, a "banking
organization" within the meaning of the New York Banking Law, a member of the Federal Reserve
System, a "clearing corporation" within the meaning of the New York Uniform Commercial Code, and a
"clearing agency" registered pursuant to the provisions of Section 17 A of the Securities Exchange Act
of 1934, as amended. DTC holds and provides asset servicing for issues of U.S. and non-U.S. equity
issues, corporate and municipal debt issues, and money market instruments that DTC's participants
("Direct Participants") deposit with DTC. DTC also facilitates the post-trade settement among Direct
Participants of sales and other securities transactions in deposited securities, through electronic
computerized book-entry transfers and pledges between Direct Participants' accounts. This elimi-
nates the need for physical movement of securities certificates. Direct Participants include both
U.S. and non-U.S. securities brokers and dealers, banks, trust companies, clearing corporations, and
certain other organizations. DTC is a wholly-owned subsidiary of The Depository Trust & Clearing
Corporation ("DTCC"). DTCC is the holding company for DTC, National Securities Clearing
S-10
Corporation and Fixed Income Clearing Corporation, all of which are registered clearing agencies.
DTCC is owned by the users of its regulated subsidiaries. Access to the DTC system is also available
to others such as both U.S. and non-U.S. securities brokers and dealers, banks, trust companies, and
clearing corporations that clear through or maintain a custodial relationship with a Direct Participant,
either directly or indirectly ("Indirect Participants" and, together with Direct Participants, "Partici-
pants"). The DTC Rules applicable to its Participants are on file with the Securities and Exchange
Commission. More information about DTC can be found at www.dtcc.com and www.dtc.org.
Purchases of Offered Bonds under the DTC system must be made by or through Direct
Participants, which will receive a credit for the Offered Bonds on DTC's records. The ownership
interest of each actual purchaser of each Offered Bond ("Beneficial Owner") is in turn to be recorded
on the Participants' records. Beneficial Owners wil not receive written confirmation from DTC of their
purchases, but Beneficial Owners are expected to receive written confirmation providing details of the
transactions, as well as periodic statements of their holdings, from Participants through which the
Beneficial Owners purchased the Offered Bonds. Transfers of ownership interests in the Offered
Bonds are to be accomplished by entries made on the books of Participants acting on behalf of
Beneficial Owners. Beneficial Owners wil not receive certificates representing their ownership
interests in the Offered Bonds, except in the event that use of the book-entry system for the Offered
Bonds is discontinued.
To facilitate subsequent transfers, all Offered Bonds deposited by Direct Participants with DTC
are registered in the name of DTC's partnership nominee, Cede & Co., or such other name as may be
requested by an authorized representative of DTC. The deposit of Offered Bonds with DTC and their
registration in the name of Cede & Co. or such other DTC nominee do not effect any changes in
beneficial ownership. DTC has no knowledge of the actual Beneficial Owners of the Offered Bonds;
DTC's records reflect only the identity of the Direct Participants to whose accounts such Offered
Bonds are credited, which mayor may not be the Beneficial Owners. The Participants will remain
responsible for keeping account of their holdings on behalf of their customers.
Notices and other communications by DTC to Direct Participants, by Direct Participants to
Indirect Participants, and by Participants to Beneficial Owners wil be governed by arrangements
among them, subject to any statutory or regulatory requirements as may be in effect from time to time.
Redemption notices wil be sent to DTC. If less than all of the Offered Bonds are being redeemed,
DTC's practice is to determine by lot the amount of the interest of each Direct Participant to be
redeemed.
Neither DTC nor Cede & Co. (nor any other DTC nominee) will consent or vote with respect to
Offered Bonds unless authorized by a Direct Participant in accordance with DTC's Procedures. Under
its usual procedures, DTC mails an Omnibus Proxy to us as soon as possible after the record date.
The Omnibus Proxy assigns Cede & Co.'s consenting or voting rights to those Direct Participants to
whose accounts the Offered Bonds are credited on the record date (identified in a listing attached to
the Omnibus Proxy).
Payments on the Offered Bonds will be made to Cede & Co. or such other nominee as may be
requested by an authorized representative of DTC. DTC's practice is to credit Direct Participants'
accounts upon DTC's receipt of funds and corresponding detail information from us or the Mortgage
Trustee on the relevant payment date in accordance with their respective holdings shown on DTC's
records. Payments by Participants to Beneficial Owners wil be governed by standing instructions and
customary practices, as is the case with securities held for the accounts of customers in bearer form or
registered in "street name", and wil be the responsibility of such Participants and not of DTC or us,
subject to any statutory or regulatory requirements as may be in effect from time to time. Payment to
Cede & Co. (or such other nominee as may be requested by an authorized representative of DTC) is
our responsibility, disbursement of payments to Direct Participants is the responsibility of DTC, and
disbursement of payments to the Beneficial Owners is the responsibility of the Participants.
S-11
DTC may discontinue providing its services as depositary for the Offered Bonds at any time by
giving reasonable notice to us. Under such circumstances, in the event that a successor depositary is not
obtained, certificates for the Offered Bonds will be delivered to the Beneficial Owners. Additionally, we may
decide to discontinue use of the system of book-en try-only transfers through DTC (or a successor
securities depositary) with respect to the Offered Bonds. In that event, certificates for the Offered Bonds
will be printed and delivered to the holders of record.
The information in this section concerning DTC and DTC's book-entry system has been obtained
from DTC, and neither we nor the underwriters take any responsibility for the accuracy thereof. Neither we,
the Mortgage Trustee nor the underwriters will have any responsibility or liability for any aspect of the
records relating to or payments made on account of beneficial ownership interests in the Offered Bonds or
for maintaining, supervising or reviewing any such records.
Except as provided herein, a Beneficial Owner of an interest in a global Offered Bond certificate may
not receive physical delivery of the Offered Bonds. Accordingly, each Beneficial Owner must rely on the
procedures of DTC to exercise any rights under the Offered Bonds.
Miscellaneous
At December 31, 2007, $986.7 milion of Mortgage Securities were outstanding. This amount
includes $478.7 million of non-transferable Mortgage Securities which were issued in order to provide the
benefit of the lien of the Mortgage to secure other of our debt obligations.
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UNDERWRITING
We and the underwriters for the offering named below (the "Underwriters") have entered into an
underwriting agreement with respect to the Offered Bonds. Subject to certain conditions, each Underwriter
has severally agreed to purchase the principal amount of Offered Bonds indicated in the following table.
Underwriter
Principal Amount
of Offered Bonds
UBS Securities LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
BNY Capital Markets, Inc. .. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goldman, Sachs & Co. ................................................
Banc of America Securities LLC. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
KeyBanc Capital Markets Inc. ...........................................
Wedbush Morgan Securities Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Wells Fargo Securities, LLC . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 62,500,000
62,500,000
62,500,000
18,750,000
18,750,000
12,500,000
12,500,000
Total. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. $250,000,000
The Underwriters are committed to take and pay for all of the Offered Bonds being offered, if any are
taken.
Offered Bonds sold by the Underwriters to the public wil initially be offered at the initial public
offering price set forth on the cover of this Prospectus Supplement. Any Offered Bonds sold by the
Underwriters to securities dealers may be sold at a discount from the initial public offering price of up to
0.40% of the principal amount of Offered Bonds. Any such securities dealers may resell any Offered Bonds
purchased from the Underwriters to certain other brokers or dealers at a discount from the initial public
offering price of up to 0.25% of the principal amount of Offered Bonds. If all the Offered Bonds are not sold
at the initial offering price, the Underwriters may change the offering price and the other sellng terms.
We expect that the delivery of the Offered Bonds wil be made against payment therefore on or
about the closing date specified on the cover of this prospectus supplement, which wil be the fifth business
day following the date of pricing of the Offered Bonds (this settlement cycle being referred to as I'T + 5").
Under Rule 15c6-1 of the Securities and Exchange Commission under the Securities Exchange Act of
1934, as amended, trades in the secondary market generally are required to settle in three business days,
unless the parties to any such trade expressly agree otherwise. Accordingly, purchasers who wish to trade
Offered Bonds on the date of pricing of the Offered Bonds or the next succeeding two business days will be
required, by virtue of the fact that the Offered Bonds initially will settle in T + 5, to specify an alternate
settlement cycle at the time of any such trade to prevent a failed settlement. Purchasers of the Offered
Bonds who wish to trade Offered Bonds on the date of pricing of the Offered Bonds or the next succeeding
business days unti the closing of the offering should consult their own advisor.
The Offered Bonds are a new issue of securities with no established trading market. We have been
advised by the Underwriters that the Underwriters intend to make a market in the Offered Bonds but they
are not obligated to do so and may discontinue market making at any time without notice. No assurance
can be given as to the liquidity of the trading market for the Offered Bonds or that an active public market for
the Offered Bonds wil develop. If any active public trading market for the Offered Bonds does not develop,
the market price and liquidity of the Offered Bonds may be adversely affected. See "Risk Factors".
From the date of this prospectus supplement and continuing to and including the later of (i) the
completion of the distribution of the Offered Bonds (but in no event shall such period exceed 90 days from
the delivery of the Offered Bonds) and (ii) the delivery of the Offered Bonds, we have agreed, subject to
certain exceptions, not to offer, sell, contract to sell or otherwise dispose of any debt securities substan-
tially similar to the Offered Bonds, without the prior written consent of the representatives of the
Underwriters.
In connection with the offering of the Offered Bonds, the Underwriters may purchase and sell
Offered Bonds in the open market. These transactions may include short sales, stabilizing transactions
S-13
and purchases to cover positions created by short sales. Short sales involve the sale by the Underwriters
of a greater number of Offered Bonds than they are required to purchase in the offering of the Offered
Bonds. Stabilizing transactions consist of certain bids or purchases made for the purpose of preventing or
retarding a decline in the market price of the Offered Bonds while the offering of the Offered Bonds is in
progress.
The Underwriters also may impose a penalty bid. This occurs when a particular Underwriter repays
to the Underwriters a portion of the underwriting discount received by it because the representatives have
repurchased Offered Bonds sold by or for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise affect the market price of
the Offered Bonds. As a result, the price of the Offered Bonds may be higher than the price that otherwise
might exist in the open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected in the over-the-counter market or otherwise.
We estimate that our share of the total expenses related to the offering of the Offered Bonds,
excluding underwriting discounts and commissions, will be approximately $650,000.
We have agreed to indemnity the several Underwriters against certain liabilities, including liabilities
under the Securities Act of 1933, as amended.
Sales of the Offered Bonds by BNY Capital Markets, Inc. will be effected through Broadpoint
Capital, Inc., as its distribution agent.
Certain of the Underwriters and their respective affilates have, from time to time, performed and
may in the future perform, various financial advisory, lending and investment banking services for us, for
which they received or will receive customary fees and expenses.
LEGAL MATTERS
The validity of the Offered Bonds and certain other matters will be passed upon for Avista by
Dewey & LeBoeuf LLp, counsel to Avista, and Marian M. Durkin, Esq., Senior Vice President, General
Counsel and Chief Compliance Officer of Avista. The validity of the Offered Bonds and certain other
matters will be passed upon for the Underwriters by Latham & Watkins LLp, Los Angeles, California. In
giving their opinions, Dewey & LeBoeuf LLP and Latham & Watkins LLP may rely as to matters of
Washington, Idaho, Montana and Oregon law upon the opinion of Marian M. Durkin, Esq.
EXPERTS
The consolidated financial statements incorporated in this prospectus supplement and the accom-
panying prospectus by reference from the Company's Annual Report on Form 10-K for the year ended
December 31,2007 and the effectiveness of Avista Corporation's internal control over financial reporting
have been audited by Deloitte & Touche LLp' an independent registered public accounting firm, as stated in
their reports (which reports (1) express an unqualified opinion on the financial statements and include an
explanatory paragraph referring to certain changes in accounting and presentation resulting from the
impact of recently adopted accounting standards and (2) express an unqualified opinion on the effec-
tiveness of internal control over financial reporting), which are incorporated herein by reference. Such
financial statements have been so incorporated in reliance upon the reports of such firm given upon their
authority as experts in accounting and auditing.
S-14
PROSPECTUS
AVISTA CORPORATION
Debt Securities
Preferred Stock
(no par value)
Common Stock
(no par value)
Avista Corporation may offer these securities from time to time on terms and at prices to be determined at the
time of sale. The supplement to this prospectus relating to each offering wil describe the specific terms of the
securities being offered, as well as the terms of the offering and sale including the offering price.
Avista Corporation may sell these securities to or through underwriters, dealers or agents or directly to one or
more purchasers.
Outstanding shares of Avista Corporation's common stock are listed on the New York Stock Exchange under
the symbol "AVA". New shares of common stock wil also be listed on the NYSE. Like the outstanding shares of
common stock, the new shares wil be issued and will trade with the related preferred share purchase rights.
See "Risk Factors" on page 3 to read about certain factors you should consider before
investing in the securities.
Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the accuracy or adequacy of this prospectus. Any represen-
tation to the contrary is a criminal offense.
The date of this Prospectus is December i i, 2006.
This prospectus incorporates by reference important business and financial information about Avista
Corporation 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 callng or writing to us at:
Avista Corporation
Post Offce Box 3727
Spokane, Washington 99220
Attention: Treasurer
Telephone: [phone]
TABLE OF CONTENTS
About This Prospectus. . . . . . . . . . . . . . . . . . . 2
Risk Factors . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Avista Corporation. . . . . . . . . . . . . . . . . . . . . . 3
Use of Proceeds. . . . . . . . . . . . . . . . . . . . . . . . 4
Description of the Bonds . . . . . . . . . . . . . . . . . 4
Description of the Notes . . . . . . . . . . . . . . . .. 12
We have not authorized anyone to give you any information other than this prospectus and the usual
supplements to this prospectus. You should not assume that the information contained in this prospectus, any
prospectus supplement or any document incorporated by reference in this prospectus is accurate as of any date other
than the date mentioned on the cover page of those documents. We are not offering to sell the Securities (defined
below) and we are not soliciting offers to buy the Securities in any jurisdiction in which offers are not permitted.
Description of Preferred Stock. . . . . . . . . . . .. 21
Description of Common Stock. . . . . . . . . . . .. 23
Where You Can Find More Information. . . . .. 33
Legal Matters . . . . . . . . . . . . . . . . . . . . . . . .. 34
Experts. . . . . . . . . . . . . . . . . . . . . . . . . . . . .. 34
ABOUT THIS PROSPECTUS
This prospectus is par of a registration statement that Avista Corporation filed with the Securities and
Exchange Commission (the "SEC"), using the "shelf' registration process. Under this shelf registration process, we
may, from time to time, sell the securities described in this prospectus in one or more offerings. This prospectus
provides a general description of the securities we may offer. Each time we sell securities, we will provide a
prospectus supplement that wiI contain specific information about the terms of that offering. That prospectus
supplement may include or incorporate by reference a detailed and current discussion of any risk factors and wiI
discuss any special considerations applicable to those securities, including the plan of distribution. The prospectus
supplement may also add, update or change information contained in this prospectus. You should read both this
prospectus and any prospectus supplement together with additional information described under "Where You Can
Find More Information". If there is any inconsistency between the information in this prospectus and any prospectus
supplement, you should rely on the information contained in that prospectus supplement.
References in the prospectus to the terms "we", "us" or "Avista" or other similar terms mean Avista
Corporation, unless we state otherwise or the context indicates otherwise.
We may use this prospectus to offer from time to time:
. Secured bonds issued under a Mortgage and Deed of Trust, dated as of June 1, 1939 (the "Original
Mortgage") between Avista and Citibank, N.A., as trustee (the "Mortgage Trustee"); the Original Mortgage,
as amended and supplemented from time to time, being hereinafter called the "Mortgage". The secured
bonds offered by this prospectus are hereinafter called "Bonds".
. Unsecured notes, debentures or other debt securities issued under an Indenture, dated as of April 1, 1998 (the
"Original Indenture") between Avista and The Bank of New York, as successor trstee (the "Indenture
Trustee"); the Original Indenture, as amended and supplemented from time to time, being hereinafter called
2
the "Indenture". The unsecured notes, debentures and other debt securities offered by this prospectus are
hereinafter called "Notes" and, together with the Bonds, are hereinafter called "Debt Securities".
· Shares of preferred stock, no par value, of Avista Corporation (the "Preferred Stock"). The Preferred Stock
offered by this prospectus is hereinafter called the "New Preferred Stock".
· Shares of common stock, no par value, of Avista Corporation, together with attached preferred share
purchase rights (the "Common Stock").
The shares of Common Stock offered by this prospectus, together with the Debt Securities and the New Preferred
Stock, are hereafter called "Securities".
For more detailed information about the Securities, you can read the exhibits to the registration statement.
Those exhibits have been either filed with the registration statement or incorporated by reference to earlier SEC
filings listed in the registration statement. See "Where You Can Find More Information".
RISK FACTORS
Investing in the Securities involves risk. You should review all the information contained or incorporated by
reference in this prospectus before deciding to invest. See "Where You Can Find More Information" herein. In
particular, you should carefully consider the risks and uncertainties discussed in Avista's Annual Report on
Form IO-K, incorporated herein by reference, in Item IA "Risk Factors" and under "Forward-Looking Statements"
in Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations" (all of which
may be updated in Quarterly Reports on Form IO-Q filed subsequently to such Annual Report on Form IO-K).
In addition, you should carefully consider the risks and uncertainties discussed in the applicable prospectus
supplement which relate to the specific Securities offered thereby.
AVISTA CORPORATION
General
Avista Corporation, which was incorporated in the Terrtory of Washington in 1889 (sometimes called
"Avista"), is an energy company engaged in the generation, transmission and distribution of energy and, through its
subsidiaries, in other energy-related businesses. Our corporate headquarters are in Spokane, Washington, center of
the Inland Northwest geographic region. Agriculture, mining and lumber were the primary industries in the Inland
Northwest for many years; today health care, education, finance, electronic and other manufacturing, tourism and
service sectors are growing in importance.
Avista's businesses are divided into four segments, as follows:
· Avista Utilties - generation, transmission and distribution of electric energy and distribution of natural gas
to retail customers, as well as wholesale purchases and sales of electric capacity and energy. This business
segment is conducted by an operating division of Avista Corporation known as "Avista Utilities".
· Energy Marketing and Resource Management - electrcity and natural gas marketing, trading and resource
management. This business segment is conducted primarly by Avista Energy, Inc., which is an indirect
subsidiary of Avista Corporation.
. Advantage lQ - facility information and cost management services for multi-site customers. This business
segment is conducted by Advantage IQ, Inc., which is an indirect subsidiar of Avista Corporation.
· Other - includes sheet metal fabrication, radiant floor heating systems and certain real estate investments.
This business segment is conducted by various indirect subsidiares of Avista Corporation. Avista intends to
limit its future investments in this business segment.
Avista Energy, Inc., Advantage IQ, Inc. and the various companies in the "Other" business segment are
subsidiaries of Avista Capital, Inc., which is a direct, wholly-owned subsidiar of Avista Corporation.
3
Proposed Formation of Holding Company
Avista has entered into a Plan of Share Exchange, dated as of Februar 13,2006 (the "Plan of Exchange"), with
AVA Formation Corp., a whol1y-owned subsidiar of Avista ("AVA"). Pursuant to the Plan of Exchange, a statutory
share exchange (the "Share Exchange") would be effected whereby each outstanding share of Avista Common
Stock (including any shares offered by this prospectus) would be exchanged for one share of AVA common stock, no
par value ("AVA Common Stock"), so that the holders of Avista Common Stock would become holders of AVA
Common Stock and Avista would become a subsidiar of AVA. AVA is expected to change its name before the
effective time of the Share Exchange.
The holders of Avista Common Stock approved the Share Exchange on May 11,2006. The Federal Energy
Regulatory Commission and the Idaho Public Utilities Commission have issued orders authorizing the Share
Exchange. Avista also has fied for approval from the utility regulators in Washington, Oregon and Montana. The
Share Exchange is subject to the receipt of the remaining regulatory approvals and the satisfaction of other
conditions. Avista anticipates that the Share Exchange and the holding company structure implementation, if
approved on terms acceptable to Avista, will not be completed earlier than mid-2007.
The other outstanding securities of Avista (including any Debt Securities or New Preferred Stock offered by
this prospectus) would not be affected by the Share Exchange, with limited exceptions for options and sinùlar
securities outstanding under executive compensation and employee benefit plans.
Avista expects that, after the effective time ofthe Share Exchange when AVA becomes the sole holder of Avista
Common Stock, Avista will distribute to AVA as a dividend all outstanding shares of Avista CapitaL. This dividend,
which is referred to in this prospectus as the "Avista Capital Dividend", would effect the structural separation of
Avista's non-regulated businesses from the regulated utîlty business. A restrictive covenant in the Company's
9.75% Senior Notes, which mature June 1,2008, would not pernùt the AvistaCapital Dividend, so that this dividend
cannot be made until these notes are retired.
Reference is made to the Proxy Statement-Prospectus, dated April 11,2006, excluding those portions thereof
that are deemed "furnished" to, and not "filed" with, the SEC (the "Proxy Statement-Prospectus"), which is
incorporated herein by reference, for additional information regarding the proposed formation of the holding
company, including, without limitation, information regarding the reasons for formng the holding company and the
Avista Capital Dividend, the conditions to the Share Exchange and the expected business, regulation and
management of AVA and its subsidiares after the effective time of the Share Exchange.
If the prospectus supplement accompanying this prospectus relates to shares of Avista Common Stock,
prospective investors are directed to "Description of Common Stock" herein for additional information regarding
the proposed holding company structure, including a general comparison of Avista Common Stock and AVA
Common Stock.
USE OF PROCEEDS
Unless we indicate differently in a supplement to this prospectus, Avista intends to use the net proceeds from
the issuance and sale of the Securities offered by this prospectus for any or all of the following purposes: (a) to
fund Avista Utilities' construction, facility improvement and maintenance programs, (b) to refinance maturing
long-term debt, (c) to continue to fund retirements (through redemption, purchase or acquisition) of longer-term
debt, (d) to repay short-term debt, (e) to accomplish other general corporate purposes pernùtted by law and (f) to
reimburse Avista's treasury for funds previously expended for any of these purposes.
DESCRITION OF THE BONDS
Avista may issue the Bonds in one or more series, or in one or more tranches within a series. The terms of the
Bonds wil include those stated in the Mortgage and those made par of the Mortgage by the Trust Indenture Act of
1939, as amended (the "Trust Indenture Act"). The following summary is not complete and is subject in all respects
to the provisions of, and is qualified in its entirety by reference to, the Mortgage and the Trust Indenture Act. The
Bonds, together with al1 other debt securities outstanding under the Mortgage, are hereinafter called, collectively,
4
the "Mortgage Securities". Avista has fied the Mortgage, as well as a form of supplemental indenture to the
Mortgage to establish a series of Bonds, as exhibits to the registration statement of which this prospectus is a par.
Capitalized tenns used under this heading which are not otherwise defined in this prospectus have the meanings set
forth in the Mortgage. Wherever particular provisions of the Mortgage or terms defined in the Mortgage are referred
to, those provisions or definitions are incorporated by reference as part of the statements made in this prospectus and
those statements are qualified in their entirety by that reference. Sections i 25 through i 50 of the Mortgage appear in
the first supplemental indenture to the Original Mortgage. References to aricle and section numbers, unless
otherwise indicated, are references to article and section numbers of the Mortgage.
The applicable prospectus supplement wil describe the following tenns of the Bonds of each series:
. the title of the Bonds;
· any limit upon the aggregate principal amount of the Bonds;
· the date or dates on which the principal of the Bonds is payable or the method of determination thereof and
the right, if any, to extend such date or dates;
· (a) the rate or rates at which the Bonds wil bear interest, if any, or the method by which such rate or rates, if
any, will be determined, (b) the date or dates from which any such interest wil "accrue, (c) the interest
payment dates on which any such interest wil be payable, (d) the right, if any, of Avista to defer or extend an
interest payment date, (e) the regular record date for any interest payable on any interest payment date and
(t) the person or persons to whom the interest on the Bonds wil be payable on any interest payment date, if
other than the person or persons in whose names the Bonds are registered at the close of business on the
regular record date for such interest;
· any period or periods within which, or date or dates on which, the price or prices at which and the terms and
conditions upon which the Bonds may be redeemed, in whole or in part, at the option of Avista;
· (a) the obligation or obligations, if any, of Avista to redeem or purchase any of the Bonds pursuant to any
sinking fund or other mandatory redemption provisions or at the option of the Holder (as defined below),
(b) the period or periods within which, or date or dates on which, the price or prices at which and the tenns
and conditions upon which the Bonds will be redeemed or purchased, in whole or in par, pursuant to such
obligation, and (c) applicable exceptions to the requirements of a notice of redemption in the case of
mandatory redemption or redemption at the option of the Holder;
. the terms, if any, upon which the Bonds may be converted into other securities of Avista;
· the denominations in which any of the Bonds wil be issuable if other than denominations of $ i ,000 and any
integral multiple of $ i ,000;
· if the Bonds are to be issued in global fonn, the identity of the depositary; and
· any other terms of the Bonds.
Payment and Paying Agents
Except as may be provided in the applicable prospectus supplement, Avista wil pay interest, if any, on each
Bond on each interest payment date to the person in whose name such Bond is registered (for purposes of this
section of the prospectus, the registered holder of any Mortgage Security is herein referred to as a "Holder") as of
the close of business on the regular record date relating to such interest payment date; provided, however, that Avista
will pay interest at maturity (whether at stated maturity, upon redemption or otherwise, "Maturity") to the person to
whom principal is paid.
Unless otherwise specified in the applicable prospectus supplement, Avista will pay the principal of and
premium, if any, and interest, if any, on the Bonds at Maturity upon presentation of the Bonds at the corporate trust
office of Citibank, N.A. in New York, New York, as paying agent for Avista. Avista may change the place of
payment of the Bonds, may appoint one or more additional paying agents (including Avista) and may remove any
paying agent, all at its discretion.
5
Registration; Registration of Transfer
The Bonds wil be issued only in fully registered form. The registered holder of a Bond wil be treated as the
owner of the Bond for all purposes under the Mortgage. Only registered holders wil have rights under the
Mortgage. (Mortgage, Sec. 83)
The transfer of Bonds may be registered, and Bonds may be exchanged for other Bonds, upon surrender thereof
at the principal office of Citibank, N.A., which has been designated by Avista as its office or agency for such
purposes. Avista may change such offce 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 may
require payment of a sum suffcient to cover any tax or other governmental charge incident thereto. Avista wil 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 wil it be required to make transfers or exchanges of any Bonds which have been selected
for redemption in whole or in par or as to which Avista shall have received a notice for the redemption thereof in
whole or in par at the option of the Holder.
Redemption
The applicable prospectus supplement wil indicate the extent, if any, to which the Bonds will be subject to
(a) general redemption at the option of Avista or (b) special redemption by the application (either at the option of
Avista or pursuant to the requirements of the Mortgage) of (x) cash deposited with the Mortgage Trustee as
described under "Special Provisions for Retirement of Bonds" below or (y) cash deposited with the Mortgage
Trustee in connection with the release of property from the lien of the Mortgage.
Notice of redemption will be given by mail not less than 30 days prior to the date fixed for redemption.
(Mortgage, Sec. 52)
If less than all the Bonds of a series are to be redeemed, the particular Bonds to be redeemed will be selected by
the Mortgage Trustee by lot, according to such method as it shall deem proper in its discretion. (Mortgage, Sec. 52)
Any notice of redemption at the option of Avista may state that such redemption wil be conditional upon
receipt by the Mortgage Trustee, on or before the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such Bonds and that if such money has not been so received,
such notice will be of no force or effect and Avista will not be required to redeem such Bonds. (Mortgage, Sec. 52)
Issuance of Additional Mortgage Securities
In addition to the Bonds, other debt securities may be issued under the Mortgage. The present principal amount
of debt securities which may be outstanding under the Mortgage is $10,000,000,000. However, Avista has reserved
the right to amend the Mortgage (without any consent of or other action of Holders of any Mortgage Securities now
or hereafter outstanding) to remove this limitation.
Mortgage Securities of any series may be issued from time to time on the basis of:
· 70% of cost or fair value to Avista (whichever is less) of property additions which have not previously been
made the basis of any application under the Mortgage and therefore do not constitute funded property after
adjustments to offset property retirements;
· an equal principal amount of Mortgage Securities which have been or are to be paid, redeemed or otherwise
retired and have not previously been made the basis of any application under the Mortgage; or
· deposit of cash.
Property additions generally include electrc, 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 property
additions may be used if their ownership and operation is within the corporate purposes of Avista regardless of
whether or not Avista has all the necessar permission it may need at any time from governmental authorities to
operate such property additions.
6
The Mortgage provides that no reduction in the book value of the property recorded in the plant account of
Avista 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.
The Holders of the Bonds will be deemed to have consented to an amendment to the provision of the Mortgage
which requires that Avista deliver an opinion of counsel as to the status of the lien of the Mortgage on property
additions being certified to the Mortgage Trustee. The amendment would permit us to deliver to the Mortgage
Trustee, in lieu of such opinion, title insurance with respect to such property additions in an amount not less than
35% of the cost or fair value to Avista (whichever is less) of such property additions. Such amendment could not be
made without the requisite consent of the Holders of outstanding Mortgage Securities as described under
"- Modification".
No Mortgage Securities 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 Mortgage Securities otherwise issuable
and do not exceed 70% of such property additions, and unless the Mortgage Securities 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 Mortgage Securities outstanding.
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, if any property subject to such prior lien shall
have been made the basis of any application under the Mortgage, all the additional obligation are deposited with the
Mortgage Trustee or other holder of a prior lien.
(Mortgage, Secs. 4 through 8, 20 through 30 and 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)
Net Earnings Test
In general, Avista may not issue Mortgage Securities on the basis of property additions or cash unless net
earnings for i 2 consecutive months out of the preceding i 8 calendar months (before income taxes, depreciation and
amortization of property, property losses and interest on any indebtedness and amortization of debt discount and
expense) are at least twice the annual interest requirements on all Mortgage Securities at the time outstanding,
including the additional issue, and on all indebtedness of prior rank.
Avista is not required to satisfy the net earnings requirement prior to the issuance of Mortgage Securities on the
basis of retired Mortgage Securities unless:
· the annual interest requirements on the retired Mortgage Securities on the basis of which the new Mortgage
Securities are to be issued have been excluded from a net earings certificate delivered to the Mortgage
Trustee since the retirement of such Mortgage Securities; or
· the retired Mortgage Securities on the basis of which the new Mortgage Securities are to be issued mature by
their terms at a date more than two years after the date for authentication and delivery of the new Mortgage
Securities and the new Mortgage Securities bear interest at a higher rate than such retired Mortgage
Securities.
In general, the Mortgage permits the inclusion of the following items in net earnings:
· revenues collected or accrued subject to possible refund;
· any portion of the allowance for funds used during construction; and
· any portion of the allowance for funds used to conserve energy (or any analogous amount), which is not
included in "other income" (or any analogous item) in Avista's books of account.
7
The Mortgage also provides that, in calculating net earings, no deduction from revenues or other income shall
be made for:
· expenses or provisions for any non-recurrng charge to income of whatever kind or nature (including without
limitation the recognition of expense due to the non-recoverability of investment); or
· provisions for any refund of revenues previously collected or accrued subject to possible refund.
In general, the interest rate requirement with respect to variable interest rate indebtedness, if any, is determined
by reference to the rate or rates to be in effect at the time of the initial issuance. However, if any Mortgage Securities
or prior ranking indebtedness bears interest at a varable rate, the annual interest requirements thereon shall be
determined by reference to the rate or rates in effect on the date next preceding the date of the new issue of Mortgage
Securities.
Security; Structural Subordination
The Bonds, together with all other Mortgage Securities now or hereafter issued under the Mortgage, will be
secured by the Mortgage, which constitutes a first mortgage lien on Avista's facilities for the generation,
transmission and distrbution of electric energy and the storage and distribution of natural gas and substantially
all of Avista's assets (except as stated below), subject to:
· leases of minor portions of Avista's property to others for uses that do not interfere with Avista's business;
· leases of certain property of Avista not used in its utility business;
· excepted encumbrances, as defined in the Mortgage; and
· encumbrances, defects and irregularties deemed immaterial by Avista in the operation of Avista's business.
There are excepted from the lien all cash and securities (including without limitation securities issued by
Avista's subsidiaries); merchandise, equipment, materials or supplies held for sale or consumption in Avista's
operations; receivables, contracts, leases and operating agreements; electric energy, and other material or products
(including gas) generated, manufactured, produced or purchased by Avista, for sale, distrbution or use in the
ordinar course of its business. (Mortgage, Granting Clauses)
The Mortgage contains provisions for subjecting to the lien thereof all property (other than property of the
kinds excepted from such lien) acquired by Avista after the execution and delivery thereof, subject to purchase
money liens and liens existing thereon at the time of acquisition and, subject to limitations in the case of
consolidation, merger or sale of substantially all of Avista's assets. (Mortgage, Granting Clauses and Art. XV)
The Mortgage provides that the lien of the Mortgage shall not automatically attach to the properties of another
corporation which shall have consolidated or merged with Avista in a transaction in which Avista shall be the
surviving or resulting corporation. (Mortgage, Sec. 87)
The Mortgage provides that the Mortgage Trustee shall have a lien upon the mortgaged property, prior to the
Mortgage Securities, for the payment of its reasonable compensation and expenses and for indemnity. (Mortgage,
Sees. 92 and 97; First Supplemental, Ar. XXV)
Although its utilty operations are conducted directly by Avista, all of the other operations of Avista are
conducted through its subsidiares. The lien of the Mortgage does not cover the assets of the subsidiaries or the
securities of the subsidiares held by Avista. Any right of Avista, as a shareholder, to receive assets of any of its
direct or indirect subsidiares upon such subsidiar's liquidation or reorganization (and the right of the Holders of
the Bonds and other creditors of Avista to participate in those assets) is junior to the claims against such assets of
that subsidiary's creditors. As a result, the obligations of Avista to the holders of the Bonds and other creditors are
effectively subordinated in right of payment to all indebtedness and other liabilties and commitments (including
trade payables and lease obligations) of Avista's direct and indirect subsidiares.
8
Maintenance
The Mortgage provides that Avista wil cause (or, with respect to property owned in common with others, make
reasonable effort to cause) the mortgaged property to be maintained and kept in good repair, working order and
condition, and will cause (or, with respect to property owned in common with others, make reasonable effort to
cause) to be made such repairs, renewals and replacements of the mortgaged property as, in Avista's sole judgment,
may be necessary to operate the mortgaged property in accordance with common industry practice. Avista may
discontinue, or cause or consent to the discontinuance of, the operation and maintenance of any of its properties if
such discontinuance is, in the sole judgment of Avista, desirable in the conduct of its business. (Mortgage, Sec. 38)
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
receives $15,000,000 or more in cash or in principal amount of purchase money obligations, Avista 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 Mortgage Securities which are, by their, terms, redeemable before
maturity by the application of such cash and proceeds. (Mortgage, Sec. 64; Tenth Supplemental, Sec. 4)
Release and Substitution of Property
Unless Avista is in default in the payment of the interest on any Mortgage Securities then outstanding under the
Mortgage, or a Completed Default shall have occurred and is continuing, Avista may obtain the release from the lien
of the Mortgage of any mortgaged property upon the deposit of cash equal to the amount, if any, that the fair value of
the property to be released exceeds the aggregate of:
(I) the principal amount of any obligations secured by purchase money mortgage upon the property
released and delivered to the Mortgage Trustee;
(2) the cost or fair value (whichever is less) of property additions which do not constitute funded
property, after certain deductions and additions;
(3) an amount equal to IOl7ths of the principal amount of Mortgage Securities that Avista would be
entitled to issue on the basis of retired securities (with such entitlement being waived by operation of such
release); and
(4) the principal amount of obligations secured by purchase money mortgage upon the property released,
and/or an amount in cash delivered to the trustee or other holder of a lien prior to the lien of the Mortgage.
The use of obligations secured by purchase money mortgage as a credit in connection with the release of
property, as described in clauses (1) and (4) above, is subject to the following limitations:
(1) the aggregate credit which may be used as described in clauses (1) and (4) above in respect of any
property being released may not exceed 70% of the fair value of such property; and
(2) the aggregate principal amount of such obligations described in (1) and (4) above and all other
obligations secured by purchase money mortgage delivered to the Mortgage Trustee pursuant to said
clauses (1) and (4) and then held as part of the mortgaged property by the Mortgage Trustee or the trustee
or other holder of a prior lien shall not exceed 40% of the aggregate principal amount of outstanding Mortgage
Securities.
To the extent that property so released does not constitute funded property, the property additions used to effect
the release wil not, in certain cases, be deemed to constitute funded property, and the waiver of the right to issue
Mortgage Securities to effect the release wil, in certain cases, cease to be effective as such a waiver, all upon the
satisfaction of certain conditions specified in the Mortgage. The Mortgage contains similar provisions as to cash
proceeds of such property. The Mortgage also contains special provisions with respect to prior lien bonds pledged
and disposition of moneys received on pledged bonds secured by a prior lien. (Mortgage, Secs. 5; 31, 32,46 through
50,59,60,61, 118 and 134)
9
Modification
Modifcations Without Consent
Avista and the Mortgage Trustee may enter into one or more supplemental indentures without the consent of
any Holders for any of the following purposes:
. to evidence the succession of another corporation to Avista and the assumption by such successor of the
covenants of Avista in the Mortgage and the Mortgage Securities;
· to add additional covenants of Avista and additional defaults, which may be applicable only to the Mortgage
Securities of specified series;
· to correct the description of property subject to the lien of the Mortgage or to subject additional property to
such lien;
· 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 in any material
respect;
· to establish the form or terms of Mortgage Securities of any series;
· to provide for procedures to utilize a non-certificated system of registration for all or any series of Mortgage
Securities;
. to change any place or places for payment, registration of transfer or exchange, or notices to and demands
upon Avista, with respect to all or any series of Mortgage Securities;
· to increase or decrease the maximum principal amount of Mortgage Securities issuable under the Mortgage;
· to make any other changes which do not adversely affect interests of the Holders in any material respect; or
· to evidence any change required or permitted under the Trust Indenture Act.
(Mortgage, Sec. 120; Twenty-sixth Supplemental Indenture, Sec. 2; Twenty-ninth Supplemental Indenture,
Aricle II)
Modifcation With Consent
In general, the Mortgage, the rights and obligations of Avista and the rights of the Holders may be modified
with the consent of 60% in principal amount of the Mortgage Securities outstanding, and, if less than all series of
Mortgage Securities are affected, the consent also of 60% in principal amount of the Mortgage Securities of each
series affected. However, no modification of the terms of payment of principal or interest, and no modification
affecting the lien or reducing the percentage required for modification, is effective against any Holder without its
consent. (Mortgage, Ar. XVII, Sec. 149; First Supplemental, Sec. 10)
Satisfaction and Discharge
Mortgage Securities wil be deemed to have been paid for purposes of satisfaction of the lien of the Mortgage if
there shall have been irrevocably deposited with the Mortgage Trustee for the payment or redemption of such
Mortgage Securities:
· money in an amount which wil be sufficient,
· Government Obligations, none of which shall contain provisions permitting the redemption thereof at the
option of the issuer thereof, the principal of and the interest on which when due, and without regard to
reinvestment thereof, wil provide moneys which wil be sufficient, or
. a combination of money and Government Obligations which wil be sufficient,
to pay when due the principal of, premium, if any, and interest due and to become due on all outstanding Mortgage
Securities on the maturity date or redemption date of such Mortgage Securities. For this purpose, "Government
10
Obligations" include direct obligations of the government of the United States or obligations guaranteed by the
government of the United States. (Mortgage, Sec. 106)
The Mortgage Trustee may, and upon request of Avista shall, cancel and discharge the lien ofthe Mortgage and
reconvey the Mortgaged Property to Avista whenever all indebtedness secured thereby has been paid.
The right of Avista to cause its entire indebtedness in respect of the Mortgage Securities of any series to be
deemed to be satisfied and discharged as described above will be subject to the satisfaction of conditions specified in
the instrument creating such series.
Completed Defaults
Any of the following events will constitute a "Completed Default" under the Mortgage:
· failure to pay principal of, or premium, if any, on any Mortgage Security when due;
· failure to pay interest on any Mortgage Security within sixty (60) days after the same becomes due;
· failure to pay interest on, or principal of, any qualified prior lien bonds beyond any grace period specified in
the prior lien securing such prior lien bond;
· certain events relating to bankrptcy, insolvency or reorganization of Avista; and
· failure to perform, or breach of, any other covenants of Avista for a period of 90 days after notice to us from
the Mortgage Trustee.
The Mortgage Trustee may withhold notice of default (except in payment of principal, interest or funds for
retirement of Mortgage Securities) if it determines that it is in the interest of the Holders. (Mortgage, Secs. 44, 65
and 135)
Remedies
Acceleration of Maturity
If a Completed Default occurs and is continuing, the Mortgage Trustee may, and upon written request of the
Holders of a majority in principal amount of Mortgage Securities then outstanding shalL, declare the principal of,
and accrued interest on, all outstanding Mortgage Securities immediately due and payable; provided, however, that
the Holders of a majority in principal amount of outstanding Mortgage Securities may annul such declaration if
before any sale of the mortgaged property:
· all agreements with respect to which default shall have been made shall be fully performed or otherwise
cured; and
· all overdue interest and all reasonable expenses of the Mortgage Trustee, its agents and attorneys shall have
been paid by Avista, except for the principal of any Mortgage Securities that would not have been due except
for such acceleration. (Mortgage, Sec. 65)
Possession of Mortgaged Propert
Under certain circumstances and to the extent permitted by law, if a Completed Default occurs and is
continuing, the Mortgage Trustee has the power to take possession of, and to hold, operate and manage, the
mortgaged property, or with or without entry, sell the mortgaged property. If the mortgaged property is sold, whether
by the Mortgage Trustee or pursuant to judicial proceedings, the principal of the outstanding Mortgage Securities, if
not previously due, wil become immediately due. (Mortgage, Secs. 66,67 and 71)
Right to Direct Proceedings
If a Completed Default occurs and is continuing, the Holders of a majority in principal amount of the Mortgage
Securities then outstanding will have the right to direct the time, method and place of conducting any proceedings to
be taken for any sale ofthe mortgaged property, the foreclosure of the Mortgage, or for the appointment of a receiver
11
or any other proceeding under the Mortgage, provided that such direction does not conflct with any rule of law or
with the Mortgage. (Mortgage, Sec. 69)
No Impairment of Right to Receive Payment
Notwithstanding any other provision of the Mortgage, the right of any Holder to receive payment of the
principal of and interest on such Mortgage Security, 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)
Notice of Default
No Holder may enforce the lien of the Mortgage unless such Holder shall have given the Mortgage Trustee
written notice of a Completed Default and unless the Holders of 25% in principal amount of the Mortgage Securities
have requested the Mortgage Trustee in writing to act and have offered the Mortgage Trustee adequate security and
indemnity and a reasonable opportunity to act. (Mortgage, Sec. 79)
Remedies Limited by State Law
The laws of the varous states in which the property subject to the lien of the Mortgage is located may limit or
deny the ability of the Mortgage Trustee and/or the Holders to enforce certain rights and remedies provided in the
Mortgage in accordance with their terms.
Concerning the Mortgage Trtee
The Mortgage Trustee has, and is subject to, all the duties and responsibilities specified with respect to an
indenture trustee under the Trust Indenture Act. Subject to such provisions, the Mortgage Trustee is not under any
obligation to take any action in respect of any default or otherwise, or toward the execution or enforcement of any of
the trusts created by the Mortgage, or to institute, appear in or defend any suit or other proceeding in connection
therewith, unless requested in writing so to do by the Holders of a majority in principal amount of the Mortgage
Securities then outstanding. Anything in the Mortgage to the contrar notwithstanding, the Mortgage Trustee is
under no obligation or duty to perform any act thereunder (other than the delivery of notices) or to institute or defend
any suit in respect hereof, unless properly indemnified to its satisfaction. (Mortgage, Sec. 92)
The Mortgage Trustee may at any time resign and be discharged of the trusts created by the Mortgage by giving
written notice to Avista 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 a successor trustee shall have previously been appointed by the Holders or Avista and in such event such
resignation shall take effect immediately upon the appointment of such successor trustee. The Mortgage Trustee
may be removed at any time by the Holders of a majority in principal amount of the Mortgage Securities then
outstanding. (Mortgage, Secs. i 00 and 10 I)
If Avista appoints a successor trustee and such successor trustee has accepted the appointment, the Mortgage
Trustee wil be deemed to have resigned as of the date of such successor trustee's acceptance. (Mortgage, Sec. 102)
Evidence of Compliance with Mortgage Provisions
Compliance with provisions of the Mortgage is evidenced by written statements of Avista's officers or persons
selected or paid by Avista. In certain matters, statements must be made by an independent accountant or engineer.
Varous certificates and other papers are required to be filed annually and upon the happening of certain events,
including an annual certificate with reference to compliance with the terms of the Mortgage and absence of
Completed Defaults.
DESCRIPTION OF THE NOTES
Avista may issue the Notes in one or more series, or in one or more tranches within a series. The terms of the
Notes wil include those stated in the Indenture and those made par of the Indenture by the Trust Indenture Act. The
12
following summary is not complete and is subject in all respects to the provisions of, and is qualified in its entirety
by reference to, the Indenture and the Trust Indenture Act. The Notes, together with all other debt securities
outstanding under the Indenture, are hereinafter called, collectively, the "Indenture Securities". Avista has fied the
Indenture, as well as a form of offcer's certificate to establish a series of Notes, as exhibits to the registration
statement of which this prospectus is a part. Capitalized terms used under this heading which are not otherwise
defined in this prospectus have the meanings set forth in the Indenture. Wherever particular provisions of the
Indenture or terms defined in the Indenture are referred to, those provisions or definitions are incorporated by
reference as part of the statements made in this prospectus and those statements are qualified in their entirety by that
reference. References to article and section numbers, unless otherwise indicated, are references to article and
section numbers of the Indenture.
The applicable prospectus supplement or prospectus supplements wil describe the following terms of the
Notes of each series or tranche:
· the title of the Notes;
· any limit upon the aggregate principal amount of the Notes;
· the date or dates on which the principal of the Notes is payable or the method of determination thereof and
the right, if any, to extend such date or dates;
· (a) the rate or rates at which the Notes wil bear interest, if any, or the method by which such rate or rates, if
any, wil be determined, (b) the date or dates from which any such interest wil accrue, (c) the interest
payment dates on which any such interest will be payable, (d) the right, if any, of Avista to defer or extend an
interest payment date, (e) the regular record date for any interest payable on any interest payment date and
(f) the person or persons to whom interest on the Notes wil be payable on any interest payment date, if other
than the person or persons in whose names the Notes are registered at the close of business on the regular
record date for such interest;
· any period or periods within which, or date or dates on which, the price or prices at which and the terms and
conditions upon which the Notes may be redeemed, in whole or in part, at the option of Avista;
. (a) the obligation or obligations, if any, of Avista to redeem or purchase any of the Notes pursuant to any
sinking fund or other mandatory redemption provisions or at the option of the Holder, (b) the period or
periods within which, or date or dates on which, the price or prices at which and the terms and conditions
upon which the Notes wil be redeemed or purchased, in whole or in par, pursuant to such obligation, and
(c) applicable exceptions to the requirements of a notice of redemption in the case of mandatory redemption
or redemption at the option of the Holder;
· the denominations in which any of the Notes wil be issuable if other than denominations of $ i ,000 and any
integral multiple of $ i ,000;
· if the Notes are to be issued in global form, the identity of the depositar;
· the terms, if any, upon which the Notes may be converted into other securities of Avista; and
· any other terms of the Notes.
Payment and Paying Agents
Except as may be provided in the applicable prospectus supplement, Avista wil pay interest, if any, on each
Note on each interest payment date to the person in whose name such Note is registered (for the purposes of this
section ofthe prospectus, the registered holder of any Indenture Security is herein referred to as a "Holder") as ofthe
close of business on the regular record date relating to such interest payment date; provided, however, that Avista
will pay interest at maturity (whether at stated maturity, upon redemption or otherwise, "Maturity") to the person to
whom principal is paid. However, if there has been a default in the payment of interest on any Note, such defaulted
interest may be payable to the Holder of such Note as of the close of business on a date selected by the Indenture
Trustee which is not more than 30 days and not less than i 0 days before the date proposed by Avista for payment of
such defaulted interest or in any other lawful manner not inconsistent with the requirements of any securities
13
exchange on which such Note may be listed, if the Indenture Trustee deems such manner of payment practicable.
(Indenture, Sec. 307)
Unless otherwise specified in the applicable prospectus supplement, Avista wil pay the principal of and
premium, if any, and interest, if any, on the Notes at Maturity upon presentation of the Notes at the corporate trust
office of The Bank of New York in New York, New York, as paying agent for Avista. Avista may change the place of
payment of the Notes, may appoint one or more additional paying agents (including Avista) and may remove any
paying agent, all at its discretion. (Indenture, Sec. 502)
Registration; Registration of Transfer
The Notes will be issued only in fully registered form. The registered Holder of a Note wil be treated as the
owner of the Note for all purposes under the Indenture. Only registered Holders will have rights under the Indenture.
(Indenture, Sec. 308)
Unless otherwise specified in the applicable prospectus supplement, Holders may register the transfer of
Notes, and may exchange Notes for other Notes of the same series and tranche, of authorized denominations and
having the same terms and aggregate principal amount, at the corporate trust office of The Bank of New York in
New York, New York, as security registrar for the Notes. Avista may change the place for registration of transfer and
exchange of the Notes, may appoint one or more additional security registrars (including Avista) and may remove
any security registrar, all at its discretion. (Indenture, Sec. 502)
Except as otherwise provided in the applicable prospectus supplement, no service charge wil be made for any
transfer or exchange of the Notes, but Avista may require payment of a sum sufficient to cover any tax or other
governmental charge that may be imposed in connection with any registration of transfer or exchange of the Notes.
Avista will not be required to execute or to provide for the registration of transfer or the exchange of (a) any Note
during a period of 15 days before giving any notice of redemption or (b) any Note selected for redemption in whole
or in par, except the unredeemed portion of any Note being redeemed in par. (Indenture, Sec. 305)
Redemption
The applicable prospectus supplement wil set forth any terms for the optional or mandatory redemption of
Notes. Except as otherwise provided in the applicable prospectus supplement with respect to Notes redeemable at
the option of the Holder, Notes wil be redeemable by Avista only upon notice by mail not less than 30 nor more than
60 days before the date fixed for redemption. If less than all the Notes of a series, or any tranche thereof, are to be
redeemed by Avista, the paricular Notes to be redeemed wil be selected by such method as shall be provided for
such series or tranche, or in the absence of any such provision, by such method of random selection as the Security
Registrar deems fair and appropriate. (Indenture, Secs. 403 and 404)
Any notice of redemption at the option of Avista may state that such redemption will be conditional upon
receipt by the paying agent or agents, on or before the date fixed for such redemption, of money sufficient to pay the
principal of and premium, if any, and interest, if any, on such Notes and that if such money has not been so received,
such notice will be of no force or effect and Avista will not be required to redeem such Notes. (Indenture, Sec. 404)
Unsecured Obligations; Structural Subordination
The Indenture is not a mortgage or other lien on assets of Avista or its subsidiaries. In addition to the Notes,
other debt securities may be issued under the Indenture, without any limit on the aggregate principal amount. Each
series of Indenture Securities will be unsecured and wil rank par passu with all other series of Indenture Securities,
except as otherwise provided in the Indenture, and with all other unsecured and unsubordinated indebtedness of
Avista Except as otherwise described in the applicable prospectus supplement, the Indenture does not limit the
incurrence or issuance by Avista of other secured or unsecured debt, whether under the Indenture, under any other
indenture that Avista may enter into in the future or otherwise.
Although its utility operations are conducted directly by Avista, all of the other operations of Avista are
conducted through its subsidiares. Any right of Avista, as a shareholder, to receive assets of any of its direct or
indirect subsidiaries upon the subsidiary's liquidation or reorganization (and the right of the Holders and other
14
creditors of Avista to participate in those assets) is junior to the claims against such assets of that subsidiar's
creditors. As a result, the obligations of Avista to the Holders and other creditors are effectively subordinated in
right of payment to all indebtedness and other liabilities and commitments (including trade payables and lease
obligations) of Avista's direct and indirect subsidiaries.
Satisfaction and Discharge
Any Indenture Securities, or any portion of the principal amount thereof, wil be deemed to have been paid for
purposes of the Indenture and, at Avista's election, the entire indebtedness of Avista in respect thereof will be
deemed to have been satisfied and discharged, if there shall have been irrevocably deposited in trust with the
Indenture Trustee or any paying agent (other than Avista):
· money in an amount which wil be sufficient, or
. in the case of a deposit made before the maturity of such Indenture Securities, Eligible Obligations, which do
not contain provisions permitting the redemption or other prepayment thereof at the option of the issuer
thereof, the principal of and the interest on which when due, without any regard to reinvestment thereof, wil
provide moneys which, together with the money, if any, deposited with or held by the Indenture Trustee or
such Paying Agent, wil be suffcient, or
· a combination of money and Eligible Obligations which wil be sufficient,
to pay when due the principal of and premium, if any, and interest, if any, due and to become due on such Indenture
Securities. For this purpose, "Eligible Obligations" include direct obligations of, or obligations unconditionally
guaranteed by, the United States, entitled to the benefit of the full faith and credit thereof and certificates, depositary
receipts or other instruments which evidence a direct ownership interest in such obligations or in any specific
interest or principal payments due in respect thereof and such other obligations or instruments as shall be specified
in an accompanying prospectus supplement. (Indenture, Sec. 601)
The right of Avista to cause its entire indebtedness in respect of the Indenture Securities of any series to be
deemed to be satisfied and discharged as described above will be subject to the satisfaction of conditions specified in
the instrument creating such series.
The Indenture wil be deemed to have been satisfied and discharged when no Indenture Securities remain
outstanding thereunder and Avista has paid or caused to be paid all other sums payable by Avista under the
Indenture. (Indenture, Sec. 602)
Events of Default
Anyone or more of the following events with respect to a series of Indenture Securities that has occurred and is
continuing wil constitute an "Event of Default" with respect to such series of Indenture Securities:
· failure to pay interest on any Indenture Security of such series within 60 days after the same becomes due
and payable; provided, however, that no such failure shall constitute an Event of Default if Avista has made a
valid extension of the interest payment period with respect to the Indenture Securities of such series if so
provided with respect to such series;
. failure to pay the principal of or premium, if any, on any Indenture Security of such series within 3 business
days after its Maturity; provided, however, that no such failure wil constitute an Event of Default if Avista
has made a valid extension of the Maturity of the Indenture Securities of such series, if so provided with
respect to such series;
· failure to perform, or breach of, any covenant or warranty of Avista contained in the Indenture for 90 days
after written notice to Avista from the Indenture Trustee or to Avista and the Indenture Trustee by the
Holders of at least 25% in principal amount of the outstanding Indenture Securities of such series as provided
in the Indenture unless the Indenture Trustee, or the Indenture Trustee and the Holders of a principal amount
of Indenture Securities of such series not less than the principal amount of Indenture Securities the Holders
of which gave such notice, as the case may be, agree in writing to an extension of such period before its
15
expiration; provided, however, that the Indenture Trustee, or the Indenture Trustee and the Holders of such
principal amount of Indenture Securities of such series, as the case may be, wil be deemed to have agreed to
an extension of such period if corrective action is initiated by Avista within such period and is being
diligently pursued;
. default under any bond, debenture, note or other evidence of indebtedness of Avista for borrowed money
(including Indenture Securities of other series) or under any mortgage, indenture, or other instrment to
evidence any indebtedness of Avista for borrowed money, which default (l) constitutes a failure to make any
payment in excess of $5,000,000 of the principal of, or interest on, such indebtedness or (2) has resulted in
such indebtedness in an amount in excess of $10,000,000 becoming or being declared due and payable prior
to the date it would otherwise have become due and payable, without such payment having been made, such
indebtedness having been discharged, or such acceleration having been rescinded or annulled, within a
period of 90 days after written notice to Avista by the Indenture Trustee or to Avista and the Indenture
Trustee by the Holders of at least 25% in principal amount of the outstanding Securities of such series as
provided in the Indenture; or
· certain events in bankrptcy, insolvency or reorganization of Avista (Indenture, Sec. 701).
Remedies
Acceleration of Maturity
If an Event of Default applicable to the Indenture Securities of any series occurs and is continuing, then either
the Indenture Trustee or the Holders of not less than 33% in aggregate principal amount of the outstanding Indenture
Securities of such series may declare the principal amount (or, if any of the outstanding Indenture Securities of such
series are Discount Securities, such portion of the principal amount thereof as may be specified in the terms thereof)
of all of the outstanding Indenture Securities of such series to be due and payable immediately by written notice to
Avista (and to the Indenture Trustee if given by the Holders); provided, however, that if an Event of Default occurs
and is continuing with respect to more than one series of Indenture Securities, the Indenture Trustee or the Holders
of not less than 33% in aggregate principal amount of the outstanding Indenture Securities of all such series,
considered as one class, may make such declaration of acceleration and not the Holders of anyone such series.
At any time after such a declaration of acceleration with respect to the Indenture Securities of any series has
been made, but before a judgment or decree for payment of the money due has been obtained, such declaration and
its consequences will, without further act, be deemed to have been rescinded and annulled, if:
· Avista has paid or deposited with the Indenture Trustee a sum suffcient to pay
· all overdue interest, if any, on all Indenture Securities of such series;
· the principal of and premium, if any, on any Indenture Securities of such series which have become due
otherwise than by such declaration of acceleration and interest, if any, thereon at the rate or rates
prescribed therefor in such Indenture Securities;
· interest, if any, upon overdue interest, if any, at the rate or rates prescribed therefor in such Indenture
Securities, to the extent that payment of such interest is lawful; and
· all amounts due to the Indenture Trustee under the Indenture in respect of compensation and reimburse-
ment of expenses; and
· all Events of Default with respect to Indenture Securities of such series, other than the non-payment of the
principal of the Indenture Securities of such series which has become due solely by such declaration of
acceleration, have been cured or waived as provided in the Indenture. (Indenture, Sec. 702)
Right to Direct Proceedings
If an Event of Default with respect to the Indenture Securities of any series occurs and is continuing, the
Holders of a majority in principal amount of the outstanding Indenture Securities of such series will have the right to
direct the time, method and place of conducting any proceedings for any remedy available to the Indenture Trustee
16
in exercising any trust or power conferred on the Indenture Trustee; provided. however, that if an Event of Default
occurs and is continuing with respect to more than one series of Indenture Securities, the Holders of a majority in
aggregate principal amount of the outstanding Indenture Securities of all such series, considered as one class, wil
have the right to make such direction, and not the Holders of anyone of such series; and provided, further, that
(a) such direction does not conflct with any rule of law or with the Indenture, and could not involve the Indenture
Trustee in personal liability in circumstances where indemnity would not, in the Indenture Trustee's sole discretion,
be adequate and (b) the Indenture Trustee may take any other action deemed proper by the Indenture Trustee which
is not inconsistent with such direction. (Indenture, Sec. 712)
Limitation on Right to Institute Proceedings
No Holder will have any right to institute any proceeding, judicial or otherwise, with respect to the Indenture or
for the appointment of a receiver or for any other remedy thereunder unless:
· such Holder has previously given to the Indenture Trustee written notice of a continuing Event of Default
with respect to the Indenture Securities of anyone or more series;
· the Holders of a majority in aggregate principal amount of the outstanding Indenture Securities of all series
in respect of which such Event of Default has occurred, considered as one class, have made written request to
the Indenture Trustee to institute proceedings in respect of such Event of Default and have offered the
Indenture Trustee reasonable indemnity against costs and liabilities to be incurred in complying with such
request; and
· for 60 days after receipt of such notice, the Indenture Trustee has failed to institute any such proceeding and
no direction inconsistent with such request has been given to the Indenture Trustee during such 60 day period
by the Holders of a majority in aggregate principal amount of Indenture Securities then outstanding.
Furthermore, no Holder of any series of Indenture Securities wil be entitled to institute any such action if and
to the extent that such action would disturb or prejudice the rights of other Holders of such series. (Indenture,
Sec. 707)
No Impairment of Right to Receive Payment
Notwithstanding that the right of a Holder to institute a proceeding with respect to the Indenture is subject to
certain conditions precedent, each Holder wil have the right, which is absolute and unconditional, to receive
payment of the principal of and premium, if any, and interest, if any, on such Indenture Security when due and to
institute suit for the enforcement of any such payment. Such rights may not be impaired or affected without the
consent of such Holder. (Indenture, Sec. 708)
Notice of Default
The Indenture Trustee is required to give the Holders notice of any default under the Indenture to the extent
required by the Trust Indenture Act, unless such default shall have been cured or waived, except that no such notice
to Holders of a default of the character described in the third bulleted paragraph under "- Events of Default" may
be given until at least 75 days after the occurrence thereof. For purposes of the preceding sentence, the term
"default" means any event which is, or after notice or lapse of time, or both, would become, an Event of Default. The
Trust Indenture Act currently permits the Indenture Trustee to withhold notices of default (except for certain
payment defaults) if the Indenture Trustee in good faith determines the withholding of such notice to be in the
interests of the Holders. (Indenture, Sec. 802)
Consolidation, Merger, Sale of Assets and Other Transactions
Avista may not consolidate with or merge into any other Person, or conveyor otherwise transfer, or lease, all of
its properties, as or substantially as an entirety, to any Person, unless:
· the Person formed by such consolidation or into which Avista is merged or the Person which acquires by
conveyance or other transfer, or which leases (for a term extending beyond the last Stated Maturity of the
17
Indenture Securities then outstanding), all of the properties of Avista, as or substantially as an entirety, shall
be a Person organized and existing under the laws of the United States, any State or Terrtory thereof or the
District of Columbia or under the laws of Canada or any Province thereof; and
· such Person shall expressly assume the due and punctual payment of the principal of and premium, if any,
and interest, if any, on all the Indenture Securities then outstanding and the performance and observance of
every covenant and condition of the Indenture to be performed or observed by Avista.
In the case of the conveyance or other transfer of all of the properties of Avista, as or substantially as an
entirety, to any person as contemplated above, Avista would be released and discharged from all obligations under
the Indenture and on all Indenture Securities then outstanding unless Avista elects to waive such release and
discharge. Upon any such consolidation or merger or any such conveyance or other transfer of properties of Avista,
the successor, transferee or lessee would succeed to, and be substituted for, and would be entitled to exercise every
power and right of, Avista under the Indenture. (Indenture, Secs. 1001, 1002 and 1003)
For purposes of the Indenture, the conveyance, transfer or lease by Avista of all of its facilities (a) for the
generation of electric energy, (b) for the transmission of electric energy, (c) for the distrbution of electric energy
and/or natural gas, in each case considered alone, (d) all of its facilities described in clauses (a) and (b), considered
together, or (e) all of its facilities described in clauses (b) and (c), considered together, wil in no event be deemed to
constitute a conveyance or other transfer of all the properties of Avista, as or substantially as an entirety, unless,
immediately following such conveyance, transfer or lease, Avista owns no unleased properties in the other such
categories of property not so conveyed or otherwise transferred or leased.
The Indenture will not prevent or restrict:
. any consolidation or merger after the consummation of which Avista would be the surviving or resulting
entity; or
· any conveyance or other transfer, or lease, of any part of the properties of Avista which does not constitute
the entirety, or substantially the entirety, thereof. (Indenture, Sec. 1004)
If Avista conveys or otherwise transfers any par of its properties which does not constitute the entirety, or
substantially the entirety, thereof to another Person meeting the requirements set forth in the first paragraph under
this heading, and if:
· such transferee expressly assumes the due and punctual payment of the principal of and premium, if any, and
interest, if any, on all Indenture Securities then outstanding and the performance and observance of every
covenant and condition of the Indenture to be performed or observed by Avista; and
· there is delivered to the Indenture Trustee an independent expert's certificate (i) describing the property so
conveyed or transferred and identifying the same as facilities for the generation, transmission or distribution
of electric energy or for the storage, transportation or distribution of natural gas and (ii) stating that the
aggregate principal amount of the Indenture Securities then outstanding does not exceed 70% of the fair
value of such property,
then Avista would be released and discharged from all obligations and covenants under the Indenture and on all
Indenture Securities then outstanding unless Avista elects to waive such release and discharge. In such event, the
transferee would succeed to, and be substituted for, and would be entitled to exercise every right and power of,
Avista under the Indenture. (Indenture, Sec. 1005)
Modification of Indenture
Modifcations Without Consent
Avista and the Indenture Trustee may enter into one or more supplemental indentures, without the consent of
any Holders, for any of the following purposes:
· to evidence the succession of another Person to Avista and the assumption by any such successor of the
covenants of Avista in the Indenture and in the Indenture Securities;
18
· to add one or more covenants of Avista or other provisions for the benefit of all Holders or for the benefit of
the Holders of, or to remain in effect only so long as there shall be outstanding, Indenture Securities of one or
more specified series, or one or more tranches thereof, or to surrender any right or power conferred upon
Avista by the Indenture;
· to change or eliminate any provisions of the Indenture or to add any new provisions to the Indenture,
provided that if such change, elimination or addition adversely affects the interests of the Holders of the
Indenture Securities of any series or tranche in any material respect, such change, elimination or addition
will become effective with respect to such series or tranche only when no Indenture Security of such series or
tranche remains outstanding;
· to provide collateral security for the Indenture Securities or any series thereof;
· to establish the form or terms of the Indenture Securities of any series or tranche as permitted by the
Indenture;
to provide for the authentication and delivery of bearer securities and coupons appertaining thereto
representing interest, if any, thereon and for the procedures for the registration, exchange and replacement
thereof and for the giving of notice to, and the solicitation of the vote or consent of, the Holders thereof, and
for any and all other matters incidental thereto;
· to evidence and provide for the acceptance of appointment by a successor trustee with respect to the
Indenture Securities of one or more series;
. to provide for the procedures required to permit the utilization of a non-certificated system of registration for
all, or any series or tranche of, the Indenture Securities; or
· to change any place or places where (a) the principal of and premium, if any, and interest, if any, on all or any
series of Indenture Securities, or any tranche thereof, wil be payable, (b) all or any series of Indenture
Securities, or any tranche thereof, may be surrendered for registration of transfer, (c) all or any series of
Indenture Securities, or any tranche thereof, may be surrendered for exchange and (d) notices and demands
to or upon Avista in respect of all or any series of Indenture Securities, or any tranche thereof, and the
Indenture may be served; or
. to cure any ambiguity, to correct or supplement any provision therein which may be defective or inconsistent
with any other provision therein, to make any other changes to the provisions thereof or to add any other
provisions with respect to matters and questions arising under the Indenture, so long as such other changes or
additions do not adversely affect the interests of the Holders of any series or tranche in any materiaL. respect.
Without limiting the generality of the foregoing, if the Trust Indenture Act is amended after the date of the
Original Indenture in such a way as to require changes to the Indenture or the incorporation therein of additional
provisions or so as to permit changes to, or the elimination of, provisions which, at the date of the Original Indenture
or at any time thereafter, were required by the Trust Indenture Act to be contained in the Indenture, the Indenture
wil be deemed to have been amended so as to conform to such amendment or to effect such changes or elimination,
and Avista and the Indenture Trustee may, without the consent of any Holders, enter into one or more supplemental
indentures to evidence or effect such amendment. (Indenture, Sec. 1101)
Modifcations Requiring Consent
Except as provided above, the consent of the Holders of a majority in aggregate principal amount of the
Indenture Securities of all series then outstanding, considered as one class is required for the purpose of adding any
provisions to, or changing in any manner, or eliminating any of the provisions of, the Indenture pursuant to one or
more supplemental indentures; provided, however, that if less than all of the series of Indenture Securities
outstanding are directly affected by a proposed supplemental indenture, then the consent only of the Holders of a
majority in aggregate principal amount of outstanding Indenture Securities of all series so directly affected,
considered as one class, wil be required; and provided, further, that if the Indenture Securities of any series have
been issued in more than one tranche and if the proposed supplemental indenture directly affects the rights of the
Holders of one or more, but less than all, of such tranches, then the consent only of the Holders of a majority in
19
aggregate principal amount of the outstanding Indenture Securities of all tranches so directly affected, considered as
one class, wil be required; and provided, further, that no such amendment or modification may:
· change the Stated Maturity of the principal of, or any installment of principal of or interest on, any Indenture
Security other than pursuant to the terms thereof, or reduce the principal amount thereof or the rate of interest
thereon (or the amount of any installment of interest thereon) or change the method of calculating such rate
or reduce any premium payable upon the redemption thereof, or reduce the amount of the principal of any
Discount Security that would be due and payable upon a declaration of acceleration of Maturity or change
the coin or currency (or other property) in which any Indenture Security or any premium or the interest
thereon is payable, or impair the right to institute suit for the enforcement of any such payment on or after the
Stated Maturity of any Indenture Security (or, in the case of redemption, on or after the redemption date)
without, in any such case, the consent of the Holder of such Indenture Security;
· reduce the percentage in principal amount of the outstanding Indenture Securities of any series, or any
tranche thereof, the consent of the Holders of which is required for any such supplemental indenture, or the
consent of the Holders of which is required for any waiver of compliance with any provision of the Indenture
or of any default thereunder and its consequences;
· reduce the requirements for quorum or voting, without, in any such case, the consent of the Holder of each
outstanding Indenture Security of such series or tranche; or
· modify certain of the provisions of the Indenture relating to supplemental indentures, waivers of certain
covenants and waivers of past defaults with respect to the Indenture Securities of any series, or any tranche
thereof, without the consent of the Holder of each outstanding Indenture Security of such series or tranche.
A supplemental indenture which changes or eliminates any covenant or other provision of the Indenture which
has expressly been included solely for the benefit of the Holders of, or which is to remain in effect only so long as
there shall be outstanding, Indenture Securities of one or more specified series, or one or more tranches thereof, or
modifies the rights of the Holders of such series or tranche with respect to such covenant or other provision, wil be
deemed not to affect the rights under the Indenture of the Holders of any other series or tranche.
If the supplemental indenture or other document establishing any series or tranche of Indenture Securities so
provides, and as specified in the applicable prospectus supplement and/or pricing supplement, the Holders of such
Indenture Securities will be deemed to have consented, by virtue of their purchase of such Indenture Securities, to a
supplemental indenture containing the additions, changes or eliminations to or from the Indenture which are
specified in such supplemental indenture or other document. No Act of such Holders wil be required to evidence
such consent and such consent may be counted in the determination of whether the Holders of the requested
principal amount of Indenture Securities have consented to such supplemental indenture. (Indenture, Sec. 1102)
Duties of the Indenture Trustee; Resignation; Removal
The Indenture Trustee will have, and wil be subject to, all the duties and responsibilities specified with respect
to an indenture trustee under the Trust Indenture Act. Subject to such provisions, the Indenture Trustee will be under
no obligation to exercise any of the powers vested in it by the Indenture at the request of any Holder, unless such
Holder offers it reasonable indemnity against the costs, expenses and liabilities which might be incurred thereby.
The Indenture Trustee wil not be required to expend or risk its own funds or otherwise incur personal financial
liabilty in the performance of its duties if the Indenture Trustee reasonably believes that repayment or adequate
indemnity is not reasonably assured to it. (Indenture, Secs. 801 and 803)
The Indenture Trustee may resign at any time with respect to the Indenture Securities of one or more series by
giving written notice thereof to Avista or may be removed at any time with respect to the Indenture Securities of one
or more series by Act of the Holders of a majority in principal amount of the outstanding Indenture Securities of
such series delivered to the Indenture Trustee and Avista. No resignation or removal of the Indenture Trustee and no
appointment of a successor trustee wil become effective until the acceptance of appointment by a successor trustee
in accordance with the requirements of the Indenture. So long as no Event of Default or event which, after notice or
lapse of time, or both, would become an Event of Default has occurred and is continuing, if Avista has delivered to
the Indenture Trustee with respect to one or more series a resolution of its Board of Directors appointing a successor
20
trustee with respect to that or those series and such successor has accepted such appointment in accordance with the
terms of the Indenture, the Indenture Trustee with respect to that or those series wil be deemed to have resigned and
the successor wil be deemed to have been appointed as trustee in accordance with the Indenture. (Indenture,
Sec. 810)
Evidence of Compliance
Compliance with the Indenture provisions is evidenced by written statements of Avista officers or persons
selected or paid by Avista. In certain cases, Avista must furnish opinions of counsel and certifications of an engineer,
appraiser or other expert (who in some cases must be independent). In addition, the Indenture requires that Avista
give the Indenture Trustee, not less than annually, a brief statement as to Avista's compliance with the conditions
and covenants under the Indenture.
Governing Law
The Indenture and the Indenture Securities wil be governed by and constred in accordance with the laws of
the State of New York, except to the extent that the Trust Indenture Act shall be applicable.
DESCRIPTION OF PREFERRED STOCK
General
The authorized capital stock of Avista Corporation, as set forth in its Restated Articles of Incorporation, as
amended ("Avista Articles"), consists of 1 0,000,000 shares of Preferred Stock, cumulative, without nominal or par
value, which is issuable in series, and 200,000,000 shares of Common Stock, without nominal or par value, together
with attached preferred share purchase rights. Following is a brief description of certain of the rights and privileges
of the Preferred Stock.
Avista may issue shares of New Preferred Stock in one or more additional series. The terms of the New
Preferred Stock wil include those stated in the Avista Articles and in Avista's Bylaws ("Avista Bylaws") and those
made applicable thereto by the Washington Business Corporation Act (the "Washington BCA"). The following
summar is not complete and is subject in all respects to the provisions of, and is qualified in its entirety by reference
to, the Avista Aricles, the Avista Bylaws and the Washington BCA. Avista has fied the Avista Articles, as well as a
form of amendment thereto to establish a series of New Preferred Stock, and the Avista Bylaws as exhibits to the
registration statement of which this prospectus is a par. Whenever paricular provisions of the Avista Articles or the
Avista Bylaws are referred to, those provisions are incorporated by reference as par of the statements made in this
prospectus and those statements are qualified in their entirety by that reference.
The Avista Articles provide that the Preferred Stock may be divided into and issued from time to time in one or
more series. All shares of Preferred Stock constitute one and the same class of stock, are of equal rank and wil
otherwise be identical except as to the designation thereof, the date or dates from which dividends on shares thereof
wil be cumulative, and except that each series may vary as to, and the applicable prospectus supplement wil
describe:
· the rate or rates of dividends, if any, which may be expressed in terms of a formula or other method by which
such rate or rates wil be calculated from time to time, and the date or dates on which dividends may be
payable,
· whether shares may be redeemed and, if so, the redemption price and terms and conditions of redemption,
. the amount payable on voluntary and involuntary liquidation,
· sinking fund provisions, if any, for the redemption or purchase of shares, and
· the terms and conditions, if any, on which shares may be converted.
21
When Preferred Stock is initially issued, the number of shares constituting such series, its distinguishing serial
designation and its particular characteristics (insofar as there may be varations between series) may be fixed by
resolution of the Board of Directors.
Dividend Rights
The New Preferred Stock of each series will be entitled, on a parity with each other series of Preferred Stock
and in preference to the Common Stock, to receive, but only when and as declared by the Board of Directors,
dividends at the rate determined for such series and set forth in the applicable prospectus supplement. Such
dividends will be cumulative from the date of issuance of the New Preferred Stock and wil be payable on the
fifteenth day of March, June, September and December in each year, except as otherwise provided in the applicable
prospectus supplement.
Liquidation Rights
The New Preferred Stock of each series wil be entitled, upon dissolution or liquidation, on a parity with each
other series of Preferred Stock and in preference to the Common Stock, to a liquidation preference per share
determned for such series plus an amount equivalent to accrued and unpaid dividends thereon, if any, to the date of
such event. The liquidation preference of each series of New Preferred Stock wil be set forth in the applicable
prospectus supplement.
Voting Rights
Except for those purposes for which the right to vote is expressly conferred by the Avista Articles or the
Washington BCA, the holders of Preferred Stock have no power to vote.
Under the Avista Articles, whenever and as often as, at any date, dividends payable on any shares of Preferred
Stock (including any New Preferred Stock) shall be in arears in an amount equal to the aggregate amount of
dividends accumulated on such shares over the eighteen (18) month period ended on such date, the holders of the
Preferred Stock, voting separately and as a single class, are entitled to elect a majority of the Board of Directors, and
the holders of the Common Stock, voting separately and as a single class, shall be entitled to elect the remaining
directors. Such voting rights of the holders of the Preferred Stock cease when all defaults in the payment of
dividends on the Preferred Stock of any and all series have been cured.
In addition, under the Avista Articles the affrmative vote of the holders of at least a majority of the shares of
the Preferred Stock is required:
(a) for the adoption of any amendment of the Avista Articles which would: (i) create or authorize any new
class of stock ranking prior to or on a party with the Preferred Stock as to dividends or upon dissolution,
liquidation or winding up; (ii) increase the authorized number of shares of the Preferred Stock; or (iii) change
any of the rights or preferences of the Preferred Stock at the time outstanding, provided that if any such change
would affect the holders of less than the Preferred Stock of all series then outstanding, only the affirmati ve vote
of the holders of at least a majority of the shares of all series so affected is required; and
(b) for the issuance of Preferred Stock, or of any other class of stock ranking prior to or on a party with
such Preferred Stock as to dividends or upon dissolution, liquidation or winding up, unless the net income of
Avista available for the payment of dividends for a period of 12 consecutive calendar months within the
15 calendar months immediately preceding the issuance of such shares is at least equal to one and one-half
times the annual dividend requirements on shares of Preferred Stock and on all shares of all other classes of
stock ranking prior to or on a party with the Preferred Stock as to dividends or upon dissolution, liquidation or
winding up, which wil be outstanding immediately after the issuance of such shares, including the shares
proposed to be issued; provided, however, that if the shares of Preferred Stock or any such prior or party stock
shall have a variable dividend rate, the annual dividend requirement of such shares shall be determned by
reference tothe weighted average dividend rate on such shares during the 12-month period for which the net
income of Avista available for the payment of dividends shall have been determined; and provided,further, that
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if the shares of the series to be issued are to have a variable dividend rate, the annual dividend requirement on
such shares shall be determined by reference to the initial dividend rate upon the issuance of such shares.
Under the Washington BCA, a vote of the holders of a majority of the outstanding shares of Preferred Stock is
required in connection with certain changes in the capital structure of Avista or in certain rights and preferences of
the Preferred Stock, including certain of the changes described in (a) above. In addition, the Washington BCA
requires the approval of certain mergers, share exchanges (but not the Share Exchange presently contemplated) and
other major corporate transactions by the holders of two-thirds of the outstanding Preferred Stock.
Pre-emptive Rights
No holder of Preferred Stock has any pre-emptive rights.
Miscellaneous
The Avista Articles contain no restrction on the redemption or repurchase by Avista of shares of Preferred
Stock while there is any arearage in the payment of dividends on, or sinking fund payments in respect of, the
Preferred Stock.
Upon issuance as contemplated by this prospectus and the applicable prospectus supplement, the New
Preferred Stock wil be fully paid and nonassessable. The holders of the New Preferred Stock wil not be subject to
liability for further calls or assessment by, or for liabilities of, Avista.
DESCRITION OF COMMON STOCK
General
The authorized capital stock of Avista, as set forth in its Restated Articles of Incorporation, as amended,
consists of 10,000,000 shares of Preferred Stock, cumulative, without nominal or par value, which is issuable in
series, and 200,000,000 shares of Common Stock without nominal or par value, together with attached preferred
share purchase rights. Following is a brief description of certain of the rights and privileges of the Common Stock.
Avista may issue additional shares of its Common Stock from time to time. The terms of the Common Stock
include those stated in the Avista Articles and the Avista Bylaws and those made applicable thereto by the
Washington BCA. The following summar is not complete and is subject in all respects to the provisions of, and is
qualified in its entirety by reference to, the Avista Articles, the Avista Bylaws and the Washington BCA. Avista has
fied the Avista Aricles and the Avista Bylaws as exhibits to the registration statement of which this prospectus
forms a part. Whenever paricular provisions of the Avista Articles or the Avista Bylaws are referred to, those
provisions are incorprated as par of the statements made in this prospectus and those statements are qualified in
their entirety by that reference.
Dividend Rights
After full provision for all Preferred Stock dividends declared or in arrears, the holders of Common Stock are
entitled to receive such dividends as may be lawfully declared from time to time by Avista's Board of Directors.
The Indenture, dated as of April 3, 2001, between Avista and The Bank of New York, as successor trustee,
under which $272,860,000 of senior unsecured notes were outstanding as of November 30, 2006, contains
restrictions on the payment of dividends. So long as there is no default under the Indenture, Avista does not expect
these restrictions to limit its abilty to pay dividends on its capital stock. These notes mature on June 1, 2008.
Voting Rights
The holders of the Common Stock have sole voting power, except as indicated below or as otherwise provided
by law. Each holder of Common Stock is entitled to one vote per share, except that, in the election of directors, each
holder has "cumulative" voting rights by which such holder is entitled to that number of votes which is equal to the
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number of directors to be elected multiplied by the number of shares held. These votes may all be cast for a single
nominee for director or may be distributed among any two or more nominees.
Under the Avista Articles, whenever and as often as, at any date, dividends payable on any shares of Preferred
Stock (including any New Preferred Stock) shall be in arrears in an amount equal to the aggregate amount of
dividends accumulated on such shares of Preferred Stock over the eighteen (18) month period ended on such date,
the holders of the Preferred Stock, voting separately and as a single class, are entitled to elect a majority of the Board
of Directors, and the holders of the Common Stock, voting separately and as a single class, wil be entitled to elect
the remaining directors. Such voting rights of the holders of the Preferred Stock cease when all defaults in the
payment of dividends on the Preferred Stock have been cured.
In addition, the consent of various proportions of the Preferred Stock at the time outstanding is required to
adopt any amendment to the Aricles which would authorize any new class of stock ranking prior to or on a party
with the Preferred Stock as to certain matters, to increase the authorized number of shares of the Preferred Stock, to
change any of the rights or preferences of outstanding Preferred Stock or to issue additional shares of Preferred
Stock unless an earings test is satisfied.
Classified Board of Directors
Both the Avista Aricles and the Avista Bylaws provide for a Board of Directors divided into three classes.
Each director of a class wil generally serve for a term of three years, with only one class of directors being elected in
each year. The classification of the Board of Directors reduces the impact of cumulative voting rights.
The Avista Articles and Avista Bylaws also generally provide that directors may be removed only for cause and
only by the affirmative vote of the holders of at least a majority of the outstanding shares of Common Stock. The
Avista Articles and Avista Bylaws further require an affirmative vote of the holders of at least 80% of the
outstanding shares of Common Stock to alter, amend or repeal the provisions relating to the classification of the
Board of Directors and the removal of members from, and the filing of vacancies on, the Board of Directors.
"Fair Price" Provision
The Avista Articles contain a "fair price" provision which requires the affrmative vote of the holders of at least
80% of the outstanding shares of Common Stock for the consummation of certain business combinations, including
mergers, consolidations, recapitalizations, certain dispositions of assets, certain issuances of securities, liquidations
and dissolutions involving Avista and a person or entity who is or, under certain circumstances, was, a beneficial
owner of 10% or more of the outstanding shares of Common Stock (an "Interested Shareholder") unless
· such business combination shall have been approved by a majority of the directors unaffliated with the
Interested Shareholder, or
· certain minimum price and procedural requirements are met. The Avista Articles provide that the "fair price"
provision may be altered, amended or repealed only by the affirmative vote of the holders of at least 80% of
the outstanding shares of Common Stock.
Preferred Share Purchase Rights
General
Reference is made to the Rights Agreement, dated as of November 15, 1999 (the "Rights Agreement")
between Avista and The Bank of New York, as Rights Agent, filed with the SEC. The following statements are
qualified in their entireties by such reference.
On November 12, 1999, the Avista Board of Directors authorized the Rights Agreement to replace the then-
existing rights plan which expired on February 16,2000. Under the Rights Agreement, Avista granted one preferred
share purchase right (a "Right") on each outstanding share of Common Stock to holders of Common Stock
outstanding on February 15, 2000 or issued thereafter. The description and terms of Rights are set forth in the Rights
Agreement.
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Each Right entitles the registered holder, subject to regulatory approvals and other specified conditions, to
purchase one one-hundredth of a share of Preferred Stock at a purchase price of $70.00 (the "Purchase Price"). The
Rights are exercisable only if a person or group
· acquires beneficial ownership of 10% or more of the outstanding shares of Common Stock, or
· commences a tender or exchange offer, the consummation of which would result in the beneficial ownership
by a person or group of 10% or more of the outstanding shares of Common Stock.
Until that time, the Rights are evidenced by and trade with the shares of Common Stock. Each right was
originally scheduled to expire on March 31, 2009. However, in connection with the execution by Avista of the Plan
of Exchange, the Rights Agreement was amended to provide that the Rights wil expire upon the earlier of the
effective time of the Share Exchange (as described below) and March 31, 2009.
The purchase of stock pursuant to the Rights may be subject to regulatory approvals and other specified
conditions. Under no circumstances wil a person or group that acquires 10% of the Common Stock be entitled to
exercise Rights.
"Flip-in"
If any person or group acquires beneficial ownership of 10% or more of the outstanding shares of Common
Stock, each unexercised Right will entitle its holder to purchase that number of shares of Common Stock or, at the
option of Avista, Preferred Stock, which has a market value at that time of twice the Purchase Price.
"Flip-over"
In the event that any person or group has acquired beneficial ownership of 10% or more of the outstanding
shares of Common Stock, and Avista
. consolidates or merges with or into, or
· sells 50% or more of its assets or earning power to,
any person or group, each unexercised Right would instead entitle its holder to purchase the acquiring
company's common shares having a market value of twice the Purchase Price.
Exchange
If a person or group acquires beneficial ownership of more than 10% but less than 50% of the outstanding
shares of Common Stock, Avista may exchange each outstanding Right for one share of Common Stock or cash,
securities or other assets having a value equal to the market value of one share of Common Stock. That exchange
may be subject to regulatory approvals.
Redemption
Avista may redeem the Rights, at a redemption price of $0.01 per Right, at any time until any person or group
has acquired beneficial ownership of 10% or more of the outstanding shares of Common Stock.
Certin Adjustments
The Purchase Price, the amount and type of securities covered by each Right and the number of Rights
outstanding will be adjusted to prevent dilution:
· in the event of a stock dividend on, or a subdivision, combination or reclassification of, the Preferred Stock,
· if holders of the Preferred Stock are granted certain rights, options or warrants to subscribe for Preferred
Stock or securities convertible into Preferred Stock or equivalent preferred shares at less than the current
market price of the Preferred Stock, or
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· upon the distrbution to holders of the Preferred Stock of evidences of indebtedness or assets (excluding
regular quarerly cash dividends) or of subscription rights or warants (other than those referred to above).
With certain exceptions, no adjustments in the Purchase Price wil be made until cumulative adjustments
amount to at least i % of the Purchase Price. Avista will not issue fractional shares of Preferred Stock other than in
integral multiples of one ten-thousandth of a share. Instead, Avista will make an adjustment in cash based on the
market price of the Preferred Stock on the last trading date prior to the date of exercise.
Amounts Outstanding
Avista distributed one Right to its shareholders for each share of Common Stock owned of record by them at
the close of business on February 15, 2000. Until the earliest of
· such time as any person or group acquires beneficial ownership of i 0% or more of the outstanding shares of
Common Stock,
· March 31, 2009,
· the redemption of the Rights, or
· the effective time of the Share Exchange,
Avista has issued and will continue to issue one Right with each share of Common Stock that is issued after
Februar 15,2000 so that each outstanding share of Common Stock has and wil continue to have an appurtenant
Right. Avista has initially authorized and reserved 600,000 shares of Preferred Stock for issuance upon exercise of
the Rights.
Amendment
Avista may amend the Rights Agreement in any respect until any person or group has acquired beneficial
ownership of 10% or more of the outstanding shares of Common Stock. Thereafter, Avista may amend the Rights
Agreement in any manner which wil not adversely affect the holders of the Rights in any material respect.
Statutory Limitation on "Signifcant Business Transactions"
General
The Washington BCA contains provisions that limit our ability to engage in "significant business transactions"
with an "acquiring person", each as defined below. We have no right to waive the applicability of these provisions.
Signifcant Business Transactions Within Five Years of Share Acquisition Time
Subject to certain exceptions, for five years after an "acquiring person's" "share acquisition time", Avista may
not engage in any "significant business transaction" with such "acquiring person" unless, before such "share
acquisition time", a majority of the Board of Directors approves either:
· such "significant business transaction"; or
· the purchase of shares made by such "acquiring person".
Signifcant Business Transactions More Than Five Years After Share Acquisition Time
Avista may not engage in certain "significant business transactions" (including mergers, share exchanges and
consolidations) with any "acquiring person" unless:
· the transaction complies with certain "fair price" provisions specified in the statute; or
· no earlier than five years after the "acquiring person's" "share acquisition time", the "significant business
transaction" is approved at an annual or special meeting of shareholders (in which the "acquiring person's"
shares may not be counted in determining whether the "significant business transaction" has been approved).
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Definitions
As used in this section:
"Signifcant business transaction" means any of various specified transactions involving an "acquiring
person", including:
· a merger, share exchange, or consolidation of Avista or any of its subsidiaries with an "acquiring person" or
its affiliate;
· a sale, lease, transfer or other disposition to an "acquiring person" or its affiliate of assets of Avista or any of
its subsidiares having an aggregate market value equal to 5% or more of all of the assets determined on a
consolidated basis, or all the outstanding shares of Avista, or representing 5% or more of its earning power or
net income determined on a consolidated basis;
· termination, at any time over the five-year period following the "share acquisition time", of 5% or more of
the employees of Avista as a result of the "acquiring person's" acquisition of 10% or more of the shares of
Avista; and
· the issuance or redemption by Avista or any of its subsidiaries of shares (or of options, warrants, or rights to
acquire shares) of Avista or any of its subsidiaries to or beneficially owned by an "acquiring person" or its
affiiate except pursuant to an offer, dividend distrbution or redemption paid or made pro rata to all
shareholders (or holders of options, warrants or rights).
"Acquiring person" means, with certain exceptions, a person (or group of persons) other than Avista or its
subsidiares who beneficially owns 10% or more of the outstanding Common Stock of Avista.
"Share acquisition time" means the time at which a person first becomes an "acquiring person" of Avista.
Anti-Takeover Effect
The provisions of the Avista Articles and the Avista Bylaws described above under "Classified Board of
Directors" and '''Fair Price' Provision" and the Rights Agreement described above under "Preferred Share Purchase
Rights", together with the provisions of the Washington BCA described above under "Statutory Limitations on
'Significant Business Transactions"', considered either individually or in the aggregate, may have an "anti-
takeover" effect. These provisions could discourage a future takeover attempt which is not approved by Avista's
Board of Directors but which individual shareholders might deem to be in their best interests or in which
shareholders would receive a premium for their shares over current market prices. As a result, shareholders who
might desire to paricipate in such a transaction might not have an opportunity to do so.
The Rights described above under "Preferred Share Purchase Rights" would cause substantial dilution to a
person or group that attempts to acquire Avista on terms not approved by the Board of Directors, except pursuant to
an offer conditioned on a substantial number of Rights being acquired or redeemed. However, the Rights should not
intedere with any merger or other business combination approved by the Board of Directors prior to the time that a
person or group has acquired beneficial ownership of 10% or more of the Common Stock since until such time the
Rights may be redeemed, or the Rights Agreement may be amended, as described above.
The provisions described above under "Classified Board of Directors" could also cause the removal of the
incumbent Board of Directors or management to require more time or render such removal more difficult,
procedurally or otherwise.
Liquidation Rights
In the event of any liquidation or dissolution of Avista, after satisfaction of the preferential liquidation rights of
the Preferred Stock, the holders of Common Stock would be entitled to share ratably in all assets of Avista available
for distribution to shareholders.
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Pre-Emptive Rights
No holder of Common Stock has any pre-emptive rights.
Miscellaneous
The presently outstanding shares of Common Stock are ful1y paid and non-assessable. Upon issuance as
contemplated by this prospectus and the applicable prospectus supplement, additional shares of Common Stock wil1
be ful1y paid and nonassessable. The holders of such shares of Avista Common Stock are not and wil not be subject
to liability for further cal1s or assessment by, or for liabilities of, Avista.
The outstanding shares of Common Stock are listed on the New York Stock Exchange. Any new shares of
Avista Common Stock wil also be listed on that Exchange subject to offcial notice of issuance.
The Transfer Agent and Registrar for the Common Stock is The Bank of New York, 101 Barclay Street,
11 th Floor, New York, New York 10286.
Proposed Formation of Holding Company
General
Avista is in the process of reorganizing itself into a holding company structure. Pursuant to the Plan of
Exchange between Avista and AVA, the Share Exchange would be effected whereby each outstanding share of
Avista Common Stock (including any shares offered hereby) would be exchanged for one share of AVA Common
Stock, so that the holders of Avista Common Stock would become holders of AVA Common Stock and Avista would
become a subsidiary of AVA.
Immediately fol1owing the Share Exchange:
· former holders of shares of Avista Common Stock (including any shares of Avista Common Stock offered
hereby and issued before the effective time of the Share Exchange) would hold shares of AVA Common
Stock;
. AVA would own al1 of the outstanding shares of Avista Common Stock; and
· Avista wil1 continue to own, directly or indirectly, the outstanding shares of common stock of its subsidiares
that it currently holds.
See "Avista Corporation - Proposed Formation of Holding Company" for additional general information
regarding the proposed formation of a holding company.
Effective Time of Share Exchange; Conditions
The Share Exchange wil1 become effective as of a date to be selected by Avista and AVA as provided in the Plan
of Exchange, after satisfaction of the conditions set forth in the Plan of Exchange, including:
· approval of the Share Exchange by federal and state regulatory commissions, which approvals shal1 not
include, in the sole judgment of the Avista Board of Directors, any unacceptable conditions;
· listing of AVA Common Stock on the New York Stock Exchange, upon official notice of issuance;
· receipt by Avista of a confirmatory opinion of Hel1er Ehrman LLP to the effect, among other things, that no
gain or loss wil be recognized by holders of Avista Common Stock whose shares of Avista Common Stock
are exchanged for shares of AVA Common Stock pursuant to the Plan of Exchange; and
· consents under varous financing agreements of Avista.
Notice of Effectiveness of Share Exchange
Promptly after the effective time of the Share Exchange, al1 shareholders of record of Avista Common Stock as
of the date of the Share Exchange wil be provided with notice that the Share Exchange has taken place.
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Exchange of Stock Certificates Not Required
If the Share Exchange is consummated, the holders of Avista Common Stock wiI automatical1y become the
owners of shares of AVA Common Stock on a share-for-share basis, and the present Common Stock certificates of
Avista wil1 automatical1y represent shares of AVA Common Stock. It wiI not be necessary for holders of Avista
Common Stock to physical1y exchange their Common Stock certificates. After the effective time of the Share
Exchange, as and when outstanding certificates of Avista Common Stock are presented for transfer, new certificates
bearng AVA's name wil1 be issued. Holders of Avista Common Stock may surrender their old Avista Common
Stock certificatesiin exchange for new AVA Common Stock certificates at any time.
Listing of AVA Common Stock
AVA intends to list AVA Common Stock on the New York Stock Exchange. AVA expects that before the
effective time of the Share Exchange, the NYSE wiI authorize such listing "subject to official notice of issuance".
Such authorization is a condition to consummation of the Share Exchange. At the effective time, AVA wil notify the
NYSE that the Share Exchange has been consummated and this wil complete the listing process. Thus, Avista
shares wil1 be listed on the NYSE until the effective time of the Share Exchange, and AVA shares wil be listed at and
after the effective time.
After the effective time of the Share Exchange, the Avista Common Stock wil no longer be listed on any stock
exchange because al1 shares of Avista Common Stock wil be held by one shareholder, AVA.
Dividends
Dividends on AVA Common Stock
Fol1owing the effective time of the Share Exchange, AVA wil1 not conduct directly any business operations
from which it wil1 derive any revenues. AVA plans to obtain funds for its operations from dividends paid to AVA on
the stock of its subsidiaries and from sales of its securities, which may consist of debt securities and preferred stock,
as wel1 as additional shares of AVA Common Stock. Dividends on AVA Common Stock wil depend primarily upon
the results of operations, cash flows, and financial condition of Avista and AVA's other subsidiares, and their abilty
to pay dividends on their capital stock owned, directly or indirectly, by AVA.
The payment of dividends on AVA Common Stock is within the discretion of, and subject to declaration by,
AVA's Board of Directors. It is contemplated that AVA initial1y wil pay dividends on AVA Common Stock at the
current level of dividends paid on Avista Common Stock. In addition, it is contemplated that such dividends of AVA
wil be declared and paid on approximately the same schedule of dates now fol1owed by Avista with respect to
dividends on Avista Common Stock. The most recent dividend declared by the Board of Directors of Avista was
$0.14Yi per share of Avista Common Stock, payable on December 15,2006 to shareholders of record at the close of
business on November 30, 2006.
Dividends on Avista Common Stock
Subject to the availability of earings and the needs of its electric and gas utility business and to the rights ofthe
holders of Avista preferred stock and further, to periodic review and declaration by its Board of Directors, Avista
intends to make regular cash payments to AVA in the form of dividends on Avista Common Stock in amounts that, to
the extent not otherwise provided by AVA's other subsidiares, would be sufficient for AVA to pay cash dividends on
AVA Common Stock as referred to above, for operating expenses of AVA and for such other purposes as the Board
of Directors of AVA may determine.
The declaration and payment of future dividends wil be at the discretion of the Board of Directors of
each of AVA, Avista and AVA's other direct and indirect subsidiaries. There can be no assurance that payment
of dividends wil continue at current levels.
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Other Information
Reference is made to the Proxy Statement-Prospectus, which is incorporated herein by reference, for
additional information regarding the proposed formation of a holding company, including, without limitation,
the federal income tax consequences of the Share Exchange.
Description of AVA Common Stock; Comparative Shareholder Rights
General
The authorized capital stock of AVA consists of 10,000,000 preferred shares, without nominal or par value,
which is issuable in series (the "AVA Preferred Stock"), and 200,000,000 common shares (the "AVA Common
Stock"). Avista has the same number of authorized shares of capital stock, of the same classes.
In the Share Exchange, AVA will issue a number of shares of AVA Common Stock equal to the number of
shares of Avista Common Stock then outstanding. The terms of the AVA Common Stock include those stated in the
AVA Articles and the AVA Bylaws (each as defined below) and those made applicable thereto by the Washington
BCA. The following summary is not complete and is subject in all respects to the provisions of, and is qualified in its
entirety by reference to, the AVA Articles, the' AVA Bylaws and the Washington BCA. AVA's Amended and
Restated Articles of Incorporation and its Amended and Restated Bylaws, each substantially in the form to be in
effect immediately prior to the effective time of the Share Exchange (the "AVA Articles" and the "AVA Bylaws",
respectively), are attached as Exhibits Band C, respectively, to the Proxy Statement - Prospectus, which is
incorporated by reference. Whenever paricular provisions of the AVA Articles or the AVA Bylaws are referred to,
those provisions are incorprated as par of the statements made in this prospectus and those statements are
qualified in their entirety by that reference.
Dividend Rights
After full provision for all AVA Preferred Stock dividends declared or in arrears, the holders of AVA Common
Stock wil be entitled to receive such dividends as may be lawfully declared from time to time by AVA's Board of
Directors.
The entitlement of the AVA Common Stock to dividends wil be the same as that of the Avista Common Stock.
Voting Rights
The holders of the AVA Common Stock wil have sole voting power, subject to any voting rights which may be
granted to the holders of the AVA Preferred Stock or any series thereof and except as otherwise provided by law.
Each holder of AVA Common Stock wil be entitled to one vote per share, except that, in the election of directors,
each holder wil have "cumulative" voting rights by which such holder will be entitled to that number of votes which
is equal to the number of directors to be elected multiplied by the number of shares held. These votes may all be cast
for a single nominee for director or may be distributed among any two or more nominees.
The voting rights of the AVA Common Stock will be substantially the same as those of the Avista Common
Stock.
Liquidtion Rights
In the event of any liquidation or dissolution of AVA, after satisfaction of the preferential liquidation rights of
the AVA Preferred Stock, the holders of AVA Common Stock would be entitled to share ratably in all assets of AVA
available for distribution to shareholders.
The entitlement ofthe AVA Common Stock to assets upon liquidation or dissolution wil be the same as that of
the Avista Common Stock.
Pre-Emptive Rights
Like the holders of Avista Common Stock, holders of AVA Common Stock wil have no pre-emptive rights.
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Preferred Stock
The AVA Articles will provide that the Board of Directors may establish series of AVA Preferred Stock and,
with respect to each series, determine the preferences, limitations, voting powers and relative rights thereof.
The Avista Board of Directors has similar authority with respect to Avista Preferred Stock, except that the
Avista Articles contain limitations on permissible differences among series and provide that, except in the limited
circumstances set forth in the Avista Aricles and as provided by law, the holders of Avista Preferred Stock have no
right to vote in the election of directors or for any other purpose.
Classifed Board of Directors
Both the AVA Articles and the AVA Bylaws wil provide for a Board of Directors divided into three classes.
Each director of a class wil generally serve for a term of three years, with only one class of directors being elected in
each year. The classification of the Board of Directors reduces the impact of cumulative voting rights.
The Avista Articles and the Avista Bylaws contain substantially the same provisions for a classified Board of
Directors.
Miscellaneous Corporate Governance Provisions
The AVA Articles wil provide, as the Avista Articles currently provide, without any significant difference,
that:
· the number of directors shall not exceed eleven (except in circumstances in which holders of AVA Preferred
Stock are entitled to elect members of the Board);
· directors may be removed only for cause and only by the affrmative vote of the holders of a majority of the
voting power of the shares of the company entitled generally to vote in the election of directors at a meeting
of shareholders expressly called for that purpose;
. any vacancy on the Board may be filled by the remaining directors then in office even though less than a
quorum; and
· special meetings of shareholders may be called only by the President, the Chairman of the Board, a majority
of the Board of Directors, or the Executive Committee of the Board, and shall be called by the Corporate
Secretar at the request of the holders of not less than two-thirds of all the outstanding shares of AVA
Common Stock; and only matters specified in the call of or request for a special meeting may be considered
or voted on at such meeting.
The AVA Bylaws wil provide, as the Avista Bylaws currently provide, without any significant difference, that:
· a holder of AVA Common Stock may nominate persons for election as directors only if written notice
(meeting specified requirements) of intention to make such nomination is given to the Corporate Secretar
not later than 0) in the case of an annual meeting of shareholders, 90 days in advance of the meeting or (ii) in
the case of a special meeting of shareholders, the seventh day after the date on which notice is first given to
shareholders; and
· a holder of AVA Common Stock may propose business to be brought before an annual meeting of
shareholders only if, among other things (i) such business is a proper matter for shareholder action under
the Washington BCA and (ii) the shareholder shall give written notice (meeting specified requirements of
intention to bring such business before the meeting is given to the Corporate Secretary (subject to certain
exceptions) not less than 120 nor more than 180 days prior to the first anniversary of the date on which AVA
first mailed its proxy materials for the preceding annual meeting of shareholders.
The AVA Articles will provide that the approval of two-thirds (11) of the outstanding shares of AVA Common
Stock is required to alter, amend or repeal the provisions of the AVA Articles described above or the provision of the
AVA Bylaws relating to procedures for the nomination of directors. The Avista Articles require an 80% shareholder
vote for such matters.
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Limitation of Liability; Indemnifcation
The AVA Aricles will provide, as the Avista Articles currently provide, that:
· directors wil not be liable to AVA or its shareholders for monetar damages for conduct as a director, except
as such limitation is prohibited by law; and
· AVA wil indemnify its directors against liability and expenses to the fullest extent permitted by law.
Amendments to AVA Articles of Incorporation
The Washington BCA provides that, in the case of a public company, amendments to aricles of incorporation
must generally be approved by each voting group entitled to vote by the affirmative vote of the holders of a majority
of all the votes entitled to be cast by that voting group, unless the articles of incorporation require a greater
proportion.
As discussed under "Miscellaneous Corporate Governance Provisions", the AVA Aricles will provide that the
affirmative vote of two thirds (7') of the outstanding shares of AVA Common Stock will be required to amend or
repeal provisions of the AVA Articles relating to (a) callng special meetings of shareholders, (b) the number, tenure,
vacancy, classification, nomination or removal of directors, or (c) adoption, amendment or repeal of the AVA
Bylaws. All other amendments to the AVA Articles wil be approved by the affirmative vote of a majority of the
outstanding shares of AVA Common Stock and of any other voting group entitled to vote, unless a greater
percentage is required by law.
The Avista Articles have provisions similar in substance, except that, as to all matters of the character
described in the first sentence of the preceding paragraph, the Avista Aricles require an affirmative vote of 80% of
the outstanding shares of Avista Common Stock.
The Avista Articles have a provision similar in substance, except that, as to all matters of the character
described in clause (c) of the preceding paragraph, the Avista Restated Aricles require an 80% vote.
Amendments to Bylaws
The Washington BCA provides that the shareholders or the board of directors may amend, repeal or adopt
bylaws unless the articles of incorporation reserve this power exclusively to the shareholders.
The AVA Articles and the AVA Bylaws provide that the Board of Directors has the power to adopt, amend or
repeal the AVA Bylaws and that the shareholders may amend or repeal the AVA Bylaws or adopt new bylaws;
provided, however, that the AVA Bylaws require the affrmative vote of at least two-thirds (7') of the outstanding
shares of AVA Common Stock to alter, amend or repeal, or adopt any provision inconsistent with, provisions
relating to the tenure, vacancy, classification or nomination of directors and calling and conduct of special meetings
of shareholders.
The Avista Bylaws contain a proviso similar to that described above, except that the Avista Bylaws require an
80% vote.
Anti-Takeover Effect
The provisions of the AVA Articles and the AVA Bylaws described above under "Classified Board of
Directors" and "Miscellaneous Corporate Governance Provisions", together with the provisions of the Washington
BCA described above under "Statutory Limitations on 'Significant Business Transactions' ," considered either
individually or in the aggregate, may have an "anti-takeover" effect. These provisions could discourage a future
takeover attempt which is not approved by AVA's Board of Directors but which individual shareholders might deem
to be in their best interests or in which shareholders would receive a premium for their shares over current market
prices. Certain of these provisions could also impede or delay the consideration of shareholder meetings of matters
other than those the Board of Directors or officers deem appropriate or desirable. The provisions described above
under "Classified Board of Directors" could also cause the removal of the incumbent Board of Directors or
management to require more time or render such removal more diffcult, procedurally or otherwise.
32
However, as discussed herein, substantially the same provisions are contained in the Avista Articles and the
Avista Bylaws, except that, as noted under "Miscellaneous Corporate Governance Provisions", where the AVA
organizational documents will require a 66YJ% shareholder vote to amend or repeal the provision in question, the
Avista organizational documents currently require an 80% shareholder vote.
Moreover, as discussed below under "Certain Other Attributes of AVA Common Stock", the Avista Articles
contain a "fair price" provision which could discourage or impede a future takeover attempt. The AVA Articles wil
contain no such provision.
Like Avista Preferred Stock, AVA Preferred Stock will be issuable in series, and with terms, established by the
AVA Board of Directors. Although the AVA Board of Directors has no current intention of doing so, it could
authorize the issuance of one or more series having terms that could discourage or impede future takeover attempts.
Certain Other Attributes of AVA Common Stock
General
The Avista Articles contain certain provisions that the AVA Aricles wil not contain. In addition, as described
below, Avista currently has a shareholder rights plan.
"Fair Price" Provision
The AVA Articles wil not contain a "fair price" provision such as that contained in the Avista Articles, as
described above.
Sales of Assets
The Washington BCA permits a corporation to sell, lease, exchange or otherwise dispose of all, or substantially
all, of its property, other than in the usual and regular course of business if the transaction is recommended to the
shareholders by the Board of Directors and approved by two-thirds (YJ) of all votes entitled to be cast, unless the
aricles of incorporation require a different proportion, which may not be less than a majority.
The Avista Articles provide that any property of Avista not essential to the conduct of its corporate business
may be sold, leased, exchanged or otherwise disposed of, by authority of Avista's Board of Directors. The Avista
Aricles further provide that Avista may sell, lease, exchange or otherwise dispose of all its property and franchises,
or any of its property, franchises, corporate rights or privileges, essential to the conduct of its corporate business
upon such terms as may be authorized by a majority of Avista's directors and the holders of two-thirds (YJ) of the
outstanding shares of Avista Common Stock (unless a greater percentage is required by law).
The AVA Articles will not include any provision relating to the sale, lease or other disposition of property or
assets. AVA and Avista believe that the Washington BCA provides adequate protections to shareholders with respect
to sales of assets.
Shareholder Rights Plan
AVA does not have a shareholder rights plan at the date of this prospectus. After the effective time of the Share
Exchange, the Board of Directors of AVA may consider whether or not to adopt a shareholder rights plan.
WHERE YOU CAN FIND MORE INFORMATION
General
Avista is subject to the informational reporting requirements of the Exchange Act. Avista files annual,
quarterly and special reports, proxy statements and other documents with the SEC (File No. 1-3701). These
documents contain important business and financial information. You may read and copy any materials Avista fies
with the SEC at the SEC's public reference room at 100 F Street, N.E., Washington, D.C. 20549. Please call the SEC
at 1 -800-SEC-0330 for further information on the public reference room. Avista's SEC fiings are also available to
33
the public from the SEC's website at http://www.sec.gov. Other than those documents or portions of documents
incorprated by reference into this prospectus, information on this website does not constitute a par of this
prospectus.
Incorporation of Documents by Reference
The SEC allows us to incorporate by reference the information that we file with the SEC. This allows us to
disclose important information to you by referrng you to those documents rather than repeating them in fuU in this
prospectus. We are incorporating into this prospectus by reference:
· Avista's most recent Annual Report on Form 10-K filed with the SEC pursuant to the Exchange Act;
· aU other documents filed by Avista with the SEC pursuant to Section l3(a), l3(c), 14 or 15(d) of the
Exchange Act since the end ofthe fiscal year covered by Avista's most recent Annual Report and prior to the
termination of the offering made by this prospectus,
and aU of those documents are deemed to be a part of this prospectus from the date of filing such documents; it being
understood that documents which are "furnished" but not "filed", in accordance with SEC rules, wiU not be deemed
to be incorporated by reference. We refer to the documents incorporated into this prospectus by reference as the
"Incorporated Documents". Any statement contained in an Incorporated Document may be modified or superseded
by a statement in this prospectus (if such Incorporated Document was filed prior to the date of this prospectus) in
any prospectus supplement or in any subsequently filed Incorporated Document. The Incorporated Documents as of
the date of this prospectus are:
· Annual Report on Form lO-K for the year ended December 31, 2005;
. the Proxy Statement-Prospectus, dated April 11, 2006, excluding those portions thereof that are deemed
"furnished" to, and not "filed" with, the SEC;
· Quarerly Reports on Form 10-Q for the quarers ended March 31, 2006, June 30, 2006 and September 30,
2006; and
· Current Reports on Form 8-K filed on January 10, February 14, March 24, April 12, May 17, June 8, June 20,
June 28, August 21, September 6 and November 14,2006.
You may request any of these filngs, at no cost, by contacting us at the address or telephone number provided
on page 2 of this prospectus. Avista maintains an Internet site at http://www.avistacorp.com which contains
information concerning Avista and its affiiates. The information contained at Avista's Internet site is not
incorporated in this prospectus by references and you should not consider it a par of this prospectus.
LEGAL MATTERS
The validity of the Securities and certain other matters wil be passed upon for Avista by Dewey BaUantine
LLP, counsel to Avista, and by Maran M. Durkin, Esq., Senior Vice President and General Counsel of Avista. The
validity of the Securities and certain other matters will be passed upon for any underwriters or agents by counsel to
the extent identified in the applicable prospectus supplement. In giving their opinions, Dewey Ballantine LLP and
counsel for any underwriters or agents may rely as to matters of Washington, Idaho, Montana and Oregon law upon
the opinion of Marian M. Durkin, Esq.
EXPERTS
The consolidated financial statements and management's report on the effectiveness of internal control over
financial reporting incorporated in this prospectus by reference from the Company's Annual Report on Form lO-K
have been audited by Deloitte & Touche LLP, an independent registered public accounting firm, as stated in their
reports (which reports (1) express an unqualified opinion on the financial statements and include an explanatory
paragraph referrng to certain changes in accounting and presentation resulting from the impact of recently adopted
accounting standards, (2) express an unqualified opinion on management's assessment regarding the effectiveness
34
of internal control over financial reporting, and (3) express an unqualified opinion on the effectiveness of internal
control over financial reporting) which are incorporated herein by reference, and have been so incorporated in
reliance upon the reports of such firm given upon their authority as experts in accounting and auditing.
With respect to the unaudited interim financial information, which is incorporated herein by reference,
Deloitte & Touche LLP, an independent registered public accounting firm, have applied limited procedures in
accordance with the standards of the Public Company Accounting Oversight Board (United States) for a review of
such information. However, as stated in their reports included in the Company's Quarterly Reports on Form lO-Q
and incorporated by reference herein, they did not audit and they do not express an opinion on that interim financial
information. Accordingly, the degree of reliance on their reports on such information should be restricted in light of
the limited nature of the review procedures applied. Deloitte & Touche LLP are not subject to the liability provisions
of Section i i of the Securities Act of i 933 for their reports on the unaudited interim financial information because
those reports are not "reports" or a "par" of the registration statement prepared or certified by an accountant within
the meaning of Sections 7 and i i of the Act.
35
No dealer, salesperson or other person is
authorized to give any information or to
represent anything not contained in this
prospectus. You must not rely on any unau-
thorized information or representations.
This prospectus is an offer to sell only the
Offered Bonds offered hereby, but only
under circumstances and in jurisdictions
where it is lawful to do so. The information
contained in this prospectus is current only
as of its date.
TABLE OF CONTENTS
Prospectus Supplement
Risk Factors . . . . . . . . . . . . . . . . . . . .
Safe Harbor for Forward-Looking
Statements . . . . . . . . . . . . . . . . . . . .
The Company . . . . . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . .
Summary Financial Information. . . . . .
Capitalization . . . . . . . . . . . . . . . . . . .
Description of the Offered Bonds. . . . .
Underwriting . . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . .
Prospectus
About this Prospectus. . . . . . . . . . . . .
Risk Factors . . . . . . . . . . . . . . . . . . . .
Avista Corporation. . . . . . . . . . . . . . . .
Use of Proceeds. . . . . . . . . . . . . . . . .
Description of the Bonds. . . . . . . . . . .
Description of the Notes . . . . . . . . . . .
Description of Preferred Stock. . . . . . .
Description of Common Stock. . . . . . .
Where You Can Find More
Information . . . . . . . . . . . . . . . . . . .
Legal Matters . . . . . . . . . . . . . . . . . . .
Experts. . . . . . . . . . . . . . . . . . . . . . . .
Page
S-3
S-3
S-5
S-7
S-7
S-8
S-9
S-13
S-14
S-14
2
3
3
4
4
12
21
23
33
34
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$250,000,000
Avista Corporation
First Mortgage Bonds,
5.95% Series due 2018
PROSPECTUS SUPPLEMENT
UBS Investment Bank
BNY Capital Markets, Inc.
Goldman, Sachs & Co.
Banc of America Securities LLC
KeyBanc Capital Markets
Wed bush Morgan Securities Inc.
Wells Fargo Securities