FILED PURSUANT TO RULE 424(B)(3)
REGISTRATION NO. 333-62232
Prospectus
AVISTA CORPORATION
EXCHANGE OFFER
Avista Corp. is offering to issue its
9.75% Senior Notes Due June 1, 2008
(registered)
in exchange for its
9.75% Senior Notes Due June 1, 2008
(unregistered)
THIS EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.
NEW YORK CITY TIME, NOVEMBER 2, 2001 UNLESS EXTENDED
. The new notes will
. bear interest at 9.75% per annum,
. mature on June 1, 2008, and
. be redeemable, at the option of Avista Corp., as described in this
prospectus.
These terms are the same as the terms of the old notes. The new notes
will not be subject to any restrictions on transfer, except in certain
circumstances relating to broker-dealers described in this prospectus.
. Avista Corp. will accept all notes that noteholders properly tender and do
not withdraw before the expiration of the exchange offer.
. You will not recognize any income, gain or loss for U.S. federal income
tax purposes as a result of the exchange.
. Like the old notes, the new notes will be unsecured.
. The exchange offer is not conditioned on the tender of any minimum
principal amount of old notes.
. There will likely be no public market for the new notes.
-----------------
See "Risk Factors" beginning on page 10 to read about certain factors you
should consider before making any decision concerning this exchange offer.
-----------------
The Securities and Exchange Commission and state securities regulators have
not approved or disapproved of these securities, or determined if this
prospectus is truthful or complete. Any representation to the contrary is a
criminal offense.
September 24, 2001
This prospectus incorporates by reference important business and financial
information about Avista Corp. that is not included in or delivered with this
prospectus. See "Where You Can Find More Information". You may obtain copies of
documents containing such information from us, without charge, by either
calling or writing to us at:
Avista Corporation
1411 East Mission Avenue
Spokane, Washington 99202-2600
Attention: Treasurer
Telephone: (509) 489-0500
In order to obtain timely delivery, you must request documents from us no
later than October 26, 2001, which is seven days before the expiration date of
the exchange offer on November 2, 2001.
TABLE OF CONTENTS
Page Page
- ---- ----
Summary................................. 3 Bank Credit Agreements........................ 63
Risk Factors............................ 10 Certain U.S. Federal Income Tax Considerations 64
Avista Corporation...................... 12 Plan of Distribution.......................... 67
Use of Proceeds......................... 14 Where You Can Find More Information........... 68
Developments in Wholesale Energy Markets 14 Safe Harbor for Forward-Looking Statements.... 68
The Exchange Offer...................... 18 Legal Matters................................. 70
Description of the New Notes............ 26 Experts....................................... 70
You should rely only on the information contained or incorporated by
reference in this prospectus or in the letter of transmittal in connection with
the exchange offer.
We have not authorized anyone to give you any information other than this
prospectus. You should not assume that the information contained or
incorporated in this prospectus is accurate as of any date after the date of
this prospectus. This prospectus is not an offer to exchange the new notes and
it is not soliciting an offer to exchange the new notes in any jurisdiction in
which the exchange offer is not permitted.
2
SUMMARY
This summary, which is presented solely to furnish limited introductory
information regarding Avista Corporation (Avista Corp. or the Company), the
exchange offer and the new notes, has been selected from the detailed
information contained elsewhere in this prospectus (including the documents
incorporated by reference). This summary does not contain all of the
information that you should consider before making any investment decision. The
terms "we", "us" and "our" refer to Avista Corp. and, when applicable, its
subsidiaries. You should read the entire prospectus carefully.
Avista Corporation
Avista Corp., which was incorporated in the State of Washington in 1889, is
an electric and gas utility company having operations located in the Pacific
Northwest. We also have subsidiaries involved in energy, information and
technology businesses. As of June 30, 2001, our employees included
approximately 1,520 people in our utility operations and approximately 850
people in our subsidiary businesses. Our corporate headquarters are in Spokane,
Washington, which serves as the Inland Northwest's center for manufacturing,
transportation, health care, education, communication, agricultural and service
businesses.
Our operations are organized into four lines of business
. Avista Utilities,
. Energy Trading and Marketing,
. Information and Technology, and
. Avista Ventures and Other.
Avista Utilities, which is an operating division of Avista Corp. and not a
separate entity, represents the regulated utility operations. Avista Capital, a
wholly-owned subsidiary of Avista Corp., owns all of the subsidiary companies
engaged in the other lines of business.
Avista Corp.'s lines of business, and the companies included within them,
are illustrated below:
[FLOW CHART]
-DENOTES A BUSINESS ENTITY.
-DENOTES AN OPERATING DIVISION OR LINE OF BUSINESS.
SHADING DENOTES AN ENTITY OR A LINE OF BUSINESS WHICH IS BEING PHASED OUT.
AVISTA CORP.
AVISTA UTILITIES DIVISION
AVISTA CAPITAL
ENRGY TRADING AND MARKETING
INFORMATION AND TECHNOLOGY
AVISTA VENTURES
AVISTA ENERGY
AVISTA LABS
AVISTA VENTURES
AVISTA POWER
AVISTA ADVANTAGE
OTHER
AVISTA COMMUNICATIONS
3
Recovery of Excess Energy Costs
Beginning in the second quarter of 2000, the price of power and natural gas
in the Western wholesale market increased considerably and became much more
volatile. While prices decreased during the second and third quarter of 2001,
the wholesale markets remain volatile. In response to the dramatically reduced
availability of hydroelectric generation, Avista Utilities has been required to
make additional fixed price purchases of energy to meet its retail and firm
wholesale load requirements for 2001 on the higher cost short-term wholesale
market. These excess costs have not been reflected as expenses in the
statements of income, but rather are recorded as deferred charges on the
balance sheet pending possible future recovery. The amount of deferred
purchased power costs reflected in the balance sheet was $142.7 million at June
30, 2001 and $241.7 million at August 31, 2001.
Accordingly, on July 18, 2001 Avista Utilities filed requests with the
Washington Utilities and Transportation Commission ("WUTC") and the Idaho
Public Utilities Commission ("IPUC") for the approval of a temporary electric
energy surcharge of 36.9 percent in Washington and a power cost adjustment
("PCA") increase of 14.7 percent in Idaho. If the proposed rate increases are
approved by the WUTC and the IPUC, Avista Utilities estimates that revenues
would increase by $105.3 million per year during the 27 month period beginning
October 2001 and ending December 2003. However, there would be no impact on net
income as this increased revenue would only be a cash recovery of deferred
power costs.
See DEVELOPMENTS IN WHOLESALE ENERGY MARKETS--"Avista Utilities--Regulatory
Matters", and "Management's Discussion and Analysis of Financial Condition and
Results of Operations"--"Results of Operations" and Note 1 of Notes to Audited
Financial Statements in Avista Corp.'s Annual Report on Form 10-K for the year
ended December 31, 2000, "Management's Discussion and Analysis of Financial
Condition and Results of Operations"--"Results of Operations" in Avista Corp.'s
Quarterly Report on Form 10-Q for the quarter ended June 30, 2001 and the
Current Report on Form 8-K filed on July 18, 2001.
The staff of the WUTC, which operates independently of the three WUTC
commissioners, has released its recommendation to the commission regarding the
Company's electric surcharge request. The staff recommended, among other
things, that (1) the Company's request be reduced to a 32.6 percent increase
and be applied to a 90 day period, (2) the Company could seek an extension of
the surcharge period at the end of 90 days only if the Company has initiated a
full review of its revenues and expenses with the WUTC by September 28, 2001,
(3) the additional revenues collected be placed in a separate account, subject
to refund to customers until it is determined the excess power costs were
prudently incurred and (4) the surcharge only provide for the recovery of
excess energy costs incurred prior to June 30, 2001. The Company has filed
vigorous rebuttal testimony indicating the staff's recommendation provides too
little certainty with respect to the liquidity of the Company and would
preclude the Company from obtaining debt or equity financing. Hearings were
held regarding the proposed surcharge during early September 2001, and it is
anticipated that the WUTC will issue its order regarding the proposed surcharge
to Washington electric customers during the week beginning September 24, 2001.
The staff of the IPUC has recommended that the IPUC approve the Company's
request for an increase to the PCA in all material respects. Hearings are
scheduled to be held before the IPUC during the week of September 24, 2001, and
it is expected that the IPUC will issue an order regarding any adjustment to
the Idaho PCA mechanism in early October 2001.
The Company will file a Current Report on Form 8-K describing the WUTC and
IPUC orders after they are issued, which report will be incorporated by
reference into this prospectus.
The extent to which the amounts recovered through the proposed electric
surcharge in Washington and the adjustment to the PCA in Idaho will be
sufficient to offset the deferred cost balances will depend not only on the
magnitude and duration of the rate increases granted but also on the on-going
changes in the amount of the balances throughout the term of the rate
increases. The balances will accrue a carrying charge and will continue
4
to be affected by a variety of market factors beyond our control including, but
not limited to, the availability of hydroelectric resources, energy demand and
energy prices in wholesale markets.
If approved, it is expected the Washington surcharge will be subject to
refund. The Company expects that the WUTC will determine, in a general rate
case to be filed by November, 2001, or another regulatory proceeding, how much
of the amounts collected can be retained by Avista Utilities on the basis of
many factors, including, among other things, whether or not the excess costs
were "prudently" incurred and whether or not Avista Utilities' retail rates, as
modified in that proceeding, will be "just, fair, reasonable and sufficient".
On July 6, 2001, Avista Utilities filed requests for purchased gas cost
adjustments (PGA) with the WUTC and the IPUC. The Washington PGA was approved
by the WUTC on August 8, 2001 and became effective on August 9, 2001. The Idaho
PGA was approved by the IPUC on August 20, 2001 and became effective on August
28, 2001. The PGA provides for an overall increase of 12.2 percent in
Washington and 11.5 percent in Idaho and primarily reflects increases during
the past year in the cost of natural gas in the wholesale market. The amount of
purchased gas costs above the amount embedded in retail rates has been deferred
and totaled $77.0 million as of August 31, 2001. Avista Utilities estimates the
PGA rate changes will increase revenues by $24.6 million per year. Based on
current PGAs in place and current natural gas prices, Avista Utilities expects
that the deferred cost balance will be fully recovered by December 2002.
However, there will be no impact on net income as deferred natural gas costs
are amortized to offset this increase in revenues.
The Exchange Offer
General....................... Avista Corp. is offering to exchange $1,000
in principal amount of new notes for each
$1,000 in principal amount of old notes that
noteholders properly tender and do not
withdraw before the expiration date. Avista
Corp. will issue the new notes on or promptly
after the expiration date. There is
$400,000,000 in aggregate principal amount of
old notes outstanding. See THE EXCHANGE
OFFER.
Expiration Date............... The exchange offer will expire at 5:00 p.m.,
New York City time, on November 2, 2001
unless extended. If extended, the term
"expiration date" will mean the latest date
and time to which the exchange offer is
extended. Avista Corp. will accept for
exchange any and all old notes which are
properly tendered in the exchange offer and
not withdrawn before 5:00 p.m., New York City
time, on the expiration date.
Resale of New Notes........... Based on interpretive letters written by the
staff of the Securities and Exchange
Commission to companies other than Avista
Corp., Avista Corp. believes that, subject to
certain exceptions, the new notes may
generally be offered for resale, resold and
otherwise transferred by any holder thereof,
without compliance with the registration and
prospectus delivery provisions of the
Securities Act of 1933. However, any holder
who is an "affiliate" of Avista Corp. within
the meaning of Rule 405 under the Securities
Act would have to comply with these
provisions unless an exemption was available.
If Avista Corp.'s belief is inaccurate,
holders of new notes who offer, resell or
otherwise transfer new notes in violation of
the Securities Act may incur liability under
that Act. Avista Corp. will not assume or
indemnify holders against this liability.
5
Conditions to the Exchange
Offer....................... Avista Corp. may terminate the exchange offer
before the expiration date if it determines
that its ability to proceed with the exchange
offer could be materially impaired due to
. any legal or governmental action,
. any new law, statute, rule or regulation,
or
. any interpretation by the staff of the SEC
of any existing law, statute, rule or
regulation.
Tender Procedures--Beneficial
Owners...................... If you wish to tender old notes that are
registered in the name of a broker, dealer,
commercial bank, trust company or other
nominee, you should contact the registered
holder promptly and instruct the registered
holder to tender on your behalf.
If you are a beneficial holder, you should
follow the instructions received from your
broker or nominee with respect to tendering
procedures and contact your broker or nominee
directly.
Tender Procedures--Registered
Holders and DTC Participants If you are a registered holder of old notes
and you wish to participate in the exchange
offer, you must complete, sign and date the
letter of transmittal delivered with this
prospectus, or a facsimile thereof. If you
are a participant in The Depository Trust
Company and you wish to participate in the
exchange offer, you must instruct DTC to
transmit to the exchange agent a message
indicating that you agree to be bound by the
terms of the letter of transmittal. You
should mail or otherwise transmit the letter
of transmittal or facsimile (or DTC message),
together with your old notes (in book-entry
form if you are a participant in DTC) and any
other required documentation to Chase
Manhattan Bank and Trust Company, National
Association, as exchange agent.
Guaranteed Delivery Procedures If you are a registered holder of old notes
and you wish to tender them, but they are not
immediately available or you cannot deliver
them or the letter of transmittal to the
exchange agent prior to the expiration date,
you must tender your old notes according to
special guaranteed delivery procedures. See
THE EXCHANGE OFFER--"Procedures for
Tendering--Registered Holders and DTC
Participants--Registered Holders" on page 21.
Withdrawal Rights............. You may withdraw tenders of old notes at any
time before 5:00 p.m., New York City time, on
the expiration date.
Certain Federal Income Tax
Considerations.............. The exchange of new notes for old notes will
not be a taxable event for U.S. federal
income tax purposes. As a result, you will
not recognize any income, gain or loss with
respect to the exchange.
Exchange Agent................ Chase Manhattan Bank and Trust Company,
National Association is the exchange agent.
Its telephone number is (800) 275-2048. Its
address is 2001 Bryan Street, 9th Floor,
Dallas, Texas 75201.
6
The New Notes
Offered Securities............ $400,000,000 principal amount of 9.75% Senior
Notes due June 1, 2008.
Maturity Date................. June 1, 2008
Interest Payment Dates........ June 1 and December 1 of each year, beginning
December 1, 2001
Ranking....................... The new notes are unsecured notes of Avista
Corp. They rank pari passu with all of Avista
Corp.'s current and future unsecured senior
indebtedness and senior in right of payment
to all current and future subordinated
indebtedness. As of the date of this
prospectus, Avista Corp. had outstanding
$423.5 million of first mortgage bonds, which
are secured by the lien of the Company's
Mortgage and Deed of Trust, dated as of June
1, 1939, as supplemented (the "1939
Mortgage"), on substantially all of Avista
Corp.'s utility plant assets. This amount
includes $220.0 million of non-transferable
first mortgage bonds which were delivered to
secure Avista Corp.'s credit agreement which
is also secured by a pledge of the capital
stock of Avista Capital. By reason, and to
the extent, of the 1939 Mortgage and the
pledge of Avista capital stock, the first
mortgage bonds and the borrowings under this
credit agreement will rank prior to the new
notes. See DESCRIPTION OF THE NEW NOTES and
BANK CREDIT AGREEMENTS.
Optional Redemption........... Each of the new notes will be redeemable in
whole or in part at our option at any time,
at a redemption price equal to the greater of
(i) 100% of the principal amount of the new
notes being redeemed or (ii) the sum of the
present values of the remaining scheduled
payments of the principal of and interest on
the new notes being redeemed discounted to
the date of redemption on a semi-annual basis
(assuming a 360-day year consisting of twelve
30-day months) at the Treasury Yield (as
defined below) plus 50 basis points; plus, in
either case, whichever is applicable, accrued
interest on the new notes being redeemed to
the date of redemption. See DESCRIPTION OF
THE NEW NOTES--"Optional Redemption."
Repurchase at Option of
Holders upon a Change of
Control
You have the option, subject to certain
conditions, to require us to repurchase any
new notes held by you in the event of a
"Change in Control", as described in this
offering circular, at a price equal to 101%
of the aggregate principal amount of new
notes repurchased plus accrued and unpaid
interest, if any, thereon, to the date of
purchase. See DESCRIPTION OF THE NEW NOTES
--"Repurchase at the Option of
Holders--Change of Control."
7
Repurchase at Option of
Holders upon Certain Asset
Sales....................... You also may have the option, subject to
certain conditions, to require us to
repurchase any new notes held by you in the
event of certain Asset Sales. See DESCRIPTION
OF THE NEW NOTES--"Repurchase at the Option
of Holders--Asset Sales."
Basic Covenants of Indenture.. We will issue the new notes under an
indenture with Chase Manhattan Bank and Trust
Company, National Association. The indenture,
among other things, restricts our ability and
the ability of our subsidiaries to:
. sell assets;
. pay dividends on stock or repurchase
stock;
. pay subordinated debt;
. make investments;
. incur debt or issue preferred stock;
. use assets as security in other
transactions;
. restrict the ability of subsidiaries to
pay dividends or make other payments to
Avista Corp.;
. merge with or into other companies;
. engage in certain transactions with
affiliates; and
. enter into sale and leaseback
transactions
These covenants are subject to significant
exceptions. For more details, see DESCRIPTION
OF THE NEW NOTES--"Certain Other Covenants."
Use of Proceeds............... The proceeds from the issuance and sale of
the old notes are being used: (a) to pay
short-term debt and maturing long-term debt
of Avista Corp. issued to fund a portion of
its construction, improvement and maintenance
programs, (b) to reimburse Avista Corp.'s
treasury for funds previously expended for
any of these purposes and (c) for other
corporate purposes.
Risk Factors
You should read the RISK FACTORS section, beginning on page 10 of this
prospectus, so that you understand the risks associated with an investment in
securities of Avista Corp.
8
Summary Consolidated Financial Data
We have selected the historical financial data shown below for the fiscal
years 1996-2000 and the six months ended June 30, 2000 and 2001 from the
consolidated financial statements of Avista Corp. You should read this
information along with the consolidated financial statements of Avista Corp.
and the notes to those financial statements.
Years Ended December 31,
---------------------------------------------------------------
1996 1997 1998 1999 2000
---------- ---------- ---------- ---------- -----------
(Thousands of Dollars except Ratios)
Statement of Income Data:
Operating Revenues:
Avista Utilities....................... $ 798,994 $ 891,665 $1,049,212 $1,115,647 $ 1,512,101
Energy Trading and Marketing........... -- 247,028 2,408,734 6,695,671 6,531,551
Information and Technology............. 813 1,030 1,995 4,851 11,645
Avista Ventures and Other.............. 145,150 163,598 231,483 122,303 32,937
Intersegment eliminations.............. -- (1,149) (7,440) (33,488) (176,744)
---------- ---------- ---------- ---------- -----------
Total.................................. $ 944,957 $1,302,172 $3,683,984 $7,904,984 $ 7,911,490
Income (Loss) from Operations (pre-tax):
Avista Utilities....................... $ 173,658 $ 178,289 $ 143,153 $ 142,567 $ 3,177
Energy Trading and Marketing........... (649) 6,577 22,826 (97,785) 250,196
Information and Technology............. (1,443) (5,364) (5,192) (13,002) (40,084)
Avista Ventures and Other.............. 15,355 9,962 12,033 (423) (9,861)
---------- ---------- ---------- ---------- -----------
Total.................................. $ 186,921 $ 189,464 $ 172,820 $ 31,357 $ 203,428
Interest Expense.......................... $ 63,255 $ 66,275 $ 69,077 $ 65,076 $ 68,723
Income (Loss) Before Income Taxes......... 132,962 175,872 121,474 42,771 165,140
Net Income (Loss)......................... 83,453 114,797 78,139 26,031 91,679
Preferred Stock Dividend Requirements..... $ 7,978 $ 5,392 $ 8,399(1) $ 21,392(1) $ 23,735(1)
Common Stock Dividend..................... $ 69,390 $ 69,390 $ 56,898 $ 18,301 $ 22,616
Balance Sheet Data:
Utility Plant in Service.................. $1,951,664 $2,031,026 $2,095,301 $2,184,698 $ 2,205,230
Total Assets:
Avista Utilities....................... $1,921,429 $1,926,739 $2,004,935 $1,976,716 $ 2,129,614
Energy Trading and Marketing........... 320 212,868 955,615 1,595,470 10,271,834
Information and Technology............. 1,517 3,475 7,461 26,379 59,632
Avista Ventures and Other.............. 254,032 268,703 285,625 114,929 102,844
---------- ---------- ---------- ---------- -----------
Total.................................. $2,177,298 $2,411,785 $3,253,636 $3,713,494 $12,563,924
Total Debt................................ $ 764,526 $ 762,185 $ 730,022 $ 714,904 $ 931,966
Company-Obligated Mandatorily Redeemable
Preferred Trust Securities.................. -- $ 110,000 $ 110,000 $ 110,000 $ 100,000
Preferred Stock Subject to Mandatory
Redemption.................................. $ 65,000 $ 45,000 $ 35,000 $ 35,000 $ 35,000
Convertible Preferred Stock.................. -- -- $ 269,227(1) $ 263,309 --
Common Equity................................ $ 710,736 $ 748,812 $ 488,034 $ 393,499 $ 724,224
Other Financial Data:
Earnings Before Interest, Taxes,
Depreciation and Amortization............ $ 268,314 $ 312,040 $ 261,098 $ 184,321 $ 309,804
Depreciation and Amortization............. $ 72,097 $ 69,893 $ 70,547 $ 76,474 $ 75,941
Capital Expenditures...................... $ 99,182 $ 91,160 $ 106,270 $ 115,609 $ 201,433
Ratio of Earnings Before Interest,
Taxes, Depreciation and
Amortization to Fixed
Charges (2).............................. 4.24 4.71 3.78 2.83 4.51
Ratio of Consolidated Earnings to
Fixed Charges (3)........................ 2.97 3.49 2.66 1.61 3.26
Six Months Ended June 30,
------------------------
2000 2001
---------- ----------
Statement of Income Data:
Operating Revenues:
Avista Utilities....................... $ 617,326 $ 732,692
Energy Trading and Marketing........... 2,149,655 3,008,378
Information and Technology............. 4,517 11,628
Avista Ventures and Other.............. 15,774 9,224
Intersegment eliminations.............. (51,885) (168,607)
---------- ----------
Total.................................. $2,735,387 $3,593,315
Income (Loss) from Operations (pre-tax):
Avista Utilities....................... $ (44,417) $ 72,172
Energy Trading and Marketing........... 67,674 70,845
Information and Technology............. (17,190) (25,155)
Avista Ventures and Other.............. (4,737) (5,119)
---------- ----------
Total.................................. $ 1,330 $ 112,743
Interest Expense.......................... $ 29,966 $ 50,330
Income (Loss) Before Income Taxes......... (9,165) 86,462
Net Income (Loss)......................... (10,968) 52,128
Preferred Stock Dividend Requirements..... $ 22,518 $ 1,216
Common Stock Dividend..................... $ 11,300 $ 11,360
Balance Sheet Data:
Utility Plant in Service.................. $2,153,893 $2,243,634
Total Assets:
Avista Utilities....................... $1,975,941 $2,333,653
Energy Trading and Marketing........... 5,717,530 3,055,967
Information and Technology............. 53,042 92,064
Avista Ventures and Other.............. 123,449 51,835
---------- ----------
Total.................................. $7,869,962 $5,533,519
Total Debt................................ $ 727,125 $1,141,785
Company-Obligated Mandatorily Redeemable
Preferred Trust Securities.................. $ 110,000 $ 100,000
Preferred Stock Subject to Mandatory
Redemption.................................. $ 35,000 $ 35,000
Convertible Preferred Stock.................. -- --
Common Equity................................ $ 632,437 $ 771,531
Other Financial Data:
Earnings Before Interest, Taxes,
Depreciation and Amortization............ $ 58,783 $ 177,496
Depreciation and Amortization............. $ 37,982 $ 40,704
Capital Expenditures...................... $ 56,477 $ 164,877
Ratio of Earnings Before Interest,
Taxes, Depreciation and
Amortization to Fixed
Charges (2).............................. 1.96 3.53
Ratio of Consolidated Earnings to
Fixed Charges (3)........................ 0.71 2.65
--------
(1)In December 1998, we converted shares of common stock for Convertible
Preferred Stock, which resulted in a number of changes in the data in 2000,
1999 and 1998 from 1997.
(2)"Earnings Before Interest, Taxes, Depreciation and Amortization", or EBITDA,
represents net income before interest expense (including related
amortization), taxes based on income, depreciation and amortization, to
interest expense (including related amortization). EBITDA is commonly used
to analyze companies on the basis of operating performance, leverage and
liquidity. While EBITDA should not be construed as a substitute for income
from operations or a better measure of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, we have presented EBITDA to provide
additional information with respect to our ability to meet future debt
service, capital expenditure and working capital requirements. EBITDA is not
a measure determined under generally accepted accounting principles. Also,
as calculated above, EBITDA may not be comparable to similarly titled
measures reported by other companies. "Fixed Charges" include interest
(whether or not capitalized), related amortization and estimated interest
applicable to rentals.
(3)"Earnings," as defined by Regulation S-K, represent the aggregate of (1) net
income before the cumulative effect of an accounting change, (2) taxes based
on income, (3) investment tax credit adjustments--net and (4) fixed charges.
"Fixed Charges" are as defined above.
9
RISK FACTORS
You should carefully consider the following risk factors in addition to the
other information contained or incorporated by reference in this prospectus.
We have significant current and on-going cash requirements and limited cash
available.
Our cash outlays for purchased power exceed the related amounts paid to us
by our retail customers. This condition, which is due both to increased prices
in the wholesale market and to increased volumes purchased to meet retail
customer demand, has existed since the second quarter of 2000. In addition to
operating expenses, we have continuing commitments for capital expenditures for
construction, improvement and maintenance of facilities. We have incurred
substantial levels of indebtedness, both short and long term, to finance these
requirements and to otherwise maintain adequate levels of working capital, and
debt service itself is another cash requirement. In addition, we have also been
committed to financing the development of companies in the Information and
Technology line of business.
If approved as requested, the proposed rate increases should provide a basis
for our eventual return to adequate liquidity. However, in order to meet our
cash needs in the near term, we may need to sell assets not required for our
core businesses and maintain access to adequate levels of credit with our
banks. In addition, we must be permitted to retain substantially all amounts
collected from the proposed rate increases. It should be noted that cash held
by Avista Energy is restricted by that company's credit agreement and only
limited amounts are available to Avista Corp.
Avista Utilities has incurred significant energy costs, which we have not
recovered from customers. If the regulatory commissions do not allow us to
recover these costs, our financial position will be impaired.
As noted above, since the second quarter of 2000 Avista Utilities has
incurred costs for purchased power far in excess of the levels recovered from
retail customers. Recognition of these costs as expenses on the statements of
income has been deferred pending determination as to whether or not they can be
recovered from retail customers. See SUMMARY--"Recovery of Excess Energy
Costs", DEVELOPMENTS IN WHOLESALE ENERGY MARKETS--"Avista Utilities--Regulatory
Matters", and "Management's Discussion and Analysis of Financial Condition and
Results of Operations"--"Results of Operations" and Note 1 of Notes to Audited
Financial Statements in Avista Corp.'s Annual Report on Form 10-K for the year
ended December 31, 2000.
It is expected that a WUTC increase will be subject to refund based on,
among other things, whether or not the costs were "prudently" incurred and
whether or not Avista Utilities' overall retail rates, as to be modified, are
"just, fair, reasonable and sufficient".
If Avista Utilities is not permitted to collect and retain substantially all
amounts requested under the proposed rate increases, Avista Corp.'s financial
condition will be seriously impaired.
The extent to which the proposed rate increases will offset our deferred energy
cost balances will depend on a number of factors beyond our control.
Assuming the proposed rate increases are permitted to remain in effect as
initially requested for the entire term requested, and without any refund
obligation, these increases should produce $105.3 million of additional cash,
on an annual basis, which would be applied in the financial statements to
offset the deferred energy cost balances. For reference, the total deferred
electric energy cost balance at August 31, 2001 was $241.7 million. The extent
to which the amounts recovered will be sufficient to offset the deferred cost
balances will depend on a number of factors beyond our control, including, but
not limited to, the availability of hydroelectric resources and energy prices
in wholesale markets.
10
Our ongoing cash requirements, combined with restricted access to cash have
resulted in waivers of certain covenants under our bank credit agreement.
Our bank credit agreement and certain other financing agreements contain
covenants to maintain specified financial ratios. Unless we are able to
generate additional cash with the proceeds of asset sales and/or the sale of
equity securities, we could be in default under one or more of such agreements.
Any such default could result in cross-defaults to other agreements and could
induce vendors and other counterparties to demand collateral. In order to avoid
impending defaults, the banks under our credit agreement have recently waived
compliance with certain covenants through the May 29, 2002 expiration date of
the agreement. If an event of default occurred, it would be virtually
impossible to obtain financing on any reasonable terms to pay creditors or fund
operations, and, in this event, we would likely be prohibited from paying
dividends on our capital stock.
Our cash flow and earnings could continue to be adversely affected, beyond the
term of the proposed rate increases, due to potential high prices for purchased
power, increased demand, continued low availability of our hydroelectric
resources, outages of our generating facilities or a failure to deliver on the
part of our vendors.
If Avista Utilities' purchased power costs continue to exceed the levels
recovered from retail customers, its cash flow and earnings would continue to
be negatively affected. Factors which could cause purchased power costs to
continue at levels higher than planned include, but are not limited to, a
return to high prices in Western wholesale markets and/or continued high
volumes of energy purchased in wholesale markets due to:
. increases in demand due, for example, either to weather or customer
growth,
. continued diminished availability of hydroelectric resources due to poor
rainfall and streamflow conditions,
. outages of any of our thermal or other generating facilities, and
. failure to deliver on the part of any parties from which we purchase
capacity or energy.
We are subject to the commodity price risk, credit risk and other risks
associated with energy trading and marketing activities.
Our subsidiary, Avista Energy, trades electricity and natural gas, along
with derivative commodity instruments, including futures, options, swaps and
other contractual arrangements. As a result of these trading activities, we are
subject to various risks, including commodity price risk and credit risk, as
well as possible new risks resulting from the recent imposition of market
controls by federal and state agencies. The Federal Energy Regulatory
Commission ("FERC") is conducting separate proceedings related to market
controls within California and within the Pacific Northwest that include
proposals by certain parties to retroactively impose price caps. The
retroactive application of price caps could result in liabilities for refunding
revenues recognized in prior periods. Avista Energy and other parties are
vigorously opposing these proposals. If retroactive price caps were imposed,
Avista Energy could develop offsetting claims.
In connection with matching loads and resources, Avista Utilities also
engages in wholesale sales and purchases of electric capacity and energy, and,
accordingly, is also subject to commodity price risk, credit risk and other
risks associated with these activities. Avista Utilities may also be exposed to
refunds for wholesale power sales depending on the outcome of the FERC's
retroactive price cap proceeding for the Pacific Northwest but would also have
the opportunity to establish offsetting claims.
11
AVISTA CORPORATION
General
Avista Corp., which was incorporated in the State of Washington in 1889, is
an electric and gas utility company having operations located in the Pacific
Northwest. We also have subsidiaries involved in energy, information and
technology businesses. As of June 30, 2001, our employees included
approximately 1,520 people in our utility operations and approximately 850
people in our subsidiary businesses. Our corporate headquarters are in Spokane,
Washington, which serves as the Inland Northwest's center for manufacturing,
transportation, health care, education, communication, agricultural and service
businesses.
Our operations are organized into four lines of business
. Avista Utilities,
. Energy Trading and Marketing,
. Information and Technology, and
. Avista Ventures and Other.
Avista Utilities, which is an operating division of Avista Corp. and not a
separate entity, represents the regulated utility operations. Avista Capital, a
wholly owned subsidiary of Avista Corp., owns all of the subsidiary companies
engaged in the other lines of business.
Business Strategy
Avista Corp.'s general business strategy is to:
. Maintain a strong, efficient electric and gas utility business;
. Own or control generation resources exceeding our retail electric load;
. Focus our energy trading and marketing business on opportunities arising
in Western energy markets;
. Limit additional investments to energy-related businesses that generate
economic value; and
. Achieve a fair return for investors.
Energy Businesses
Avista Utilities
Avista Utilities provides electricity and natural gas distribution and
transmission services to a total of approximately 312,000 retail customers in a
26,000 square mile area in eastern Washington and northern Idaho with a
population of approximately 835,000. It also provides natural gas distribution
service to a total of approximately 279,000 retail customers in a 4,000 square
mile area in northeast and southwest Oregon and in the South Lake Tahoe region
of California, with a combined population in these areas of approximately
500,000.
Our retail customers include residential, commercial and industrial
classifications, with the residential classification accounting for the most
energy consumed and the greatest contribution to revenues. Avista Utilities
also engages in wholesale sales and purchases of electric capacity and energy.
Avista Utilities anticipates residential and commercial electric load growth
to average approximately 2.6% annually for the next five years primarily due to
expected increases in both population and the number of businesses in its
service territory. Avista Utilities expects natural gas load growth, including
transportation volumes, to average for the next five years approximately 2.7%
annually in the Washington and Idaho service area and approximately 3.4%
annually in the Oregon and South Lake Tahoe service areas, in each case due to
expected conversions from electric space and water heating to natural gas, and
increases in both population and the number of businesses in these areas. These
projections are based on purchased economic forecasts, publicly available
studies, and internal analysis of company-specific data, such as energy
consumption patterns and internal business plans.
12
In addition to providing electric transmission and distribution services,
Avista Utilities generates electricity. Avista Utilities owns and operates
eight hydroelectric projects, a wood-waste fueled generating station and two
natural gas-fired combustion turbine (CT) generating units. It also owns a 15%
share in a two-unit coal-fired generating facility and leases and operates two
additional natural gas-fired CT generating units. These facilities have a
maximum capacity of approximately 1,470 megawatts, of which 65% is
hydroelectric and 35% is thermal. Avista Utilities is pursuing the acquisition
and construction of several small generation projects in its service territory.
In addition, Avista Utilities has a number of long-term power purchase and
exchange contracts that increase its available resources.
Historically, Avista Utilities' electric rates to retail customers have been
among the lowest of all investor-owned utilities in the United States, due
primarily to the large proportion of hydroelectric resources. Retail electric
rates will remain low, on a relative basis, even if the proposed rate increases
in Washington and Idaho, described below, are granted as requested.
In February 2000 Avista Utilities received a new 45 year operating license
from the FERC for the Cabinet Gorge and Noxon Rapids Hydroelectric Generating
Stations, which have a combined maximum generating capacity of 697 MW. Of
Avista Utilities' remaining 191 MW of hydroelectric resources, 155 MW
represents the maximum capacity of six other plants operated under a FERC
license. This license will have to be renewed in 2007.
Avista Utilities has been seeking to make arrangements for the financing
needed to complete construction of the Coyote Springs 2 project, a 280 megawatt
combined-cycle natural gas-fired plant near Boardman, Oregon, which is
currently owned by Avista Power. If we are unable to obtain this financing, we
will have to consider other alternatives, such as, for example, the sale of the
project with an agreement by Avista Utilities to purchase all or part of the
output.
Dramatic increases in the price of energy in Western wholesale markets
during 2000 and the first part of 2001, compounded by the deterioration of the
availability of hydroelectric resources in 2001 to the lowest level in at least
73 years, have had an adverse effect on Avista Corp.'s financial condition and
results of operations. See SUMMARY--"Recovery of Excess Energy Costs", RISK
FACTORS, DEVELOPMENTS IN WHOLESALE ENERGY MARKETS and "Management's Discussion
and Analysis of Financial Condition and Results of Operations" in Avista
Corp.'s Annual Report on Form 10-K for the year ended December 31, 2000 and in
Avista Corp.'s Quarterly Report on Form 10-Q for the quarterly period ended
June 30, 2001.
Energy Trading and Marketing
Energy Trading and Marketing is comprised of Avista Energy, Inc. ("Avista
Energy"), and Avista Power, LLC ("Avista Power"). Avista Energy is an
electricity and natural gas trading and marketing business. Avista Energy
operates in the Western Systems Coordinating Council, which is comprised of the
eleven Western states.
Avista Energy is in the business of buying and selling electricity and
natural gas. Avista Energy's customers include commercial and industrial
end-users, electric utilities, natural gas distribution companies and other
trading companies. Avista Energy also trades electricity and natural gas
derivative commodity instruments.
Avista Power, is a 49% owner, of a 270 megawatt natural gas combustion
turbine facility in Rathdrum, Idaho, which commenced commercial operation in
September 2001. All of the output is contracted to Avista Energy for 25 years.
Due to changing market conditions and as part of the Avista Corp's overall
business strategy, Avista Corp. has decided that Avista Power will not develop
any additional non-regulated generating projects.
Other Businesses
Information and Technology is comprised of Avista Laboratories, Inc.
("Avista Labs"), Avista Advantage, Inc. ("Avista Advantage") and Avista
Communications, Inc. ("Avista Communications").
13
. Avista Labs is in the process of developing both modular Proton Exchange
Membrane fuel cells for power generation at the site of the consumer or
industrial user and fuel cell components including fuel processors and
hydrogen sensors. Avista Labs has recently initiated commercial sales of
its hydrogen--only fuel cell systems for various applications, primarily
back-up power for the commercial market.
. Avista Advantage is an e-commerce provider of facilities management
billing and information services to commercial customers throughout the
U.S. and Canada. Its primary product lines include consolidated billing,
resource accounting, energy analysis, load profiling and maintenance and
repair billing services.
. Avista Communications provides various telecommunications services to
under-served communities primarily in the Northwest. Avista Corp. intends
to limit its future investment in the telecommunications business and is
searching for additional business partners for Avista Communications.
The Avista Ventures and Other line of business includes several other minor
subsidiaries. This line of business was formed to invest in business
opportunities that would have potential value in Avista Corp.'s other existing
lines of business. Avista Corp. is in the process of phasing out of this line
of business.
USE OF PROCEEDS
The proceeds from the issuance and sale of the old notes were used: (a) to
pay short-term debt and maturing long-term debt of Avista Corp. issued to fund
a portion of its construction, improvement and maintenance programs, (b) to
reimburse Avista Corp.'s treasury for funds previously expended for any of
these purposes and (c) for other corporate purposes.
DEVELOPMENTS IN WHOLESALE ENERGY MARKETS
California Energy Crisis
Beginning in the second quarter of 2000, the price of power and natural gas
in the Western wholesale market increased considerably and became much more
volatile. While prices have decreased during the second and third quarters of
2001, the wholesale markets remain volatile. Federal and state officials,
including the FERC, the California Public Utility Commission and the Attorneys
General of California, Oregon and Washington, have commenced reviews to
determine the causes of the changes in the wholesale energy markets to develop
legal and regulatory remedies to address alleged market failures or abuses and
large defaults by certain parties in California.
In early 2001, California's two largest utilities, Southern California
Edison ("SCE") and Pacific Gas & Electric Company ("PG&E"), defaulted on
several hundred million dollars of payment obligations owed to various
creditors. The PG&E and SCE defaults resulted in subsequent defaults by the
California Power Exchange ("CalPX"), the California Independent System Operator
("CalISO") and the Automated Power Exchange ("APX"). The latter three parties
have defaulted on their payment obligations to Avista Energy. On March 10,
2001, the CalPX filed in U.S. Bankruptcy Court a voluntary petition under
Chapter 11 of the bankruptcy code. The Bankruptcy Court has appointed Avista
Energy and other market participants to a Creditors Committee to participate in
the CalPX bankruptcy proceedings.
The Governor of California invoked emergency executive powers to seize
certain power contracts (called "block forward contracts") between the CalPX
and, respectively, PG&E and SCE after PG&E's and SCE's defaults. The block
forward contracts would have been significant assets of the CalPX bankruptcy
estate if they had not been so removed by the Governor. On July 20, 2001, the
Creditors Committee filed suit against the State of California related to the
seized block forward contracts. On September 20, 2001, the U.S. Court of
Appeals for the Ninth Circuit ruled in a parallel claim by one of the CalPX
creditors that wholesale energy suppliers are entitled to injunctive relief
from the State of California. At this time, it is not possible to predict the
timing or outcome of this claim against the State of California.
14
In an attempt to keep the CalPX settlement accounts intact despite the PG&E
and SCE defaults, the CalPX began levying backcharges in January 2001 by
withholding amounts payable to participants and invoicing additional amounts.
In February 2001, Avista Energy obtained a Temporary Restraining Order ("TRO")
in the U.S. District Court for the Central District of California, suspending
the backcharges. On March 5, 2001, the Court issued a preliminary injunction
that continued the relief granted by the TRO and required the escrowing of
amounts received by the CalPX. Avista Energy joined in a group of nine
complainants filing with the FERC seeking to defeat the backcharges. In April
2001, the FERC issued its order granting a permanent bar from the backcharge
practice and ruled the prior backcharges to be invalid.
On April 6, 2001, PG&E filed in the U.S. Bankruptcy Court a voluntary
petition under Chapter 11 of the bankruptcy code. PG&E is a significant debtor
to the CalPX and the CalISO which, as described above, have defaulted on
obligations to Avista Energy. None of Avista Corp.'s business units is owed
obligations directly by PG&E. Avista Energy is actively engaged in the PG&E
bankruptcy proceedings to further protect its interests in the CalPX and CalISO
debts. As of June 30, 2001, Avista Energy's accounts receivable related to
defaulting parties in California, net of reserves, were approximately $7.8
million.
FERC issued an order on August 23, 2000 initiating hearing proceedings under
the Federal Power Act to address matters affecting bulk power markets and
wholesale energy prices (including volatile price fluctuations) in California.
On November 1, 2000, FERC proposed specific remedies to address dysfunctions in
California's wholesale bulk markets and to ensure just and reasonable wholesale
power rates by public utility sellers in California. FERC denied requested
refunds from sellers of electric power for sales prior to October 2, 2000 and
held that sales made after October 2, 2000 are subject to refund, with the
level and extent of any refund to be determined in future orders. On April 26,
2001, FERC issued a price mitigation order that capped CalISO spot market
prices during times of power shortages (reserve margins falling below 7% as
determined by the CalISO) at the highest clearing price during reserve
deficiency hours. On June 18, 2001, FERC expanded its price mitigation plan for
the California spot market to 24 hours a day, seven days a week and broadened
the price curbs to the eleven state Western region. Throughout the West, during
non-reserve deficiency hours, prices cannot, absent justification, exceed 85
percent of the highest hourly clearing price in the most recent California
Stage 1 reserve deficiency until September 30, 2002. Even though California's
seasonal peak usage is opposite of that of the Northwest, the
California-determined highest hourly clearing price also governs prices in the
Pacific Northwest.
On July 25, 2001, the FERC issued an order to commence a fact-finding
hearing to determine amounts to be refunded for certain sales, which are
defined as covering the period from October 2, 2000 to June 20, 2001 in the
California spot market operated by the CalISO and the CalPX. The July 25 order
provides that any refunds owed could be offset against unpaid energy debts due
to the same party. Avista Energy is participating in this proceeding pursuant
to the FERC order and cannot predict its outcome at this time.
The July 25, 2001 FERC order also directed a separate evidentiary proceeding
to explore wholesale power market issues in the Pacific Northwest. The FERC's
Pacific Northwest proceeding seeks to determine whether there were excessive
charges for spot market sales in the Pacific Northwest in the period December
25, 2000 to June 20, 2001, and whether there is sufficient factual basis for
the FERC to take further action. Based on their application of selected
retroactive pricing methods, certain parties have asserted claims for
significant refunds from Avista Energy and lesser refunds from Avista
Utilities. Avista Energy and Avista Utilities have joined with numerous other
wholesale market participants to vigorously oppose proposals for retroactive
price caps and refund claims. If retroactive price caps were imposed, Avista
Energy and Avista Utilities could develop offsetting claims. At this time, it
is not possible to predict the timing or outcome of these refund proceedings.
Avista Utilities--Regulatory Matters
On August 9, 2000, the WUTC approved Avista Utilities' request for deferred
accounting treatment for certain power costs related to increases in short-term
power prices from July 1, 2000 through June 30, 2001. The specific power costs
deferred include the changes in power costs to Avista Utilities from the costs
included in
15
base retail rates resulting from changes in short-term wholesale market prices,
changes in the level of hydroelectric generation and changes in the level of
thermal generation (including changes in fuel prices). The deferrals each month
are calculated as the difference between the actual costs to Avista Utilities
associated with these three power cost components, and the level of costs
included in Avista Utilities' base retail rates. The power costs deferred are
related solely to the operation of Avista Utilities' system resources to serve
its system retail and wholesale load obligations.
On January 24, 2001, the WUTC approved a modification to the deferral
mechanism to recover power supply costs associated with meeting increased
retail and wholesale system load requirements, effective December 1, 2000. The
approval of the modification was conditioned on Avista Utilities filing by
March 20, 2001 a proposal addressing the prudence of the incurred power costs,
the optimization of Company-owned resources to the benefit of retail customers
and the appropriateness of recovery of power costs through a deferral
mechanism. This proposal was also to address cost of capital offsets to
recognize the shift in risk from shareholders to ratepayers and Avista
Utilities' plan to mitigate the deferred power costs.
On May 23, 2001, the WUTC approved a settlement agreement reached among
Avista Corp., the staff of the WUTC and other parties with respect to deferred
power costs. The agreement, among other things, provided for the extension of
Avista Corp.'s deferral accounting mechanism through February 2003. Due to the
planned addition of generating resources as well as the expiration of certain
long-term power sale agreements, Avista Utilities, at the time of the
settlement agreement, expected to be in a power surplus position by the middle
of 2002. The agreement was based, in part, on the expectation that Avista
Utilities' profits from surplus power sales would offset the power cost
deferral balance, reducing the balance to zero by February 2003 without any
price increase to retail customers. These expectations were based on
assumptions as to a number of variables including, but not limited to,
streamflow conditions, thermal plant performance, level of retail loads,
wholesale market prices and the amount of additional generating resources.
Avista Utilities reserved the right to alter, amend, or terminate the
settlement agreement as well as the right to seek interim rate relief. Since
the issuance of the FERC price mitigation plan on June 18, 2001, as described
above, wholesale market prices in the West have decreased. The wholesale market
price decrease negatively affected Avista Utilities' plan for recovery of
deferred power costs through future surplus power sales.
During June and the first part of July 2001, Avista Utilities evaluated the
effect of the recent decline in wholesale market prices and the FERC price
mitigation plan on its ability to recover deferred power cost balances under
the settlement agreement approved by the WUTC on May 23, 2001 and the
continuing power cost adjustment ("PCA") mechanism for Idaho customers approved
by the IPUC. The combination of low hydroelectric availability, the cost of
energy and capacity under forward contracts entered during a period of high
wholesale prices to meet customer demand for 2001, the recent decline in
forward wholesale prices and the FERC price mitigation plan have increased
current and estimated future deferred costs to levels significantly higher than
originally anticipated and significantly reduced the expected value from future
surplus sales of energy. As such, Avista Utilities determined that the plan for
recovery of deferred cost balances, as contemplated in the May 23, 2001
settlement agreement with the WUTC and the existing PCA with the IPUC, is no
longer feasible.
Accordingly, on July 18, 2001 Avista Utilities filed requests with the WUTC
and IPUC for the approval of a temporary electric energy surcharge of 36.9
percent in Washington and a PCA increase of 14.7 percent in Idaho. Avista
Utilities estimated that, if the proposed rate increases were approved by the
WUTC and the IPUC, revenues would increase by $105.3 million per year. However,
there would be no impact on net income as this increased revenue would only be
a cash recovery of deferred power costs. As of June 30, 2001, Avista Utilities
had deferred $142.7 million in costs for energy purchased on the wholesale
market that has not been recovered in rates. Deferred power costs have
increased to $241.7 million as of August 31, 2001. Avista Utilities requested
the surcharge and the PCA increase to become effective on September 15, 2001
and continue until December 31, 2003, subject to an earlier termination if
deferred cost balances were reduced to zero before that date. Avista Utilities
expected that, if the surcharge and PCA increase were granted as requested and
were allowed to remain
16
in affect, Avista Utilities' deferred cost balances would be reduced to zero by
December 31, 2003. This expectation was based on a variety of assumptions made
in light of circumstances existing at the time of filing, including wholesale
energy prices remaining at or near then current forward market prices as well
as a gradual return to average hydroelectric availability.
The staff of the WUTC, which operates independently of the three WUTC
commissioners, has released its recommendation to the commission regarding the
Company's electric surcharge request. The staff has recommended that the
Company's request be reduced to a 32.6 percent increase and be applied to a 90
day period, instead of the 27 month period requested by the Company. At the end
of the 90 day period, the Company could seek an extension of the surcharge
period only if the Company has initiated a full review of its revenues and
expenses with the WUTC by September 28, 2001. The staff has also recommended
that the additional revenues collected be placed in a separate account, subject
to refund to customers until it is determined the excess power costs were
prudently incurred. Further, the staff has recommended the surcharge only
provide for the recovery of excess energy costs incurred prior to June 30,
2001. The Company has filed vigorous rebuttal testimony to the staff's
recommendation. In its rebuttal testimony, the Company has indicated the
limited duration and amount of the surcharge provides too little certainty with
respect to the liquidity of the Company and would preclude the Company from
obtaining debt or equity financing. Hearings regarding the proposed surcharge
were held during early September 2001, and it is anticipated that the WUTC will
issue its order regarding the proposed surcharge to Washington electric
customers during the week beginning September 24, 2001.
The staff of the IPUC has recommended that the IPUC approve the Company's
request for an increase to the PCA in all material respects. Hearings are
scheduled to be held before the IPUC during the week of September 24, 2001, and
it is expected that the IPUC will issue an order regarding any adjustment to
the Idaho PCA mechanism in early October 2001.
The Company will file a Current Report on Form 8-K describing the WUTC and
IPUC orders after they are issued, which report will be incorporated by
reference into this prospectus.
The extent to which the amounts recovered will be sufficient to offset the
deferred power cost balances will depend not only on the magnitude and duration
of the rate increases granted but also on the on-going changes in the amount of
the balances throughout the term of the rate increases. The amount of the
balances will accrue a carrying charge and will continue to be affected by a
variety of market factors beyond our control including, but not limited to, the
availability of hydroelectric resources, energy demand and energy prices in
wholesale markets.
It is expected that any Washington surcharge which may be granted will be
subject to refund or modification should it be subsequently determined Avista
Utilities is not able to demonstrate the prudence of the incurred power costs,
the optimization of Avista Utility-owned resources to the benefit of retail
customers and the appropriateness of recovery of power costs through a deferral
mechanism. In its request to the WUTC, Avista Utilities committed to file a
general rate case in November 2001. That proceeding will address, in addition
to the issues referred to above, the regulatory treatment of the Coyote Springs
2 project, various power supply issues previously raised by the WUTC, a
long-term period power cost adjustment mechanism to be proposed by Avista
Utilities, as well as other issues customarily addressed in general rate cases,
including whether or not the total rates are just and reasonable.
17
THE EXCHANGE OFFER
Purpose and Effect of the Exchange Offer
Avista Corp. is offering to issue its 9.75% Senior Notes Due June 1, 2008,
which have been registered under the Securities Act (the "New Notes"), in
exchange for its 9.75% Senior Notes Due June 1, 2008, which have not been so
registered (the "Old Notes"), as described herein (the "Exchange Offer").
The Old Notes were sold by Goldman, Sachs & Co. (the "Initial Purchaser") on
April 3, 2001 to a limited number of institutional investors (the
"Purchasers"). In connection with the sale of the Old Notes, Avista Corp. and
the Initial Purchaser entered into an Exchange and Registration Rights
Agreement, dated April 3, 2001 (the "Registration Rights Agreement"), which
requires, among other things, Avista Corp.
(a) to file with the Securities and Exchange Commission (the "SEC") a
registration statement under the Securities Act of 1933, as amended (the
"Securities Act") with respect to New Notes identical in all material
respects to the Old Notes, to use commercially reasonable efforts to cause
such registration statement to be declared effective under the Securities
Act and to make an exchange offer for the Old Notes as discussed below, or
(b) to register the Old Notes under the Securities Act.
Avista Corp. is obligated, upon the effectiveness of the exchange offer
registration statement referred to in (a) above, to offer the holders of the
Old Notes the opportunity to exchange their Old Notes for a like principal
amount of New Notes which will be issued without a restrictive legend and may
be reoffered and resold by the holder without restrictions or limitations under
the Securities Act. A copy of the Registration Rights Agreement has been filed
as an exhibit to the Registration Statement of which this prospectus is a part.
The Exchange Offer is being made pursuant to the Registration Rights Agreement
to satisfy Avista Corp.'s obligations under that agreement. The term "Holder"
with respect to the Exchange Offer means any person in whose name Old Notes are
registered on Avista Corp.'s books, any other person who has obtained a
properly completed assignment from the registered holder or any DTC participant
whose Old Notes are held of record by DTC. At the date of this prospectus, the
sole Holder of Old Notes is DTC.
In participating in the Exchange Offer, a Holder is deemed to represent to
Avista Corp., among other things, that
(a) the New Notes acquired pursuant to the Exchange Offer are being
obtained in the ordinary course of business of the person receiving such New
Notes, whether or not such person is the Holder,
(b) neither the Holder nor any such other person receiving such new notes
is engaging in or intends to engage in a distribution of such New Notes,
(c) neither the Holder nor any such other person receiving such new notes
has an arrangement or understanding with any person to participate in the
distribution of such New Notes, and
(d) neither the Holder nor any such other person receiving such new notes
is an "affiliate," as defined in Rule 405 under the Securities Act, of
Avista Corp.
Based on an interpretation by the staff of the SEC set forth in no-action
letters issued to third-parties, Avista Corp. believes that the New Notes
issued pursuant to the Exchange Offer may be offered for resale and resold or
otherwise transferred by any Holder of such New Notes (other than any such
Holder which is an "affiliate" of Avista Corp. within the meaning of Rule 405
under the Securities Act and except as otherwise discussed below with respect
to Holders which are broker-dealers) without compliance with the registration
and prospectus delivery requirements of the Securities Act, so long as such New
Notes are acquired in the ordinary course of such Holder's business and such
Holder has no arrangement or understanding with any person to participate in
the distribution (within the meaning of the Securities Act) of such New Notes.
Any Holder who tenders in the
18
Exchange Offer for the purpose of participating in a distribution of the New
Notes cannot rely on such interpretation by the staff of the SEC and must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with a secondary resale transaction. Under no
circumstances may this prospectus be used for any offer to resell or any resale
or other transfer in connection with a distribution of the New Notes. In the
event that Avista Corp.'s belief is not correct, Holders of the New Notes who
transfer New Notes in violation of the prospectus delivery provisions of the
Securities Act and without an exemption from registration thereunder may incur
liability thereunder. Avista Corp. does not assume or indemnify Holders against
such liability.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes which were acquired by such broker-dealer as a result of
market-making activities or other trading activities must, and must agree to,
deliver a prospectus in connection with any resale of such New Notes. This
prospectus may be used for such purpose. Any such broker-dealer may be deemed
to be an "underwriter" within the meaning of the Securities Act. The foregoing
interpretation of the staff of the SEC does not apply to, and this prospectus
may not be used in connection with, the resale by any broker-dealer of any New
Notes received in exchange for an unsold allotment of Old Notes purchased
directly from Avista Corp.
Avista Corp. has not entered into any arrangement or understanding with any
person to distribute the New Notes to be received in the Exchange Offer.
The Exchange Offer is not being made to, nor will Avista Corp. accept
tenders for exchange from, Holders of Old Notes in any jurisdiction in which
the Exchange Offer or the acceptance thereof would not be in compliance with
the securities or blue sky laws of such jurisdiction.
See PLAN OF DISTRIBUTION.
Terms of the Exchange Offer
Upon the terms and subject to the conditions set forth in this prospectus
and in the letter of transmittal, Avista Corp. will accept any and all Old
Notes properly tendered and not withdrawn prior to 5:00 p.m., New York City
time, on the Expiration Date. Avista Corp. will issue $1,000 in principal
amount of New Notes in exchange for each $1,000 in principal amount of
outstanding Old Notes surrendered in the Exchange Offer. However, Old Notes may
be tendered only in integral multiples of $1,000.
The form and terms of the New Notes will be the same as the form and terms
of the Old Notes. The New Notes will evidence the same debt as the Old Notes.
The New Notes will be issued under and entitled to the benefits of the
Indenture pursuant to which the Old Notes were issued. The New Notes will be
registered under the Securities Act while the Old Notes were not.
As of the date of this prospectus, $400,000,000 in aggregate principal
amount of the Old Notes is outstanding. This prospectus, together with the
letter of transmittal, is being sent to all registered Holders of the Old
Notes.
Avista Corp. will be deemed to have accepted validly tendered Old Notes
when, as and if Avista Corp. shall have given oral (promptly confirmed in
writing) or written notice thereof to the Exchange Agent. The Exchange Agent
will act as agent for the tendering Holders for the purpose of receiving the
New Notes from Avista Corp.
Old Notes that are not tendered for exchange in the Exchange Offer will
remain outstanding and will be entitled to the rights and benefits such Holders
have under the Indenture. If any tendered Old Notes are not accepted for
exchange because of an invalid tender, the occurrence of certain other events
set forth herein or otherwise, certificates for any such unaccepted Old Notes
will be returned, without expense, to the tendering Holder thereof as promptly
as practicable after the Expiration Date.
19
Holders who tender Old Notes in the Exchange Offer will not be required to
pay brokerage commissions or fees or, subject to the instructions in the letter
of transmittal, transfer taxes with respect to the exchange pursuant to the
Exchange Offer. Avista Corp. will pay all charges and expenses, other than
certain applicable taxes described below, in connection with the Exchange
Offer.
Expiration Date; Extensions; Amendments to the Exchange Offer
The term "Expiration Date," shall mean 5:00 p.m., New York City time on
November 2, 2001, unless Avista Corp., in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, Avista Corp. will notify the Exchange
Agent of any extension by oral (promptly confirmed in writing) or written
notice and will mail to the registered Holders an announcement thereof, prior
to 9:00 a.m., New York City time, on the next business day after the then
Expiration Date.
Avista Corp. reserves the right, in its sole discretion,
(a) to delay accepting any Old Notes, to extend the Exchange Offer or to
terminate the Exchange Offer if any of the conditions set forth below under
"--Conditions to the Exchange Offer" shall not have been satisfied by giving
oral (promptly confirmed in writing) or written notice of such delay,
extension or termination to the Exchange Agent or
(b) to amend the terms of the Exchange Offer in any manner.
Any such delay in acceptances, extension, termination or amendment will be
followed as promptly as practicable by oral or written notice thereof to the
registered Holders. If the Exchange Offer is amended in a manner determined by
Avista Corp. to constitute a material change, Avista Corp. will promptly
disclose such amendment by means of a prospectus supplement that will be
distributed to the registered Holders of the Old Notes, and Avista Corp. will
extend the Exchange Offer for a period of five to ten business days, depending
upon the significance of the amendment and the manner of disclosure to the
registered Holders, if the Exchange Offer would otherwise expire during such
five to ten business day period.
Without limiting the manner in which Avista Corp. may choose to make a
public announcement of any delay, extension, amendment or termination of the
Exchange Offer, Avista Corp. will have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to an appropriate news agency.
Upon satisfaction or waiver of all the conditions to the Exchange Offer,
Avista Corp. will accept, promptly after the Expiration Date, all Old Notes
properly tendered and will issue the New Notes promptly after acceptance of the
Old Notes. See "--Conditions to the Exchange Offer." For purposes of the
Exchange Offer, Avista Corp. will be deemed to have accepted properly tendered
Old Notes for exchange when, as and if Avista Corp. shall have given oral
(promptly confirmed in writing) or written notice thereof to the Exchange
Agent.
In all cases, issuance of the New Notes for Old Notes that are accepted for
exchange pursuant to the Exchange Offer will be made only after timely receipt
by the Exchange Agent of a properly completed and duly executed letter of
transmittal (or facsimile thereof or an Agent's message in lieu thereof) and
all other required documents; provided, however, that Avista Corp. reserves the
absolute right to waive any defects or irregularities in the tender or
conditions of the Exchange Offer. If any tendered Old Notes are not accepted
for any reason set forth in the terms and conditions of the Exchange Offer or
if Old Notes are submitted for a greater principal amount or a greater
principal amount, respectively, than the Holder desires to exchange, then such
unaccepted or non-exchanged Old Notes evidencing the unaccepted portion, as
appropriate, will be returned without expense to the tendering Holder thereof
as promptly as practicable after the expiration or termination of the Exchange
Offer.
20
Conditions to the Exchange Offer
Notwithstanding any other term of the Exchange Offer, Avista Corp. will not
be required to exchange any New Notes for any Old Notes and may terminate the
Exchange Offer before the acceptance of any Old Notes for exchange, if:
(a) any action or proceeding is instituted or threatened in any court or
by or before any governmental agency with respect to the Exchange Offer
which, in Avista Corp.'s reasonable judgment, might materially impair the
ability of Avista Corp. to proceed with the Exchange Offer; or
(b) any law, statute, rule or regulation is proposed, adopted or enacted,
or any existing law, statute, rule or regulation is interpreted by the staff
of the SEC, which, in Avista Corp.'s reasonable judgment, might materially
impair the ability of Avista Corp. to proceed with the Exchange Offer.
If Avista Corp. determines in its sole discretion that any of these
conditions are not satisfied, Avista Corp. may
(a) refuse to accept any Old Notes and return all tendered Old Notes to
the tendering Holders,
(b) extend the Exchange Offer and retain all Old Notes tendered prior to
the expiration of the Exchange Offer, subject, however, to the rights of
Holders who tendered such Old Notes to withdraw their tendered Old Notes, or
(c) waive such unsatisfied conditions with respect to the Exchange Offer
and accept all properly tendered Old Notes which have not been withdrawn. If
such waiver constitutes a material change to the Exchange Offer, Avista
Corp. will promptly disclose such waiver by means of a prospectus supplement
that will be distributed to the registered Holders, and Avista Corp. will
extend the Exchange Offer for a period of five to ten business days,
depending upon the significance of the waiver and the manner of disclosure
to the registered Holders, if the Exchange Offer would otherwise expire
during such five to ten business day period.
Procedures for Tendering--Registered Holders and DTC Participants
Registered Holders of Old Notes, as well as beneficial owners who are direct
participants in DTC, who desire to participate in the Exchange Offer should
follow the directions set forth below and in the letter of transmittal.
All other beneficial owners should follow the instructions received from
their broker or nominee and should contact their broker or nominee directly.
The instructions set forth below and in the letter of transmittal DO NOT APPLY
to such beneficial owners.
Registered Holders
To tender in the Exchange Offer, a Holder must complete, sign and date the
letter of transmittal, or facsimile thereof, have the signatures thereon
guaranteed if required by the letter of transmittal, and mail or otherwise
deliver such letter of transmittal or such facsimile to the Exchange Agent
prior to the Expiration Date. In addition, either
(a) certificates for such Old Notes must be received by the Exchange
Agent along with the letter of transmittal, or
(b) the Holder must comply with the guaranteed delivery procedures
described below.
To be tendered effectively, the letter of transmittal and other required
documents must be received by the Exchange Agent at the address set forth below
under "--Exchange Agent" prior to the Expiration Date.
21
The tender by a Holder which is not withdrawn prior to the Expiration Date
will constitute an agreement between such Holder and Avista Corp. in accordance
with the terms and subject to the conditions set forth herein and in the letter
of transmittal.
The method of delivery of Old Notes, the letter of transmittal and all other
required documents to the Exchange Agent is at the election and risk of the
Holder, but the delivery will be deemed made only when actually received or
confirmed by the Exchange Agent. Instead of delivery by mail, it is recommended
that Holders use an overnight or hand delivery service. In all cases,
sufficient time should be allowed to assure delivery to the Exchange Agent
before the Expiration Date. No letter of transmittal or Old Notes should be
sent to Avista Corp. Holders may request their respective brokers, dealers,
commercial banks, trust companies or nominees to effect the above transactions
for such Holders.
Signatures on a letter of transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below) unless
the Old Notes tendered pursuant thereto is tendered
(a) by a registered Holder who has not completed the box entitled
"Special Payment Instructions" or "Special Delivery Instructions" on the
letter of transmittal or
(b) for the account of an Eligible Institution (as defined below).
In the event that signatures on a letter of transmittal or a notice of
withdrawal, as the case may be, are required to be guaranteed, such guarantor
must be a member firm of a registered national securities exchange or of the
National Association of Securities Dealers, Inc., a commercial bank or trust
company having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Securities
Exchange Act of 1934, as amended (the "Exchange Act") (an "Eligible
Institution").
If the letter of transmittal is signed by a person other than the registered
Holder of any Old Notes listed therein, such Old Notes must be endorsed or
accompanied by a properly completed bond power signed by such registered Holder
as such registered Holder's name appears on such Old Notes.
If the letter of transmittal or any Old Notes or bond or stock powers are
signed by trustees, executors, administrators, guardians, attorneys-in-fact,
officers of corporations or others acting in a fiduciary or representative
capacity, such persons should so indicate when signing, and unless waived by
Avista Corp., evidence satisfactory to Avista Corp. of their authority to so
act must be submitted with the letter of transmittal.
Holders who wish to tender their Old Notes and
(a) whose Old Notes are not immediately available,
(b) who cannot deliver their Old Notes, the letter of transmittal or any
other required documents to the Exchange Agent prior to the Expiration Date,
or
(c) who cannot complete the procedures for book-entry tender on a timely
basis
may effect a tender if:
(1) the tender is made through an Eligible Institution;
(2) prior to the Expiration Date, the Exchange Agent receives from
such Eligible Institution a properly completed and duly executed Notice
of Guaranteed Delivery (by facsimile transmission, mail or hand
delivery), setting forth the name and address of the Holder, the
certificate number(s) of such Old Notes (unless tender is to be made by
book-entry transfer) and the principal amount of Old Notes tendered,
stating that the tender is being made thereby and guaranteeing that,
within five New York Stock Exchange trading days after the date of
delivery of the Notice of Guaranteed Delivery, the certificates for all
physically tendered Old Notes, in proper form for transfer, or
Book-Entry
22
Confirmation (as defined in the letter of transmittal), as the case may
be, together with a properly completed and duly executed letter of
transmittal (or facsimile thereof or Agent's Message in lieu thereof),
with any required signature guarantees and all other documents required
by the letter of transmittal, will be deposited by the Eligible
Institution with the Exchange Agent; and
(3) the certificates and/or other documents referred to in clause (2)
above must be received by the Exchange Agent within the time specified
above.
Upon request to the Exchange Agent a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old Notes according to the guaranteed
delivery procedures set forth above.
DTC Participants
Any financial institution that is a participant in DTC's systems may make
book-entry delivery of Old Notes by causing DTC to transfer such Old Notes into
the Exchange Agent's account at DTC in accordance with DTC's procedures for
transfer. Such delivery must be accompanied by either
(a) the letter of transmittal or facsimile thereof, with any required
signature guarantees or
(b) an Agent's Message (as hereinafter defined),
and any other required documents, and must, in any case, be transmitted to and
received by the Exchange Agent at the address set forth below under "--Exchange
Agent" prior to the Expiration Date or the guaranteed delivery procedures
described above must be complied with. The Exchange Agent will make a request
to establish an account with respect to the Old Notes at DTC for purposes of
the Exchange Offer within two business days after the date of this prospectus.
The term "Agent's Message" means a message, electronically transmitted by
DTC to and received by the Exchange Agent, and forming a part of the Book-Entry
Confirmation, which states that DTC has received an express acknowledgement
from a Holder of Old Notes stating that such Holder has received and agrees to
be bound by, and makes each of the representations and warranties contained in,
the Letter of Transmittal and, further, that such Holder agrees that the
Company may enforce the Letter of Transmittal against such Holder.
Miscellaneous
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old Notes and withdrawal of tendered Old Notes
will be determined by Avista Corp. in its sole discretion, which determination
will be final and binding. Avista Corp. reserves the absolute right to reject
any and all Old Notes not properly tendered or any Old Notes Avista Corp.'s
acceptance of which would, in the opinion of counsel for Avista Corp., be
unlawful. Avista Corp. also reserves the right to waive any defects,
irregularities or conditions of tender as to particular Old Notes. Avista
Corp.'s interpretation of the terms and conditions of the Exchange Offer
(including the instructions in the letter of transmittal) will be final and
binding on all parties. Unless waived, any defects or irregularities in
connection with tenders of Old Notes must be cured within such time as Avista
Corp. shall determine. Although Avista Corp. intends to notify Holders of
defects or irregularities with respect to tenders of Old Notes, none of Avista
Corp., the Exchange Agent, or any other person shall incur any liability for
failure to give such notification. Tenders of Old Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old Notes received by the Exchange Agent that are not properly tendered and
as to which the defects or irregularities have not been cured or waived will be
returned by the Exchange Agent to the tendering Holders, unless otherwise
provided in the letter of transmittal, as soon as practicable following the
Expiration Date.
By tendering, each Holder or the Person receiving the New Notes, as the case
may be will be deemed to represent to Avista Corp. that, among other things,
. the New Notes acquired pursuant to the Exchange Offer are being obtained
in the ordinary course of business of the Person receiving such New Notes,
whether or not such person is the Holder,
23
. neither the Holder nor any such other person is engaged or intends to
engage in, or has an arrangement or understanding with any person to
participate in, the distribution of such New Notes, and
. neither the Holder nor any such other Person is an "affiliate," as defined
in Rule 405 of the Securities Act, of Avista Corp.
In all cases, issuance of New Notes pursuant to the Exchange Offer will be
made only after timely receipt by the Exchange Agent of certificates for the
Old Notes tendered for exchange or a timely Book-Entry Confirmation of such Old
Notes into the Exchange Agent's account at DTC, a properly completed and duly
executed letter of transmittal (or facsimile thereof or Agent's Message in lieu
thereof) and all other required documents. If any tendered Old Notes are not
accepted for any reason set forth in the terms and conditions of the Exchange
Offer or if Old Notes are submitted for a greater principal amount than the
Holder desires to exchange, such unaccepted or non-exchanged Old Notes will be
returned without expense to the tendering Holder thereof (or, in the case of
Old Notes tendered by book-entry transfer into the Exchange Agent's account at
DTC pursuant to the book-entry transfer procedures described below, such
non-exchanged Old Notes will be credited to an account maintained with DTC) as
promptly as practicable after the expiration or termination of the Exchange
Offer.
Avista Corp. reserves the right in its sole discretion to purchase or make
offers for any Old Notes that remain outstanding subsequent to the Expiration
Date or, as set forth above under "--Conditions to the Exchange Offer," to
terminate the Exchange Offer and, to the extent permitted by applicable law,
purchase Old Notes in the open market, in privately negotiated transactions or
otherwise. The terms of any such purchases or offers could differ from the
terms of the Exchange Offer.
Withdrawal of Tenders of Old Notes
Except as otherwise provided herein, tenders of Old Notes may be withdrawn
at any time prior to 5:00 p.m., New York City time, on the Expiration Date.
To withdraw a tender of Old Notes in the Exchange Offer, a written or
facsimile transmission notice of withdrawal must be received by the Exchange
Agent at its address set forth herein prior to 5:00 p.m., New York City time,
on the Expiration Date. Any such notice of withdrawal must
(a) specify the name of the person having deposited the Old Notes to be
withdrawn (the "Depositor"),
(b) identify the Old Notes to be withdrawn (including the certificate
number (unless tendered by book-entry transfer),
(c) be signed by the Holder in the same manner as the original signature
on the letter of transmittal by which such Old Notes were tendered
(including any required signature guarantees) or be accompanied by documents
of transfer sufficient to have the Trustee with respect to the Old Notes
register the transfer of such Old Notes in the name of the person
withdrawing the tender, and
(d) specify the name in which any such Old Notes are to be registered, if
different from that of the Depositor. If Old Notes have been tendered
pursuant to book-entry transfer, any notice of withdrawal must specify the
name and number of the account at DTC to be credited with the withdrawn Old
Notes, in which case a notice of withdrawal will be effective if delivered
to the Exchange Agent by any method of delivery described in this paragraph.
All questions as to the validity, form and eligibility (including time of
receipt) of such notices will be determined by Avista Corp., whose
determination shall be final and binding on all parties. Any Old Notes so
withdrawn will be deemed not to have been validly tendered for purposes of the
Exchange Offer and will be returned to the Holder thereof without cost to such
Holder as soon as practicable after withdrawal; and no New Notes will be issued
with respect thereto unless the Old Notes so withdrawn are validly retendered.
Properly withdrawn Old Notes may be retendered by following one of the
procedures described above under "--Procedures for Tendering" at any time prior
to the Expiration Date.
24
Exchange Agent
Chase Manhattan Bank and Trust Company, National Association has been
appointed as Exchange Agent of the Exchange Offer. Requests for additional
copies of this prospectus or of the letter of transmittal and requests for
Notice of Guaranteed Delivery with respect to the exchange of the Old Notes
should be directed to the Exchange Agent addressed as follows:
Chase Manhattan Bank and Trust Company, National Association
101 California Street, Suite 2725
San Francisco, California 94111-5830
Attention: Karen Lei
By Telephone: (415) 954-9518
By Facsimile: (415) 693-8850
Fees and Expenses
The expenses of soliciting tenders will be paid by Avista Corp. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telecopier, telephone or in person by officers and regular
employees of Avista Corp. and its affiliates.
Avista Corp. has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers-dealers or others
soliciting acceptances of the Exchange Offer. Avista Corp., however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by Avista Corp. and are estimated in the aggregate to be approximately
$250,000. Such expenses include registration fees, fees and expenses of the
Exchange Agent, accounting and legal fees and printing costs, among others.
Avista Corp. will pay all transfer taxes, if any, applicable to the exchange
of the Old Notes pursuant to the Exchange Offer. If, however, certificates
representing New Notes for principal amounts not tendered or accepted for
exchange are to be delivered to, or are to be issued in the name of, any person
other than the registered Holder of Old Notes tendered, or if tendered Old
Notes are registered in the name of, any person other than the person signing
the letter of transmittal, or if a transfer tax is imposed for any reason other
than the exchange of the Old Notes pursuant to the Exchange Offer, then the
amount of any such transfer taxes (whether imposed on the registered Holder or
any other persons) will be payable by the tendering Holder. If satisfactory
evidence of payment of such taxes or exemption therefrom is not submitted with
the letter of transmittal, the amount of such transfer taxes will be billed
directly to such tendering Holder.
25
DESCRIPTION OF THE NEW NOTES
You can find the definitions of certain terms used in this description under
the subheading "--Certain Definitions." In this description, the words "Avista
Corp." refer only to Avista Corporation and not to any of its subsidiaries,
except for purposes of financial data determined on a consolidated basis. The
Old Notes and the New Notes are sometimes collectively called the "notes".
Avista Corp. issued the Old Notes under an indenture, dated as of April 3,
2001, between itself and Chase Manhattan Bank and Trust Company, National
Association, as trustee, in a private transaction that was not subject to the
registration requirements of the Securities Act. The terms of the notes include
those stated in the indenture and those made part of the indenture by reference
to the Trust Indenture Act of 1939, as amended (the "Trust Indenture Act").
The following description is a summary of the material provisions of the
indenture relating to the Old Notes. It does not restate the indenture in its
entirety. We urge you to read the indenture because it, and not this
description, defines your rights as holders of the Old Notes. Some defined
terms used in this description but not defined below under "--Certain
Definitions" have the meanings assigned to them in the indenture.
The registered holder of a note will be treated as the owner of it for all
purposes. Only registered holders will have rights under the indenture.
Ranking of the Notes
The notes:
. are general unsecured obligations of Avista Corp.;
. are pari passu in right of payment with all existing and future unsecured
senior Indebtedness of Avista Corp.; and
. are senior in right of payment to all current and future subordinated
Indebtedness of Avista Corp., if any.
As of the date of this prospectus, Avista Corp. had outstanding $423.5
million principal amount of first mortgage bonds, which are secured by the lien
of the Mortgage and Deed of Trust, dated as of June 1, 1939, as supplemented,
on substantially all of Avista Corp.'s utility plant assets (currently owned or
hereafter acquired). This amount includes $220.0 million non-transferable first
mortgage bonds which were delivered to secure Avista Corp.'s credit agreement
which is also secured by a pledge of the capital stock of Avista Capital. As of
the date of this prospectus, Avista Corp. had outstanding $125.0 million of
short-term bank debt outstanding under this credit agreement with remaining
available commitments of $95.0 million. See BANK CREDIT AGREEMENTS. Avista
Corp.'s obligations under its Credit Facilities are secured by $220.0 million
of such first mortgage bonds (which are non-transferable) and by a pledge of
the stock of Avista Capital. By reason, and to the extent, of the 1939 Mortgage
and the pledge of Avista Capital stock, the first mortgage bonds and secured
bank debt rank prior to the notes. In addition, as of the date of this
prospectus, Avista Corp. also had outstanding $863.8 million of unsecured
long-term debt and $74.0 million of current portion of unsecured long-term
debt. All of such unsecured indebtedness is pari passu in right of payment with
the notes. In addition, Avista Corp. had subordinated debentures in a net
principal amount outstanding of $103.4 million which are held by the trusts
which issued $100.0 million of outstanding preferred trust securities. The
notes are senior in right of payment to these debentures. The amounts of
indebtedness discussed in this paragraph relate to Avista Corp. only and not to
its subsidiaries.
As of the date of this prospectus, all of our subsidiaries are "Restricted
Subsidiaries." However, under the circumstances described below under the
subheading "--Certain Other Covenants--Designation of Restricted and
Unrestricted Subsidiaries", we will be permitted to designate certain of our
subsidiaries as "Unrestricted Subsidiaries." Our Unrestricted Subsidiaries will
not be subject to many of the restrictive covenants in the indenture.
26
Although its utility operations are conducted directly by Avista Corp., all
of the other operations of Avista Corp. are conducted through its subsidiaries.
The notes will be effectively subordinated in right of payment to all
Indebtedness and other liabilities and commitments (including trade payables
and lease obligations) of Avista Corp.'s subsidiaries. Any right of Avista
Corp. to receive assets of any of its subsidiaries upon the subsidiary's
liquidation or reorganization (and the consequent right of the holders of the
notes to participate in those assets) will be effectively subordinated to the
claims of that subsidiary's creditors, except to the extent that Avista Corp.
is itself recognized as a creditor of the subsidiary, in which case the claims
of Avista Corp. would still be subordinate in right of payment to any security
in the assets of the subsidiary and any indebtedness of the subsidiary senior
to that held by Avista Corp. In addition, Avista Corp.'s ability to access the
cash flow of its subsidiaries is subject to substantial restrictions. As of
June 30, 2001, Avista Corp.'s subsidiaries had approximately $3.2 million of
Indebtedness to third parties, $229.8 million of notes and accounts payable to
Avista Corp., $557.0 million of payables and other liabilities, and $2.0
billion of energy commodity liabilities (energy commodity liabilities are held
in a portfolio containing $2.2 billion of energy commodity assets) outstanding.
Principal, Maturity and Interest
Avista Corp. has limited the aggregate principal amount of notes which can
be issued under the indenture to $600.0 million, of which Avista Corp. has
issued $400.0 million aggregate principal amount. Avista Corp. may issue
additional notes (the "Additional Notes") from time to time. Any offering of
Additional Notes is subject to the covenant described below under the caption
"--Certain Other Covenants--Incurrence of Indebtedness and Issuance of
Preferred Stock." The notes and any Additional Notes subsequently issued under
the indenture would be treated as a single class for all purposes under the
indenture, including, without limitation, waivers, amendments, redemptions and
offers to purchase. Avista Corp. will issue notes in denominations of $1,000
and integral multiples of $1,000. The notes will mature on June 1, 2008.
Interest on the notes will accrue at the rate of 9.75% per annum and will be
payable semi-annually in arrears on June 1 and December 1, commencing on
December 1, 2001. Avista Corp. will make each interest payment to the holders
of record on the immediately preceding May 15 and November 15.
Interest on the notes will accrue from the date of original issuance or, if
interest has already been paid, from the date it was most recently paid.
Interest will be computed on the basis of a 360-day year comprised of twelve
30-day months.
Methods of Receiving Payments on the Notes
If a holder has given wire transfer instructions to Avista Corp. at least
ten business days prior to the applicable payment date, Avista Corp. will pay
all principal, interest and premium, if any, on that holder's notes in
accordance with those instructions. All other payments on the notes will be
made at the office or agency of the paying agent and registrar for the notes
within the City and State of New York unless Avista Corp. elects to make
interest payments by check mailed to the holders at their addresses set forth
in the register of holders.
Paying Agent and Registrar for the Notes
The trustee will initially act as paying agent and registrar. Avista Corp.
may change the paying agent or registrar without prior notice to the holders,
and Avista Corp. or any of its Subsidiaries may act as paying agent or
registrar.
Transfer and Exchange
A holder may transfer or exchange notes in accordance with the indenture.
The registrar and the trustee may require a holder to furnish appropriate
endorsements and transfer documents in connection with a transfer of notes.
Holders will be required to pay all taxes due on transfer. Avista Corp. is not
required to transfer or exchange any note selected for redemption.
27
Optional Redemption
The notes are redeemable in whole or in part, at the option of Avista Corp.
at any time, at a redemption price equal to the greater of (i) 100% of the
principal amount of the notes being redeemed or (ii) the sum of the present
values of the remaining scheduled payments of principal of and interest on the
notes being redeemed discounted to the date of redemption on a semiannual basis
(assuming a 360-day year consisting of twelve 30-day months) at a discount rate
equal to the Treasury Yield plus 50 basis points, plus, for (i) or (ii) above,
whichever is applicable, accrued interest on such notes to the date of
redemption.
"Treasury Yield" means, with respect to any Redemption Date, the rate per
annum equal to the semiannual equivalent yield to maturity of the Comparable
Treasury Issue, assuming a price for the Comparable Treasury Issue (expressed
as a percentage of its principal amount) equal to the Comparable Treasury Price
for such Redemption Date.
"Comparable Treasury Issue" means the United States Treasury security
selected by an Independent Investment Banker as having a maturity comparable to
the remaining term of such notes to be redeemed that would be utilized, at the
time of selection and in accordance with customary financial practice, in
pricing new issues of corporate debt securities of comparable maturity to the
remaining term of the notes.
"Comparable Treasury Price" means, with respect to any redemption date, (i)
the average of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount) on the third
business day preceding such Redemption Date, as set forth in the H.15 Daily
Update of the Federal Reserve Bank of New York or (ii) if such release (or any
successor release) is not published or does not contain such prices on such
business day, the Reference Treasury Dealer Quotation for such redemption date.
"H.15(519)" means the weekly statistical release entitled "Statistical
Release H.15 (519)", or any successor publication, published by the Board of
Governors of the Federal Reserve System.
"H.15 Daily Update" means the daily update of H.15(519) available through
the worldwide website of the Board of Governors of the Federal Reserve System
or any successor site or publication.
"Independent Investment Banker" means an independent investment banking
institution of national standing appointed by Avista Corp. and reasonably
acceptable to the trustee.
"Reference Treasury Dealer Quotation" means, with respect to the Reference
Treasury Dealer and any redemption date, the average, as determined by the
trustee, of the bid and asked prices for the Comparable Treasury Issue
(expressed in each case as a percentage of its principal amount and quoted in
writing to the trustee by such Reference Treasury Dealer at 5:00 p.m. on the
third business day preceding such redemption date).
"Reference Treasury Dealer" means a primary U.S. Government securities
dealer in New York City appointed by Avista Corp. and reasonably acceptable to
the trustee.
Notice of redemption shall be given not less than 15 days nor more than 60
days prior to the date fixed for redemption.
Unless Avista Corp. defaults in payment of the Redemption Price (as defined
below), from and after the Redemption Date, the notes or portions thereof
called for redemption will cease to bear interest, and the holders thereof will
have no right in respect to such notes except the right to receive the
Redemption Price thereof.
Under the procedures set forth above, the price (the "Redemption Price")
payable upon the optional redemption at any time of notes is determined by
calculating the present value (the "Present Value") at such time of each
remaining payment of principal of or interest on such notes and then totaling
such Present Values. If the
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sum of such Present Values is equal to or less than 100% of the principal
amount of such notes, the Redemption Price of such notes will be 100% of its
principal amount (redemption at par). If the sum of such Present Values is
greater than 100% of the principal amount of such notes, the Redemption Price
of such notes will be such greater amount (redemption at a premium). In no
event may a note be redeemed optionally at less than 100% of its principal
amount.
The Present Value at any time of a payment of principal of or interest on a
note is calculated by applying to such payment the discount rate (the "Discount
Rate") applicable to such payment. The Discount Rate applicable at any time to
a payment of principal of or interest on a note equals the equivalent yield to
maturity at such time of a fixed rate United States treasury security having a
maturity comparable to the maturity of such payment plus 50 basis points; such
yield being calculated on the basis of the interest rate borne by such United
States treasury security and the price at such time of such security. The
United States treasury security employed in the calculation of a Discount Rate
(a "Relevant Security") as well as the price and equivalent yield to maturity
of such Relevant Security will be selected or determined by an investment
banker of national standing selected by Avista Corp. which is reasonably
acceptable to the trustee.
Whether the sum of the Present Values of the remaining payments of principal
of and interest on a note to be redeemed optionally will or will not exceed
100% of its principal amount and, accordingly, whether such notes will be
redeemed at par or at a premium will depend on the Discount Rate used to
calculate such Present Values. Such Discount Rate, in turn, will depend upon
the equivalent yield to maturity of a Relevant Security which yield will itself
depend on the interest rate borne by, and the price of, the Relevant Security.
While the interest rate borne by the Relevant Security is fixed, the price of
the Relevant Security tends to vary with interest rate levels prevailing from
time to time. In general, if at a particular time the prevailing level of
interest rates for a newly issued United States treasury security having a
maturity comparable to that of a Relevant Security is higher than the level of
interest rates for newly issued United States treasury securities having a
maturity comparable to such Relevant Security prevailing at the time the
Relevant Security was issued, the price of the Relevant Security will be lower
than its issue price. Conversely, if at a particular time the prevailing level
of interest rates for a newly issued United States treasury security having a
maturity comparable to that of a Relevant Security is lower than the level of
interest rates prevailing for newly issued United States treasury securities
having a maturity comparable to the Relevant Security at the time the Relevant
Security was issued, the price of the Relevant Security will be higher than its
issue price.
Because the equivalent yield to maturity on a Relevant Security depends on
the interest rate it bears and its price, an increase or a decrease in the
level of interest rates for newly issued United States treasury securities with
a maturity comparable to that of a Relevant Security above or below the levels
of interest rates for newly issued United States treasury securities having a
maturity comparable to the Relevant Security prevailing at the time of issue of
the Relevant Security will generally result in an increase or a decrease,
respectively, in the Discount Rate used to determine the Present Value of a
payment of principal of or interest on a note. As noted above, if the sum of
the Present Values of the remaining payments of principal of and interest on a
note proposed to be redeemed is less than its principal amount, such note may
only be redeemed at par.
Mandatory Redemption
Avista Corp. is not required to make any mandatory redemption or sinking
fund payments with respect to the notes.
Selection and Notice
If less than all of the notes are to be redeemed at any time, the trustee
will select notes for redemption as follows:
(1) if the notes are listed on any national securities exchange, in
compliance with the requirements of the principal national securities
exchange on which the notes are listed; or
29
(2) if the notes are not listed on any national securities exchange, on a
pro rata basis, by lot or by such method as the trustee shall deem fair and
appropriate.
No portion of a note less than $1,000 will be redeemed. Notices of
redemption will be mailed by first class mail at least 15 but not more than 60
days before the redemption date to each holder of notes to be redeemed at its
registered address. Notices of redemption may not be conditional.
If any note is to be redeemed in part only, the notice of redemption that
relates to that note will state the portion of the principal amount of that
note that is to be redeemed. A new note in principal amount equal to the
unredeemed portion of the original note will be issued in the name of the
holder thereof upon cancellation of the original note. Notes called for
redemption become due on the date fixed for redemption. On and after the
redemption date, interest ceases to accrue on notes or portions of them called
for redemption.
Repurchase at the Option of Holders
Change of Control
In the event of a Change of Control, each holder of notes will have the
right to require Avista Corp. to repurchase all or any part (equal to $1,000 or
an integral multiple of $1,000) of that holder's notes pursuant to a Change of
Control Offer on the terms set forth in the indenture. In the Change of Control
Offer, Avista Corp. will offer a Change of Control Payment in cash equal to
101% of the aggregate principal amount of notes repurchased plus accrued and
unpaid interest, if any, thereon, to the date of purchase. Within ten days
following any Change of Control, Avista Corp. will mail a notice to each holder
describing the transaction or transactions that constitute the Change of
Control and offering to repurchase notes on the Change of Control Payment Date
specified in the notice, pursuant to the procedures required by the indenture
and described in such notice. Avista Corp. will comply with the requirements of
Rule 14e-1 under the Exchange Act and any other securities laws and regulations
thereunder to the extent those laws and regulations are applicable in
connection with the repurchase of the notes as a result of a Change of Control.
On the Change of Control Payment Date, Avista Corp. will, to the extent
lawful:
(1) accept for payment all notes or portions of notes properly tendered
pursuant to the Change of Control Offer;
(2) deposit with the paying agent an amount equal to the Change of
Control Payment in respect of all notes or portions of notes properly
tendered; and
(3) deliver or cause to be delivered to the trustee the notes so accepted
together with an Officers' Certificate stating the aggregate principal
amount of notes or portions of notes being purchased by Avista Corp.
The paying agent will promptly mail to each holder of notes properly
tendered the Change of Control Payment for such notes, and the trustee will
promptly authenticate and mail (or cause to be transferred by book entry) to
each holder a new note equal in principal amount to any unpurchased portion of
the notes surrendered, if any; provided that each new note will be in a
principal amount of $1,000 or an integral multiple of $1,000. Avista Corp. will
publicly announce the results of the Change of Control Offer on or as soon as
practicable after the Change of Control Payment Date.
The provisions described above that require Avista Corp. to make a Change of
Control Offer following a Change of Control will be applicable regardless of
whether any other provisions of the indenture are applicable. Except as
described above with respect to a Change of Control, the indenture does not
contain provisions that permit the holders of the notes to require that Avista
Corp. repurchase or redeem the notes in the event of a takeover,
recapitalization or similar transaction. Accordingly, the indenture may not
afford the holders of notes protection in all circumstances from the adverse
aspects of a highly leveraged transaction, reorganization, restructuring,
merger or similar transaction.
30
Avista Corp. will not be required to make a Change of Control Offer upon a
Change of Control if a third party makes the Change of Control Offer in the
manner, at the times and otherwise in compliance with the requirements set
forth in the indenture applicable to a Change of Control Offer made by Avista
Corp. and purchases all notes properly tendered and not withdrawn under such
Change of Control Offer.
The definition of Change of Control includes a phrase relating to the direct
or indirect sale, lease, transfer, conveyance or other disposition of "all or
substantially all" of the properties or assets of Avista Corp. and its
Subsidiaries taken as a whole. Although there is a limited body of case law
interpreting the phrase "substantially all", there is no precise established
definition of the phrase under applicable law. Accordingly, it may be uncertain
whether a holder of notes can require Avista Corp. to repurchase those notes as
a result of a sale, lease, transfer, conveyance or other disposition of less
than all of the assets of Avista Corp. and its Subsidiaries taken as a whole.
Asset Sales
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, consummate an Asset Sale
unless:
(1) Avista Corp. (or the Restricted Subsidiary, as the case may be)
receives consideration at the time of the Asset Sale at least equal to the
fair market value of the assets or Equity Interests issued or sold or
otherwise disposed of, as determined by Avista Corp.'s Board of Directors
and evidenced by a resolution of the Board of Directors set forth in an
Officers' Certificate delivered to the trustee before or a reasonable time
after such Asset Sale; and
(2) at least 75% of the consideration received in such Asset Sale by
Avista Corp. or such Restricted Subsidiary is in the form of cash or Cash
Equivalents. For purposes of this provision, each of the following shall be
deemed to be cash:
(a) any liabilities (as shown on Avista Corp.'s or such Restricted
Subsidiary's most recent balance sheet) of Avista Corp. or any
Restricted Subsidiary (other than contingent liabilities and liabilities
that are by their terms subordinated in right of payment to the notes)
that are assumed by the transferee or purchaser of any such assets
pursuant to an agreement that releases Avista Corp. or such Restricted
Subsidiary from further liability; and
(b) any securities, notes or other obligations received by Avista
Corp. or any such Restricted Subsidiary from such transferee that are
contemporaneously (subject to ordinary settlement periods) converted by
Avista Corp. or such Restricted Subsidiary into cash (to the extent of
the cash received in that conversion, sale or exchange).
Within 360 days after the receipt of any Net Proceeds from an Asset Sale
that is consummated at a time when the Rating Condition is not satisfied,
Avista Corp. may apply those Net Proceeds:
(1) to repay Indebtedness (other than intercompany Indebtedness) of
Avista Corp., or a Restricted Subsidiary of Avista Corp., and to
correspondingly reduce commitments if such Indebtedness constitutes
revolving credit borrowings;
(2) to make capital expenditures; or
(3) to acquire other long-term assets that are used or useful in a
Permitted Business.
Pending the final application of any Net Proceeds, Avista Corp. may
temporarily reduce revolving credit borrowings or otherwise invest Net Proceeds
in any manner that is not prohibited by the indenture.
Any Net Proceeds from Asset Sales that are consummated at a time when the
Rating Condition is not satisfied that are not applied or invested as provided
above in the preceding paragraph will constitute "Excess
31
Proceeds." When the aggregate amount of Excess Proceeds exceeds $15.0 million,
Avista Corp. will make an Asset Sale Offer to all holders of notes (and to all
holders of other Indebtedness that is pari passu with the notes and that
contains provisions similar to those set forth in the indenture relating to the
notes with respect to offers to purchase or redeem with the proceeds of sales
of assets) to purchase the maximum principal amount of notes and such other
pari passu Indebtedness that may be purchased out of the Excess Proceeds. The
offer price in any Asset Sale Offer will be equal to 100% of principal amount
(or 100% of the accreted value thereof, in the case of Indebtedness sold at a
discount) plus accrued and unpaid interest to the date of purchase, and will be
payable in cash. If any Excess Proceeds remain after consummation of an Asset
Sale Offer, Avista Corp. may use those Excess Proceeds for any purpose not
otherwise prohibited by the indenture. If the aggregate principal amount of
notes and other Indebtedness tendered into such Asset Sale Offer exceeds the
amount of Excess Proceeds, Avista Corp. will allocate the Excess Proceeds on a
pro rata basis to the notes and such other Indebtedness tendered, and the
trustee will select the notes to be purchased on a pro rata basis based on the
principal amount of notes tendered. Upon completion of each Asset Sale Offer,
the amount of Excess Proceeds will be reset at zero.
Notwithstanding the foregoing,
(1) Avista Corp. may (i) dispose of all or any portion of its
transmission assets in one or more RTO Transactions, or (ii) effect, or
permit any Restricted Subsidiary to effect, an Asset Sale in which the
Capital Stock of Avista Communications, Avista Advantage or Avista Labs
(provided such Person is operating substantially the same business as at the
date of the indenture) is exchanged for Capital Stock or other securities of
another Person if, upon completion thereof, the subject or transferee Person
is no longer a Subsidiary of Avista Corp.; provided, however, that if the
Rating Condition is not satisfied at the time of such transaction, Avista
Corp. shall apply any Net Proceeds therefrom in accordance with the
foregoing provisions; provided, further, that if Avista Corp. or any
Restricted Subsidiary thereafter disposes of any Capital Stock or other
securities or ownership interest in the subject or transferee Person
received in, or retained subsequent to, any such transaction, any cash
realized therefrom shall be treated as Net Proceeds from an Asset Sale and
applied in accordance with the foregoing provisions; and
(2) these provisions shall not apply to any Asset Sale which constitutes
a transfer, conveyance, sale, lease or other disposition of all or
substantially all of Avista Corp.'s properties or assets. See below under
"--Certain Other Covenants--Merger, Consolidation or Sale of Assets."
Avista Corp. will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with each
repurchase of notes pursuant to an Asset Sale Offer. To the extent that the
provisions of any securities laws or regulations conflict with the Asset Sales
provisions of the indenture, Avista Corp. will comply with the applicable
securities laws and regulations and will not be deemed to have breached its
obligations under the Asset Sale provisions of the indenture by virtue of such
conflict.
Certain Other Covenants
Set forth below are certain other covenants contained in the indenture.
During any period of time that (i) Moody's and S&P have issued credit ratings
of Avista Corp.'s senior unsecured debt of at least Baa2 and BBB, respectively,
in each case with a stable or improving outlook and (ii) no Default has
occurred and is continuing under the indenture (which we refer to collectively
as the "Rating Condition"), Avista Corp. and its Restricted Subsidiaries will
not be subject to the provisions of the Indenture described above under
"Repurchase at the Option of Holders--Asset Sales", and the provisions
described below under "--Restricted Payments", "--Incurrence of Indebtedness
and Issuance of Preferred Stock", "--Dividend and Other Payment Restrictions
Affecting Subsidiaries", and "--Transactions with Affiliates", and clause (4)
of the "--Merger, Consolidation and Sale of Assets" covenant (collectively, the
"Suspended Covenants"). If Avista Corp. and its Restricted Subsidiaries are not
subject to the Suspended Covenants with respect to the notes for any period of
time as a result of the preceding sentence and, subsequently, one or both of
Moody's and S&P withdraw their ratings or downgrade the ratings assigned to the
notes below the specified ratings, then Avista Corp. and each of its
32
Restricted Subsidiaries (except to the extent that any Restricted Subsidiary is
not subject to any such covenant pursuant to the terms thereof) will thereafter
again be subject to the Suspended Covenants for the benefit of the notes and
compliance with the Suspended Covenants with respect to Restricted Payments
made after the time of such withdrawal or downgrade will be calculated in
accordance with the terms of the covenant described below under "--Restricted
Payments" as if such covenant had been in effect during the entire period of
time from the date of the indenture.
Restricted Payments
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any other payment or distribution
on account of Avista Corp.'s Equity Interests (including, without
limitation, any payment in connection with any merger or consolidation
involving Avista Corp. or any of its Restricted Subsidiaries) or to the
direct or indirect holders of Avista Corp.'s or any of its Restricted
Subsidiaries' Equity Interests in their capacity as such (other than
dividends or distributions payable in Equity Interests (other than
Disqualified Stock) of Avista Corp. or dividends or distributions to Avista
Corp. or a Restricted Subsidiary of Avista Corp.);
(2) purchase, redeem or otherwise acquire or retire for value (including,
without limitation, in connection with any merger or consolidation involving
Avista Corp.) any Equity Interests of Avista Corp. or any Person that
beneficially owns, directly or indirectly, a majority of the Capital Stock
of Avista Corp.;
(3) make any payment on or with respect to, or purchase, redeem, defease
or otherwise acquire or retire for value any Indebtedness that is
subordinated in right of payment to the notes, except a payment of interest
or principal at or after the Stated Maturity thereof or a refinancing
thereof within one year of the final maturity date thereof; or
(4) make any Restricted Investment (all such payments and other actions
set forth in these clauses (1) through (4) being collectively referred to as
"Restricted Payments"),
unless, at the time of and after giving effect to such Restricted Payment:
(1) no Default or Event of Default has occurred and is continuing or
would occur as a consequence thereof;
(2) Avista Corp. would, at the time of such Restricted Payment and after
giving pro forma effect thereto as if such Restricted Payment had been made
at the beginning of the applicable four-quarter period, have been permitted
to incur at least $1.00 of additional Indebtedness pursuant to the Fixed
Charge Coverage Ratio test set forth in the first paragraph of the covenant
described below under the caption "--Incurrence of Indebtedness and Issuance
of Preferred Stock"; and
(3) such Restricted Payment, together with the aggregate amount of all
other Restricted Payments made by Avista Corp. and its Subsidiaries after
the date of the indenture (excluding Restricted Payments permitted by
clauses (2) through (7) and (9) of the next succeeding paragraph), is less
than the sum, without duplication, of:
(a) 50% of the Consolidated Net Income of Avista Corp. for the period
(taken as one accounting period) from the beginning of the first fiscal
quarter commencing prior to the date of the indenture to the end of
Avista Corp.'s most recently ended fiscal quarter for which internal
financial statements are available at the time of such Restricted
Payment (or, if such Consolidated Net Income for such period is a
deficit, less 100% of such deficit), plus
(b) 100% of the aggregate net cash proceeds received by Avista Corp.
since the date of the indenture as a contribution to its common equity
capital or from the issue or sale of Equity Interests of Avista Corp.
(other than Disqualified Stock) or upon the exercise of any options,
warrants or other
33
rights to purchase Capital Stock (other than Disqualified Capital Stock)
of Avista Corp. or from the issuance or sale of convertible or
exchangeable Disqualified Stock or convertible or exchangeable debt
securities of Avista Corp. that have been converted into or exchanged
for such Equity Interests (other than Equity Interests (or Disqualified
Stock or debt securities) sold to a Subsidiary of Avista Corp.), plus
(c) 100% of the net reduction in any Restricted Investment that was
made after the date of the indenture resulting from payments of interest
on Indebtedness, dividends, repayment of loans or advances, or other
transfers of assets, in each case to Avista Corp. or any Restricted
Subsidiary, and the cash return of capital with respect to any
Restricted Investment (less the cost of disposition, if any), plus
(d) to the extent that any Unrestricted Subsidiary of Avista Corp. is
redesignated as a Restricted Subsidiary after the date of the indenture,
the fair market value of Avista Corp.'s Investment in such Subsidiary as
of the date of such redesignation, plus
(e) any amount which previously qualified as a Restricted Payment on
account of any Guarantee entered into by Avista Corp. or any Restricted
Subsidiary; provided that such Guarantee has not been called upon and
the obligation arising under such Guarantee no longer exists; less
(f) the after-tax amount of any power and natural gas cost deferrals
for the period (taken as one accounting period) from the beginning of
the first fiscal quarter commencing prior to the date of the indenture
to the end of Avista Corp.'s most recently ended fiscal quarter for
which internal financial statements are available at the time of such
Restricted Payment; plus
(g) the after-tax amount of any amortization of power and natural gas
deferrals for the period (taken as one accounting period) from the
beginning of the first fiscal quarter commencing prior to the date of
the indenture to the end of Avista Corp.'s most recently ended fiscal
quarter for which internal financial statements are available at the
time of such Restricted Payment.
So long as no Default has occurred and is continuing or would be caused
thereby, the preceding provisions will not prohibit:
(1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would have
complied with the provisions of the indenture;
(2) the redemption, repurchase, retirement, defeasance or other
acquisition of any subordinated Indebtedness of Avista Corp. or of any
Equity Interests of Avista Corp. in exchange for, or out of the net cash
proceeds of the substantially concurrent sale (other than to a Subsidiary of
Avista Corp.) of, Equity Interests of Avista Corp. (other than Disqualified
Stock); provided that the amount of any such net cash proceeds that are
utilized for any such redemption, repurchase, retirement, defeasance or
other acquisition will be excluded from clause (3)(b) of the preceding
paragraph;
(3) the defeasance, redemption, repurchase or other acquisition of
subordinated Indebtedness of Avista Corp. with the net cash proceeds from an
incurrence of Permitted Refinancing Indebtedness;
(4) the repurchase, redemption, retirement, refinancing, acquisition for
value or payment of any Disqualified Stock in exchange for, or out of the
net cash proceeds of, the substantially concurrent issuance of new
Disqualified Stock of Avista Corp.; provided that any such new Disqualified
Stock:
(a) shall have an aggregate liquidation preference that does not
exceed the aggregate liquidation preference of the amount so refinanced;
(b) has a Weighted Average Life to Maturity greater than the
remaining Weighted Average Life to Maturity of the Disqualified Capital
Stock being refinanced; and
(c) has a Stated Maturity later than the Stated Maturity of the
Disqualified Stock being refinanced;
34
(5) the repurchase of any subordinated Indebtedness of Avista Corp. at a
purchase price not greater than 101% of the principal amount of such
subordinated Indebtedness in the event of a Change of Control pursuant to a
provision similar to "Repurchase at the Option of Holders--Change of
Control"; provided that prior to consummating any such repurchase, Avista
Corp. has made the Change of Control Offer required by the indenture and has
repurchased all notes validly tendered for payment in connection with such
Change of Control Offer;
(6) the repurchase of any subordinated Indebtedness of Avista Corp. at a
purchase price not greater than 100% of the principal amount of such
Indebtedness in the event of an Asset Sale pursuant to a provision similar
to the "--Repurchase at the Option of Holders--Asset Sales" covenant;
provided that prior to consummating any such repurchase, Avista Corp. has
made the Asset Sale Offer required by the indenture and has repurchased all
notes validly tendered for payment in connection with such Asset Sale Offer;
(7) repurchases of Capital Stock (or warrants or options convertible into
or exchangeable for such Capital Stock) deemed to occur upon exercise of
stock options to the extent that shares of such Capital Stock (or warrants
or options convertible into or exchangeable for such Capital Stock)
represent a portion of the exercise price of such options;
(8) the declaration and payment of regular quarterly cash dividends in
respect of Avista Corp.'s common stock in a per share amount not to exceed
105% of the quarterly dividend for the immediately preceding calendar
quarter, and in respect of Avista Corp.'s preferred stock in an aggregate
amount not to exceed $2.5 million per calendar quarter; provided that the
aggregate amount of such cash dividends will be included as Restricted
Payments for purposes of determining the amount of Restricted Payments that
may be made pursuant to clause (3) of the preceding paragraph; or
(9) other Restricted Payments by Avista Corp. or any Restricted
Subsidiary in an aggregate amount not to exceed $10.0 million since the date
of the indenture.
The amount of all Restricted Payments (other than cash) will be the fair
market value on the date of the Restricted Payment of the asset(s) or
securities proposed to be transferred or issued to or by Avista Corp. or such
Subsidiary, as the case may be, pursuant to the Restricted Payment. The fair
market value of any assets or securities that are required to be valued by this
covenant will be determined by the Board of Directors whose resolution with
respect thereto shall be delivered to the trustee.
Incurrence of Indebtedness and Issuance of Preferred Stock
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create, incur, issue, assume, guarantee or otherwise become directly or
indirectly liable, contingently or otherwise, with respect to (collectively,
"incur") any Indebtedness (including Acquired Debt), and Avista Corp. will not
issue any Disqualified Stock and will not permit any of its Restricted
Subsidiaries to issue any shares of preferred stock; provided, however, that
Avista Corp. may incur Indebtedness (including Acquired Debt) or issue
Disqualified Stock, and Avista Corp.'s Restricted Subsidiaries may incur
Indebtedness or issue preferred stock, if the Fixed Charge Coverage Ratio for
Avista Corp.'s most recently ended four full fiscal quarters for which internal
financial statements are available immediately preceding the date on which such
additional Indebtedness is incurred or such Disqualified Stock or preferred
stock is issued would have been at least 2.0 to 1, determined on a pro forma
basis (including a pro forma application of the net proceeds therefrom), as if
the additional Indebtedness had been incurred or the preferred stock or
Disqualified Stock had been issued, as the case may be, at the beginning of
such four-quarter period.
This covenant will not prohibit the incurrence of any of the following items
of Indebtedness (collectively, "Permitted Debt"):
(1) the incurrence by Avista Corp. or any of its Restricted Subsidiaries
of Indebtedness and letters of credit under one or more Credit Facilities in
an aggregate principal amount at any one time outstanding
35
under this clause (1) (with letters of credit being deemed to have a
principal amount equal to the maximum potential liability of Avista Corp.
and its Restricted Subsidiaries thereunder) equal to $600.0 million
outstanding at any one time, less principal repayments of term loans and
permanent commitment reductions with respect to revolving loans and letters
of credit under any Credit Facility (in each case, other than in connection
with an amendment, refinancing, refunding, replacement, renewal or
modification) made after the date of the Indenture;
(2) the incurrence by Avista Corp. or any of its Restricted Subsidiaries
of the Existing Indebtedness;
(3) the incurrence by Avista Corp. of Indebtedness represented by the
notes;
(4) the incurrence by Avista Corp. or any of its Restricted Subsidiaries
of Permitted Refinancing Indebtedness in exchange for, or the net proceeds
of which are used to refund, refinance or replace, Indebtedness (other than
intercompany Indebtedness) that was permitted by the indenture to be
incurred under the first paragraph of this covenant or clauses (2), (3),
(8), (11) or (12) of this paragraph;
(5) the incurrence by Avista Corp. or any of its Restricted Subsidiaries
of intercompany Indebtedness between or among Avista Corp. and any of its
Restricted Subsidiaries; provided, however, that:
(a) if Avista Corp. is the obligor on such Indebtedness, such
Indebtedness must be expressly subordinated to the prior payment in full
in cash of all Obligations with respect to the notes; and
(b) (i) any subsequent issuance or transfer of Equity Interests that
results in any such Indebtedness being held by a Person other than
Avista Corp. or a Restricted Subsidiary thereof and (ii) any sale or
other transfer of any such Indebtedness to a Person that is not either
Avista Corp. or a Restricted Subsidiary thereof, shall be deemed, in
each case, to constitute an incurrence of such Indebtedness by Avista
Corp. or such Restricted Subsidiary, as the case may be, that was not
permitted by this clause (5);
(6) the incurrence by Avista Corp. or any of its Restricted Subsidiaries
of:
(a) Hedging Obligations that are incurred for the purpose of fixing
or hedging interest rate risk with respect to any floating rate
Indebtedness that is permitted by the terms of the indenture to be
outstanding;
(b) Currency Hedging Obligations relating to Indebtedness of Avista
Corp. or any Restricted Subsidiary and/or to obligations to purchase or
sell assets or properties; provided that such Currency Hedging
Obligations do not increase the Indebtedness or other obligations of
Avista Corp. or any Restricted Subsidiary other than as a result of
fluctuations in foreign currency exchange rates or by reason of fees,
indemnities and compensation payable thereunder;
(c) Commodity Price Protection Obligations; provided that such
Commodity Price Protection Obligations do not increase the amount of
Indebtedness or other obligations of Avista Corp. or any Restricted
Subsidiary other than as a result of fluctuations in commodity prices or
by reason of fees, indemnities and compensation payable thereunder; and
(d) the Guarantee by any Restricted Subsidiary of Avista Corp. of
Indebtedness of Avista Corp. if such Restricted Subsidiary guarantees
the notes by executing a guarantee and supplemental indenture in the
forms prescribed by the indenture;
(7) the Guarantee by Avista Corp. or any Subsidiary of Avista Corp. of
Indebtedness of a Restricted Subsidiary of Avista Corp. that was permitted
to be incurred by another provision of this covenant;
(8) Indebtedness of Avista Corp. or any Restricted Subsidiary of Avista
Corp., represented by Capital Lease Obligations, or preferred stock of a
Restricted Subsidiary issued, or Indebtedness of Avista Corp. or a
Restricted Subsidiary incurred or assumed (i) to finance capital
expenditures or (ii) in connection with the acquisition or development of
real property, plant or equipment or the Capital Stock of a Restricted
36
Subsidiary that owns such property, plant or equipment in each case incurred
for the purpose of financing all or any part of the purchase price of such
property, plant or equipment or Capital Stock, in each case in an aggregate
principal amount (or accreted value, as applicable) at any time outstanding
pursuant to this clause (8), including all Permitted Refinancing
Indebtedness incurred to refund, refinance or replace any Indebtedness
incurred pursuant to this clause (8), not to exceed $275.0 million;
(9) Indebtedness incurred to finance power and natural gas cost deferrals
pursuant to, and in accordance with, state statutory or public utility
commission authorization, in an amount not to exceed the amount of the
deferrals so financed;
(10) Indebtedness of Avista Corp. or any of its Restricted Subsidiaries
arising from the honoring by a bank or other financial institution of a
check, draft or similar instrument inadvertently (except in the case of
daylight overdrafts) drawn against insufficient funds in the ordinary course
of business; provided, however, that such Indebtedness is extinguished
within five business days of incurrence;
(11) shares of preferred stock of a Restricted Subsidiary of Avista Corp.
issued to Avista Corp. or another Restricted Subsidiary of Avista Corp.;
provided that any subsequent transfer of any Capital Stock or any other
event that results in any such Restricted Subsidiary ceasing to be a
Restricted Subsidiary or any other subsequent transfer of any such shares of
preferred stock (except to Avista Corp. or another Restricted Subsidiary of
Avista Corp.) shall be deemed, in each case, to be an issuance of preferred
stock that was not permitted by this clause (11); and
(12) the incurrence by Avista Corp. or any of its Restricted Subsidiaries
of additional Indebtedness (including under a Credit Facility) in an
aggregate principal amount (or accreted value, as applicable) at any time
outstanding, including all Permitted Refinancing Indebtedness incurred to
refund, refinance or replace any Indebtedness incurred pursuant to this
clause (12), not to exceed $25.0 million.
In addition, Avista Corp. will not incur any Indebtedness (including
Permitted Debt) that is contractually subordinated in right of payment to any
other Indebtedness of Avista Corp. unless such Indebtedness is also
contractually subordinated in right of payment to the notes pursuant to terms
no less favorable to the holders of the notes; provided, however, that no
Indebtedness of Avista Corp. shall be deemed to be contractually subordinated
in right of payment to any other Indebtedness of Avista Corp. solely by virtue
of being unsecured.
For purposes of determining compliance with this "Incurrence of Indebtedness
and Issuance of Preferred Stock" covenant:
(1) in the event that an item of proposed Indebtedness meets the criteria
of more than one of the categories of Permitted Debt described in clauses
(1) through (12) above, or is entitled to be incurred pursuant to the first
paragraph of this covenant, Avista Corp. will be permitted to classify such
item of Indebtedness on the date of its incurrence in any manner that
complies with this covenant;
(2) Indebtedness under Credit Facilities outstanding on the date of the
indenture shall be deemed to have been incurred on the date of the indenture
in reliance on the exception provided by clause (1) of the definition of
Permitted Debt;
(3) the accrual of interest, the accretion or amortization of original
issue discount, the payment of interest on any Indebtedness in the form of
additional Indebtedness with the same terms, and the payment of dividends on
Disqualified Stock in the form of additional shares of the same class of
Disqualified Stock will not be deemed to be an incurrence of Indebtedness or
an issuance of Disqualified Stock for purposes of this covenant; provided,
in each such case, that the amount thereof is included in Fixed Charges of
Avista Corp. as accrued; and
(4) for purposes of determining compliance with any dollar-denominated
restriction on the incurrence of Indebtedness denominated in a foreign
currency, the dollar-equivalent principal amount of such Indebtedness
incurred pursuant thereto shall be calculated based on the relevant currency
exchange rate in effect on the date that such Indebtedness was incurred.
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Notwithstanding the foregoing, Avista Corp. will not incur or suffer to
exist, or permit any of its Restricted Subsidiaries or Unrestricted
Subsidiaries to incur or suffer to exist, any Obligations with respect to an
Unrestricted Subsidiary that would violate the provisions set forth in the
definition of Unrestricted Subsidiary. Specifically, without limiting the
generality of the foregoing, if an Unrestricted Subsidiary incurs Indebtedness
that is not Non-Recourse Debt or any Indebtedness of an Unrestricted Subsidiary
ceases to be Non-Recourse Debt, such Unrestricted Subsidiary will then cease to
be an Unrestricted Subsidiary for purposes of the indenture and any
Indebtedness of such Subsidiary will be deemed to be incurred by a Restricted
Subsidiary of Avista Corp. as of such date.
Liens
Avista Corp. will not and will not permit any of its Restricted Subsidiaries
to, create, incur, assume or otherwise cause or suffer to exist or become
effective any consensual Lien of any kind securing Indebtedness or trade
payables (other than Permitted Liens) upon any of their property or assets, now
owned or hereafter acquired, unless all payments due under the indenture and
the notes are secured on an equal and ratable basis with the obligations so
secured until such time as such obligations are no longer secured by a Lien;
provided, however, that Avista Corp. and its Restricted Subsidiaries may incur
other Liens to secure Indebtedness or trade payables as long as the sum of (x)
the amount of outstanding Indebtedness and trade payables secured by Liens
incurred pursuant to this proviso plus (y) the Attributable Debt with respect
to all outstanding leases in connection with Sale/Leaseback Transactions
entered into pursuant to the second paragraph of the covenant described below
under the caption "--Sale and Leaseback Transactions", does not exceed $25.0
million.
Dividend and Other Payment Restrictions Affecting Subsidiaries
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly,
create or permit to exist or become effective any consensual encumbrance or
restriction on the ability of any Restricted Subsidiary to:
(1) pay dividends or make any other distributions on its Capital Stock to
Avista Corp. or any of its Restricted Subsidiaries, or with respect to any
other interest or participation in, or measured by, its profits, or pay any
indebtedness owed to Avista Corp. or any of its Restricted Subsidiaries;
(2) make loans or advances to Avista Corp. or any of its Restricted
Subsidiaries; or
(3) transfer any of its properties or assets to Avista Corp. or any of
its Restricted Subsidiaries.
However, the preceding restrictions will not apply to encumbrances or
restrictions existing under or by reason of:
(1) Existing Indebtedness and Indebtedness under Credit Facilities as in
effect on the date of the indenture and any amendments, modifications,
restatements, renewals, increases, supplements, refundings, restructurings
(including rate increases), replacements or refinancings thereof, provided
that such amendments, modifications, restatements, renewals, increases,
supplements, refundings, restructurings, replacement or refinancings are not
materially more restrictive, taken as a whole, with respect to such dividend
and other payment restrictions than those contained in such Indebtedness, as
in effect on the date of the indenture;
(2) the indenture and the notes;
(3) applicable law or any requirement of any regulatory body;
(4) any instrument governing Indebtedness or Capital Stock of a Person
acquired by Avista Corp. or any of its Restricted Subsidiaries as in effect
at the time of such acquisition (except to the extent such Indebtedness was
incurred in connection with or in contemplation of such acquisition), which
encumbrance or restriction is not applicable to any Person, or the
properties or assets of any Person, other than the Person, or the property
or assets of the Person, so acquired, provided that, in the case of
Indebtedness, such Indebtedness was permitted by the terms of the indenture
to be incurred;
38
(5) customary non-assignment provisions of (a) any leases governing a
leasehold interest, (b) any supply, license or other agreement entered into
in the ordinary course of business of Avista Corp. or any of its Restricted
Subsidiaries, or (c) any security agreement relating to a Lien incurred
pursuant to clause (10) of the definition of Permitted Liens;
(6) purchase money obligations for property acquired in the ordinary
course of business that impose restrictions on the property so acquired of
the nature described in clause (3) of the preceding paragraph;
(7) any agreement for the sale or other disposition of a Restricted
Subsidiary or assets that restricts distributions by that Subsidiary or of
such assets pending such sale or other disposition;
(8) Permitted Refinancing Indebtedness, provided that the restrictions
contained in the agreements governing such Permitted Refinancing
Indebtedness are not materially more restrictive, taken as a whole, than
those contained in the agreements governing the Indebtedness being
refinanced;
(9) Liens securing Indebtedness that limit the right of the debtor to
dispose of the assets subject to such Lien; and
(10) provisions with respect to the disposition or distribution of assets
or property in asset sale agreements entered into in the ordinary course of
business.
Merger, Consolidation or Sale of Assets
Avista Corp. may not, directly or indirectly: (1) consolidate or merge with
or into another Person (whether or not Avista Corp. is the surviving
corporation); or (2) sell, assign, transfer, convey or otherwise dispose of all
or substantially all of the properties or assets of Avista Corp. and its
Restricted Subsidiaries taken as a whole, in one or more related transactions,
to another Person; unless:
(1) either:
(a) Avista Corp. is the surviving corporation; or
(b) the Person formed by or surviving any such consolidation or
merger or to which such sale, assignment, transfer, conveyance or other
disposition shall have been made is either (i) a corporation organized
or existing under the laws of the United States, any state thereof or
the District of Columbia or (ii) a partnership or limited liability
company organized or existing under the laws of the United States, any
state thereof or the District of Columbia, in either case, that has at
least one Restricted Subsidiary that is a corporation organized or
existing under the laws of the United States, any state thereof or the
District of Columbia which corporation becomes a co-issuer of the notes
pursuant to a supplemental indenture in form reasonably satisfactory to
the trustee;
(2) the Person formed by or surviving any such consolidation or merger
(if other than Avista Corp.) or the Person to which such sale, assignment,
transfer, conveyance or other disposition shall have been made assumes all
the obligations of Avista Corp. under the notes and, the indenture pursuant
to agreements in form reasonably satisfactory to the trustee;
(3) immediately after such transaction no Default or Event of Default
exists; and
(4) either:
(a) Avista Corp. or the Person formed by or surviving any such
consolidation or merger (if other than Avista Corp.), or to which such
sale, assignment, transfer, conveyance or other disposition shall have
been made will, on the date of such transaction after giving pro forma
effect thereto and any related financing transactions as if the same had
occurred at the beginning of the applicable four-quarter period, be
permitted to incur at least $1.00 of additional Indebtedness, either
pursuant to the Fixed Charge Coverage Ratio test set forth in the first
paragraph of the covenant described above under the caption
"--Incurrence of Indebtedness and Issuance of Preferred Stock" or
because the Rating Condition is then satisfied; or
39
(b) on the date of such transaction after giving pro forma effect
thereto and any related financing transactions, as if the same had
occurred at the beginning of the applicable four-quarter period, the pro
forma Fixed Charge Coverage Ratio of the surviving Person (if other than
Avista Corp.) will exceed the actual Fixed Charge Coverage Ratio of
Avista Corp. as of such date.
In addition, Avista Corp. may not, directly or indirectly, lease all or
substantially all of its properties or assets, in one or more related
transactions, to any other Person.
Transactions with Affiliates
Unless the Rating Condition is satisfied, Avista Corp. will not, and will
not permit any of its Restricted Subsidiaries to, make any payment to, or sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into or make or amend any
transaction, contract, agreement, understanding, loan, advance or guarantee
with, or for the benefit of, any Affiliate (each, an "Affiliate Transaction"),
unless:
(1) the terms of such Affiliate Transaction or series of related
Affiliate Transactions are no less favorable to Avista Corp. or such
Restricted Subsidiary, as the case may be, than those that would be
obtainable in a comparable transaction or series of related transactions in
arm's-length dealings with an unrelated third party; and
(2) Avista Corp. delivers to the trustee (i) with respect to any
Affiliate Transaction or series of related Affiliate Transactions involving
aggregate consideration in excess of $10.0 million, a resolution of the
Board of Directors set forth in an Officers' Certificate certifying that
such Affiliate Transaction complies with clause (l) above and that such
Affiliate Transaction has been approved by a majority of the disinterested
members of the Board of Directors and (ii) with respect to any Affiliate
Transaction or series of related Affiliate Transactions involving aggregate
consideration in excess of $25.0 million, a written opinion of a nationally
recognized investment banking, accounting or appraisal firm stating that
such transaction or series of transactions is fair to the holders from a
financial point of view.
The following items will not be deemed to be Affiliate Transactions and,
therefore, will not be subject to the provisions of the prior paragraph:
(1) any employment, compensation or indemnification arrangement entered
into by Avista Corp. or any of its Restricted Subsidiaries in the ordinary
course of business with employees, directors, officers or consultants;
(2) loans or advances to officers, directors, consultants and employees
in the ordinary course of business or guarantees in respect thereof or
otherwise made on their behalf (including any payments on such guarantees);
(3) any redemption of Capital Stock held by employees upon death,
disability or termination of employment at a price not in excess of the fair
market value thereof;
(4) the grant of stock options or similar rights to employees and
directors of Avista Corp.;
(5) payment of reasonable directors fees;
(6) transactions between or among Avista Corp. and/or its Restricted
Subsidiaries; and
(7) Restricted Payments and Permitted Investments that are permitted by
the provisions of the indenture described above under the caption
"--Restricted Payments."
Sale and Leaseback Transactions
Avista Corp. will not, and will not permit any of its Restricted
Subsidiaries to, enter into any Sale/Leaseback Transaction with respect to any
property owned on the date of the indenture or thereafter acquired unless:
(1) Avista Corp. or such Restricted Subsidiary would be entitled to
create a Lien on such property securing Indebtedness in an amount at least
equal to the Attributable Debt with respect to such transaction without
equally and ratably securing the notes pursuant to the covenant described
above under the caption "--Liens";
40
(2) the Net Proceeds of the sale are at least equal to the fair market
value (as determined by the Board of Directors) of the property sold and
Avista Corp. or such Restricted Subsidiary applies an amount in cash equal
to the net proceeds of such sale to the retirement, within 180 days of the
effective date of any such arrangement, of Indebtedness of Avista Corp. or a
Restricted Subsidiary or purchases other property having a fair market value
at least equal to the fair market value of the assets or property sold in
such transactions; or
(3) such Sale/Leaseback Transaction is between Avista Corp. and any of
its Restricted Subsidiaries or between any Restricted Subsidiaries of Avista
Corp.
In addition to the transactions permitted pursuant to the preceding
paragraph, Avista Corp. or any Restricted Subsidiary may enter into any other
Sale/Leaseback Transaction as long as the sum of:
(a) the Attributable Debt with respect to such Sale/Leaseback Transaction
and all other Sale/Leaseback Transactions entered into pursuant to this
proviso, plus
(b) the amount of outstanding Indebtedness secured by Liens incurred
pursuant to the final proviso to the covenant described under "--Liens",
does not exceed $25.0 million.
Designation of Restricted and Unrestricted Subsidiaries
The Board of Directors may designate any Restricted Subsidiary to be an
Unrestricted Subsidiary if that designation would not cause a Default. If a
Restricted Subsidiary is designated as an Unrestricted Subsidiary, the
aggregate fair market value of all outstanding Investments owned by Avista
Corp. and its Restricted Subsidiaries in the Subsidiary so designated will be
deemed to be an Investment made as of the time of such designation and will
either reduce the amount available for Restricted Payments under the first
paragraph of the covenant described above under the caption "--Restricted
Payments" or reduce the amount available for future Investments under one or
more clauses of the definition of Permitted Investments, or both, as Avista
Corp. shall determine. That designation will be permitted only if such
Investment would be permitted at that time and if such Restricted Subsidiary
otherwise meets the definition of an Unrestricted Subsidiary. The Board of
Directors may redesignate any Unrestricted Subsidiary to be a Restricted
Subsidiary if the redesignation would not cause a Default. Any designation by
the Board of Directors shall be evidenced to the trustee by filing with the
trustee a certified copy of the board resolution giving effect to the
designation and an Officer's Certificate certifying that the designation
complied with these conditions and was permitted by the "Restricted Payments"
covenant.
If, at any time, any Unrestricted Subsidiary would fail to meet the
requirements of the definition of an Unrestricted Subsidiary, it shall
thereafter cease to be an Unrestricted Subsidiary for purposes of the Indenture
and any Indebtedness of the Subsidiary will be deemed to be incurred by a
Restricted Subsidiary of Avista Corp. as of that date (and, if such
Indebtedness is not permitted to be incurred as of that date under the covenant
describes under the caption "--Incurrence of Indebtedness and Issuance of
Preferred Stock", Avista Corp. will be in default of such covenant).
The Board of Directors of Avista Corp. may at any time designate any
Unrestricted Subsidiary to be a Restricted Subsidiary; provided that such
designation will be deemed to be an incurrence of Indebtedness by a Restricted
Subsidiary of Avista Corp. of any outstanding Indebtedness of such Unrestricted
Subsidiary and such designation will be permitted only if (i) such Indebtedness
is permitted under the covenant described under the caption "--Incurrence of
Indebtedness and Issuance of Preferred Stock", calculated on a pro forma basis
as if the designation had occurred at the beginning of the four-quarter period,
and (ii) no Default or Event of Default would be in existence following the
designation.
41
Reports
Whether or not required by the rules and regulations of the SEC, so long as
any notes are outstanding, Avista Corp. will furnish to the holders of notes,
within the time periods specified in the SEC's rules and regulations:
(1) all quarterly and annual financial information that would be required
to be contained in a filing with the SEC on Forms 10-Q and 10-K, including a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual information only, a report on
the annual financial statements by Avista Corp.'s certified independent
accountants; and
(2) all current reports that would be required to be filed with the SEC
on Form 8-K.
In addition, whether or not required by the rules and regulations of the
SEC, Avista Corp. will file a copy of all of the information and reports
referred to in clauses (1) and (2) above with the SEC for public availability
within the time periods specified in the SEC's rules and regulations (unless
the SEC will not accept such a filing) and make such information available to
securities analysts and prospective investors upon request. Avista Corp. has
also agreed that, for so long as any Old Notes remain outstanding, it will
furnish to the holders and to securities analysts and prospective investors,
upon their request, the information required to be delivered pursuant to Rule
144A(d)(4) under the Securities Act.
Events of Default and Remedies
Each of the following is an Event of Default:
(1) default continued for 30 days in the payment when due of interest on,
the notes;
(2) default in payment when due of the principal of, or premium, if any,
on the notes;
(3) failure by Avista Corp. or any of its Restricted Subsidiaries to
comply with any of the provisions described under the captions "--Repurchase
at the Option of Holders--Change of Control", "--Repurchase at the Option of
Holders--Assets Sales" or "Certain Other Covenants--Merger, Consolidation or
Sale of Assets;"
(4) default in performance of any other agreements in the indenture or in
the notes for 30 days after written notice to Avista Corp. by the trustee or
to Avista Corp. and the trustee by the holders of at least 25% in principal
amount on the notes then outstanding;
(5) there shall have occurred either (i) a default by Avista Corp. or any
Restricted Subsidiary under any instrument or instruments under which there
is or may be secured or evidenced any Indebtedness of Avista Corp. or any
Restricted Subsidiary of Avista Corp. (other than the notes) having an
outstanding principal amount of $25.0 million or more that has caused the
holders thereof to declare such Indebtedness to be due and payable prior to
its maturity or (ii) a default by Avista Corp. or any Restricted Subsidiary
in the payment at maturity of the principal under any such instrument, and
such unpaid portion exceeds $25.0 million and is not paid, or such default
is not cured or waived, within any grace period applicable thereto, unless
such acceleration is rescinded or annulled or such Indebtedness is
discharged within 20 days of Avista Corp. or a Restricted Subsidiary
becoming aware of such default; provided, however, that this clause (5)
shall not apply to any default on Non-Recourse Debt;
(6) any final judgment or order for the payment of money shall be
rendered against Avista Corp., or any Restricted Subsidiary of Avista Corp.
that is a Significant Subsidiary, in an amount in excess of $25.0 million
and shall not be discharged, and there shall be any period of 30 consecutive
days following entry of the final judgment or order in excess of $25.0
million during which a stay of enforcement of such final judgment or order,
by reason of a pending appeal or otherwise, shall not be in effect;
(7) certain events of bankruptcy or insolvency with respect to Avista
Corp. or any Restricted Subsidiary of Avista Corp. that is a Significant
Subsidiary; and
42
(8) except as permitted by the indenture, any guarantee of the notes is
held in any judicial proceeding to be unenforceable or invalid or shall
cease for any reason to be in full force and effect or any guarantor, or any
Person acting on behalf of any guarantor, shall deny or disaffirm its
obligations under such guarantor's guarantee of the notes.
In the case of an Event of Default arising from certain events of bankruptcy
or insolvency, with respect to Avista Corp. or any Restricted Subsidiary that
is a Significant Subsidiary of Avista Corp., all outstanding notes will become
due and payable immediately without further action or notice. If any other
Event of Default occurs and is continuing, the trustee or the holders of at
least 25% in principal amount of the then outstanding notes may declare all the
notes to be due and payable immediately.
Holders of the notes may not enforce the indenture or the notes except as
provided in the indenture. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding notes may direct the
trustee in its exercise of any trust or power. The trustee may withhold from
holders of the notes notice of any continuing Default or Event of Default
(except a Default or Event of Default relating to the payment of principal or
interest if it determines that withholding notice is in their interest.
The holders of a majority in aggregate principal amount of the notes then
outstanding by notice to the trustee may on behalf of the holders of all of the
notes waive any existing Default or Event of Default and its consequences under
the indenture except a continuing Default or Event of Default in the payment of
interest on, premium, if any, or the principal of, the notes.
Avista Corp. is required to deliver to the trustee annually a statement
regarding compliance with the indenture. Upon becoming aware of any Default or
Event of Default, Avista Corp. is required to deliver to the trustee a
statement specifying such Default or Event of Default.
No Personal Liability of Directors, Officers, Employees and Stockholders
No director, officer, employee, incorporator, controlling person or
stockholder of Avista Corp., as such, shall have any liability for any
obligations of Avista Corp. under the notes or the indenture, or for any claim
based on, in respect of, or by reason of, such obligations or their creation.
Each holder of notes by accepting a note waives and releases all such
liability. The waiver and release are part of the consideration for issuance of
the notes. The waiver may not be effective to waive liabilities under the
federal securities laws.
Legal Defeasance and Covenant Defeasance
Avista Corp. may, at its option and at any time, elect to have all of its
obligations discharged with respect to all or a portion of the outstanding
notes ("Legal Defeasance") except for:
(1) the rights of holders of outstanding notes to receive payments in
respect of the principal of, or interest or premium, if any, on such notes,
when such payments are due from the trust referred to below;
(2) Avista Corp.'s obligations with respect to the notes concerning
issuing temporary notes, registration of notes, mutilated, destroyed, lost
or stolen notes and the maintenance of an office or agency for payment and
money for security payments held in trust;
(3) the rights, powers, trusts, duties and immunities of the trustee, and
Avista Corp.'s obligations in connection therewith; and
(4) the Legal Defeasance provisions of the indenture.
In addition, Avista Corp. may, at its option and at any time, elect to have
the obligations of Avista Corp. released with respect to certain covenants that
are described in the indenture ("Covenant Defeasance") and thereafter any
omission to comply with those covenants shall not constitute a Default or Event
of Default with
43
respect to the notes. In the event Covenant Defeasance occurs, certain events
(not including non-payment, bankruptcy, receivership, rehabilitation and
insolvency events) described under "--Events of Default" will no longer
constitute an Event of Default with respect to the notes.
In order to exercise either Legal Defeasance or Covenant Defeasance:
(1) Avista Corp. must irrevocably deposit with the trustee, in trust, for
the benefit of the holders of the notes (or, in the case of Legal
Defeasance, a specified principal amount thereof), cash in U.S. dollars,
non-callable Government Securities, or a combination thereof, in such
amounts as will be sufficient, in the opinion of a nationally recognized
firm of independent public accountants to pay the principal of, premium, if
any, and interest on the notes (or in the case of Legal Defeasance, such
specified principal amount thereof) on the stated maturity or prior
Redemption Date thereof, as the case may be,
(2) in the case of Legal Defeasance, Avista Corp. shall have delivered to
the trustee:
(a) an opinion of counsel in the United States reasonably acceptable
to the trustee confirming that (i) Avista Corp. has received from, or
there has been published by, the Internal Revenue Service a ruling or
(ii) since the date of the indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that,
and based thereon such opinion of counsel shall confirm that, the
holders of the outstanding notes will not recognize income, gain or loss
for federal income tax purposes as a result of such Legal Defeasance and
will be subject to federal income tax on the same amounts, in the same
manner and at the same times as would have been the case if such Legal
Defeasance had not occurred; or
(b) (i) an instrument wherein Avista Corp., notwithstanding the
satisfaction and discharge of its Indebtedness in respect of the notes
or a portion of the principal amount thereof, shall assume the
obligation (which shall be absolute and unconditional) to irrevocably
deposit with the trustee such additional sums of money, if any, or
additional Government Securities, if any, or any combination thereof, at
such time or times, as shall be necessary, together with the money
and/or Government Securities theretofore so deposited, to pay when due
the principal of and premium, if any, and interest due and to become due
on such notes or portions thereof, provided, however, that such
instrument may state that the obligation of Avista Corp. to make
additional deposits as aforesaid shall arise only upon the delivery to
Avista Corp. by the trustee of a notice asserting the deficiency and
showing the calculation thereof and shall continue only until Avista
Corp. shall have delivered to the trustee a further opinion of an
independent public accountant of nationally recognized standing to the
effect that no such deficiency exists and showing the calculation of the
sufficiency of the deposits then held by the trustee; and (ii) an
opinion of recognized tax counsel in the United States reasonably
acceptable to the trustee to the effect that the holders of the
outstanding notes will not recognize income, gain or loss for federal
income tax purposes as a result of such Legal Defeasance and will be
subject to federal income tax on the same amounts, in the same manner
and at the same times as would have been the case if such Legal
Defeasance had not occurred;
(3) in the case of Covenant Defeasance, Avista Corp. shall have delivered
to the trustee an opinion of counsel reasonably acceptable to the trustee
confirming that the holders of the outstanding notes will not recognize
income, gain or loss for federal income tax purposes as a result of such
Covenant Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the
case if such Covenant Defeasance had not occurred;
(4) no Default or Event of Default shall have occurred and be continuing
on the date of such deposit;
(5) such Legal Defeasance or Covenant Defeasance will not result in a
breach or violation of, or constitute a default under any material agreement
or instrument (other than the indenture) to which Avista Corp. or any of it
Subsidiaries is a party or by which Avista Corp. or any of its Subsidiaries
is bound;
(6) Avista Corp. must deliver to the trustee an opinion of counsel to the
effect that (assuming that no holder of any notes would be considered an
insider of Avista Corp. under applicable bankruptcy or
44
insolvency law) after the 123rd day following the deposit, the trust funds
will not constitute a "voidable preference" under Section 547 of the
Bankruptcy Code;
(7) Avista Corp. must deliver to the trustee an Officers' Certificate
stating that the deposit was not made by Avista Corp. with the intent of
preferring the holders of notes over the other creditors of Avista Corp. or
with the intent of defeating, hindering, delaying or defrauding creditors of
Avista Corp. or others; and
(8) Avista Corp. must deliver to the trustee an Officers' Certificate and
an opinion of counsel (with usual and customary exceptions acceptable to the
trustee), each stating that all conditions precedent relating to the Legal
Defeasance or the Covenant Defeasance have been complied with.
Amendment, Supplement and Waiver
Except as provided in the next two succeeding paragraphs, the indenture or
the notes may be amended or supplemented with the consent of the holders of at
least a majority in principal amount of the notes then outstanding (including,
without limitation, consents obtained in connection with a purchase of, or
tender offer or exchange offer for, notes), and any existing default or
compliance with any provision of the indenture or the notes may be waived with
the consent of the holders of a majority in principal amount of the then
outstanding notes (including, without limitation, consents obtained in
connection with a purchase of, or tender offer or exchange offer for, notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any notes held by a non-consenting holder):
(1) reduce the principal amount of notes whose holders must consent to an
amendment, supplement or waiver;
(2) reduce the principal of or change the fixed maturity of any note;
(3) reduce the rate of or change the time for payment of interest on any
note;
(4) waive a Default or Event of Default in the payment of principal of,
or interest or premium, if any, on the notes (except a rescission of
acceleration of the notes by the holders of at least a majority in aggregate
principal amount of the then outstanding notes and a waiver of the payment
default that resulted from such acceleration);
(5) make any note payable in money other than that stated in the notes;
(6) make any change in the provisions of the indenture relating to
waivers of past Defaults or the rights of holders of notes to receive
payments of principal of, or interest or premium, if any, on the notes; and
(7) make any change in the preceding amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes,
Avista Corp. and the trustee may amend or supplement the indenture or the
notes:
(1) to cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of Avista Corp.'s obligations to
holders of notes in the case of a merger or consolidation or sale of all or
substantially all of Avista Corp.'s assets;
(4) to make any change that would provide any additional rights or
benefits to the holders of notes or that does not adversely affect the legal
rights under the indenture of any such holder;
(5) to comply with requirements of the SEC in order to effect or maintain
the qualification of the indenture under the Trust Indenture Act, or
45
(6) to evidence and provide the acceptance of the appointment of a
successor trustee under the indenture.
Satisfaction and Discharge
The indenture will be discharged and will cease to be of further effect as
to all notes issued thereunder except as to:
(1) Avista Corp.'s right to redeem the notes at its option;
(2) substitution of apparently mutilated, defaced, destroyed, lost or
stolen notes;
(3) rights of holders to receive payment of principal of and premium, if
any, and interest on the notes;
(4) rights, obligations an immunity of the trustee under the indenture;
and
(5) rights of the holder of notes with respect to any property deposited
with the trustee payable to all or any of them,
if:
(1) either (a) all notes that have been authenticated (except lost,
stolen or destroyed notes that have been replaced or paid and notes for
whose payment money has theretofore been deposited in trust and thereafter
repaid to Avista Corp.) have been delivered to the trustee for cancellation;
or (b) a Legal Defeasance has been effected with respect to all notes that
have not been so delivered;
(2) no Default or Event of Default shall have occurred and be continuing
on the date Legal Defeasance has occurred or shall occur as a result of such
Legal Defeasance and such Legal Defeasance will not result in a breach or
violation of, or constitute a default under, any other material instrument
to which Avista Corp. is a party or by which Avista Corp. is bound;
(3) Avista Corp. has paid or caused to be paid all sums payable by it
under the indenture; and
(4) Avista Corp. has delivered irrevocable instructions to the trustee
under the indenture to apply the deposited money toward the payment of the
notes at the maturity date of the notes.
In addition, Avista Corp. must deliver an Officers' Certificate and an
Opinion of Counsel to the trustee stating that all conditions precedent to
satisfaction and discharge have been satisfied.
Concerning the Trustee
If the trustee becomes a creditor of Avista Corp., the indenture limits its
right to obtain payment of claims in certain cases, or to realize on certain
property received in respect of any such claim as security or otherwise. The
trustee will be permitted to engage in other transactions; however, if it
acquires any conflicting interest it must eliminate such conflict within 90
days, apply to the SEC for permission to continue or resign.
The holders of a majority in principal amount of the then outstanding notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the trustee, subject to
certain exceptions. The indenture provides that in case an Event of Default
shall occur and be continuing, the trustee will be required, in the exercise of
its power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the trustee will be under no obligation to
exercise any of its rights or powers under the indenture at the request of any
holder of notes, unless such holder shall have offered to the trustee security
and indemnity satisfactory to it against any loss, liability or expense.
Book-Entry, Delivery and Form
The New Notes initially will be represented by one or more notes in
registered, global form without interest coupons (collectively, the "Global
Notes"). Upon issuance, the Global Notes will be deposited upon issuance with
the trustee as custodian for The Depository Trust Company ("DTC"), in New York,
New York, and registered in the name of DTC or its nominee, in each case for
credit to an account of a direct or indirect participant in DTC as described
below.
46
Except as set forth below, the Global Notes may be transferred, in whole and
not in part, only to another nominee of DTC or to a successor of DTC or its
nominee. Beneficial interests in the Global Notes may not be exchanged for
notes in certificated form except in the limited circumstances described below.
See "--Exchange of Global Notes for Certificated Notes." Except in the limited
circumstances described below, owners of beneficial interests in the Global
Notes will not be entitled to receive physical delivery of notes in
certificated form. In addition, transfers of beneficial interests in the Global
Notes will be subject to the applicable rules and procedures of DTC and its
direct or indirect participants (including, if applicable, those of the
Euroclear System ("Euroclear") and Clearstream Banking ("Clearstream")), which
may change from time to time.
Depository Procedures
The following description of the operations and procedures of DTC, Euroclear
and Clearstream are provided solely as a matter of convenience. These
operations and procedures are solely within the control of the respective
settlement systems and are subject to changes by them from time to time. Avista
Corp. takes no responsibility for these operations and procedures and urges
investors to contact the system or their participants directly to discuss these
matters.
DTC has advised Avista Corp. that DTC is a limited-purpose trust company
organized under the laws of the State of New York, a member of the Federal
Reserve System, a "clearing corporation" within the meaning of the Uniform
Commercial Code and a "Clearing Agency" registered pursuant to the provisions
of Section 17A of the Exchange Act. DTC was created to hold securities for its
participating organizations (collectively, the "Participants") and to
facilitate the clearance and settlement of transactions in those securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Participants include securities brokers and dealers
(including the initial purchasers), banks, trust companies, clearing
corporations and certain other organizations. Access to DTC's system is also
available to other entities such as banks, brokers, dealers and trust companies
that clear through or maintain a custodial relationship with a Participant,
either directly or indirectly (collectively, the "Indirect Participants").
Persons who are not Participants may beneficially own securities held by or on
behalf of DTC only through the Participants or the Indirect Participants. The
ownership interests in, and transfers of ownership interests in, each security
held by or on behalf of DTC are recorded on the records of the Participants and
Indirect Participants.
DTC has also advised Avista Corp. that, pursuant to procedures established
by it:
(1) Upon deposit of the Global Notes representing the Old Notes, DTC
credited the accounts of Participants designated by the initial purchasers
of the Old Notes with portions of the principal amount of such Global Notes;
and
(2) ownership of interests in the Global Notes representing Old Notes
are, and ownership of interests in New Notes will be, shown on, and the
transfer of ownership thereof will be effected only through, records
maintained by DTC (with respect to the Participants) or by the Participants
and the Indirect Participants (with respect to other owners of beneficial
interest in the Global Notes).
Investors in the Global Notes who are Participants in DTC's system may hold
their interests therein directly through DTC. Investors in the Global Notes who
are not Participants may hold their interests therein indirectly through
organizations (including Euroclear and Clearstream) which are Participants in
such system. Euroclear and Clearstream will hold interests in Global Notes on
behalf of their participants through customers' securities accounts in their
respective names on the books of their respective depositories, which are
Euroclear Bank, S.A./N.V., as operator of Euroclear, and Citibank, N.A., as
operator of Clearstream. All interests in a Global Note, including those held
through Euroclear or Clearstream, may be subject to the procedures and
requirements of DTC. Those interests held through Euroclear or Clearstream may
also be subject to the procedures and requirements of such systems. The laws of
some states require that certain Persons take physical delivery in definitive
form of securities that they own. Consequently, the ability to transfer
beneficial interests in a Global Note to such Persons will be limited to that
extent. Because DTC can act only on behalf of Participants, which in
47
turn act on behalf of Indirect Participants, the ability of a Person having
beneficial interests in a Global Note to pledge such interests to Persons that
do not participate in the DTC system, or otherwise take actions in respect of
such interests, may be affected by the lack of a physical certificate
evidencing such interests.
Except as described below, owners of interests in the Global Notes will not
have notes registered in their names, will not receive physical delivery of
notes in certificated form and will not be considered the registered owners or
"Holders" thereof under the indenture or the notes for any purpose.
Payments in respect of the principal of, and interest and premium, if any,
on a Global Note registered in the name of DTC or its nominee, will be payable
to DTC in its capacity as the registered Holder under the indenture. Under the
terms of the indenture, Avista Corp. and the trustee will treat the Persons in
whose names the notes, including the Global Notes, are registered as the owners
thereof for the purpose of receiving payments and for all other purposes.
Consequently, neither Avista Corp., the trustee nor any agent of Avista Corp.
or the trustee has or will have any responsibility or liability for:
(1) any aspect of DTC's records or any Participant's or Indirect
Participant's records relating to or payments made on account of beneficial
ownership interests in the Global Notes or for maintaining, supervising or
reviewing any of DTC's records or any Participant's or Indirect
Participant's records relating to the beneficial ownership interests in the
Global Notes; or
(2) any other matter relating to the actions and practices of DTC or any
of its Participants or Indirect Participants.
DTC has advised Avista Corp. that its current practice, upon receipt of any
payment in respect of securities (including principal and interest), is to
credit the accounts of the relevant Participants with the payment on the
payment date unless DTC has reason to believe it will not receive payment on
such payment date. Each relevant Participant is credited with an amount
proportionate to its beneficial ownership of an interest in the principal
amount of the relevant security as shown on the records of DTC. Payments by the
Participants and the Indirect Participants to the beneficial owners of notes
will be governed by standing instructions and customary practices and will be
the responsibility of the Participants or the Indirect Participants and will
not be the responsibility of DTC, the trustee or Avista Corp. Neither Avista
Corp. nor the trustee will be liable for any delay by DTC or any of its
Participants in identifying the beneficial owners of the notes, and Avista
Corp. and the trustee may conclusively rely on and will be protected in relying
on instructions from DTC or its nominee for all purposes.
DTC has also advised Avista Corp. that, transfers between Participants in
DTC will be effected in accordance with DTC's procedures, and will be settled
in same-day funds and transfers between participants in Euroclear and
Clearstream will be effected in accordance with their respective rules and
operating procedures.
Subject to compliance with the applicable transfer and exchange restrictions
described herein, cross-market transfers between the Participants in DTC, on
the one hand, and Euroclear or Clearstream participants, on the other hand,
will be effected through DTC in accordance with DTC's rules on behalf of
Euroclear or Clearstream, as the case may be, by its respective depositary;
however, such cross-market transactions will require delivery of instructions
to Euroclear or Clearstream, as the case may be, by the counterparty in such
system in accordance with the rules and procedures and within the established
deadlines (Brussels time) of such system. Euroclear or Clearstream, as the case
may be, will, if the transaction meets its settlement requirements, deliver
instructions to its respective depositary to take action to effect final
settlement on its behalf by delivering or receiving interests in the relevant
Global Note in DTC, and making or receiving payment in accordance with normal
procedures for same-day funds settlement applicable to DTC. Euroclear
participants and Clearstream participants may not deliver instructions directly
to the depositories for Euroclear or Clearstream.
DTC has advised Avista Corp. that it will take any action permitted to be
taken by a Holder of notes only at the direction of one or more Participants to
whose account DTC has credited the interests in the Global Notes and only in
respect of such portion of the aggregate principal amount of the notes as to
which such Participant or Participants has or have given such direction.
However, if there is an Event of Default under the notes, DTC
48
reserves the right to exchange the Global Notes for legended notes in
certificated form, and to distribute such notes to its Participants.
Although DTC, Euroclear and Clearstream have agreed to the foregoing
procedures to facilitate transfers of interests in the Global Notes among
participants in DTC, Euroclear and Clearstream, they are under no obligation to
perform or to continue to perform such procedures, and may discontinue such
procedures at any time. Neither Avista Corp. nor the trustee nor any of their
respective agents will have any responsibility for the performance by DTC,
Euroclear or Clearstream or their respective participants or indirect
participants of their respective obligations under the rules and procedures
governing their operations.
Exchange of Global Notes for Certificated Notes
A Global Note is exchangeable for definitive notes in registered
certificated form ("Certificated Notes") if:
(1) DTC (a) notifies Avista Corp. that it is unwilling or unable to
continue as depositary for the Global Notes and Avista Corp. fails to
appoint a successor depositary or (b) has ceased to be a clearing agency
registered under the Exchange Act and Avista Corp. fails to appoint a
successor depositary;
(2) Avista Corp., at its option, notifies the trustee in writing that it
elects to cause the issuance of the Certificated Notes; or
(3) there shall have occurred and be continuing a Default or Event of
Default with respect to the notes.
In addition, beneficial interests in a Global Note may be exchanged for
Certificated Notes upon prior written notice given to the trustee by or on
behalf of DTC in accordance with the indenture. In all cases, Certificated
Notes delivered in exchange for any Global Note or beneficial interests in
Global Notes will be registered in the names, and issued in any approved
denominations, requested by or on behalf of DTC (in accordance with its
customary procedures). Any such exchange will be effected through the DTC
Deposit/Withdraw at Custodian system and an appropriate adjustment will be made
to reflect a decrease in the principal amount of the relevant Global Note.
Same Day Settlement and Payment
Avista Corp. will make payments in respect of the notes represented by the
Global Notes (including principal, premium, if any, and interest by wire
transfer of immediately available funds to the accounts specified by the Global
Note Holder. Avista Corp. will make all payments of principal, interest and
premium with respect to Certificated Notes by wire transfer of immediately
available funds to the accounts specified by the Holders thereof or, if no such
account is specified, by mailing a check to each such Holder's registered
address. The notes represented by the Global Notes are expected to trade in
DTC's Same-Day Funds Settlement System, and any permitted secondary market
trading activity in such notes will, therefore, be required by DTC to be
settled in immediately available funds. Avista Corp. expects that secondary
trading in any Certificated Notes will also be settled in immediately available
funds.
Because of time zone differences, the securities account of a Euroclear or
Clearstream participant purchasing an interest in a Global Note from a
Participant in DTC will be credited, and any such crediting will be reported to
the relevant Euroclear or Clearstream participant, during the securities
settlement processing day (which must be a business day for Euroclear and
Clearstream) immediately following the settlement date of DTC. DTC has advised
Avista Corp. that cash received in Euroclear or Clearstream as a result of
sales of interests in a Global Note by or through a Euroclear or Clearstream
participant to a Participant in DTC will be received with value on the
settlement date of DTC but will be available in the relevant Euroclear or
Clearstream cash account only as of the business day for Euroclear or
Clearstream following DTC's settlement date.
Governing Law
The internal laws of the state of New York will govern and be used to
construe the indenture without giving effect to applicable principles of
conflicts of law to the extent that the application of the laws of another
jurisdiction would be required thereby.
49
Certain Definitions
Set forth below are certain defined terms used in the indenture. Reference
is made to the indenture for a full disclosure of all such terms, as well as
any other capitalized terms used herein for which no definition is provided.
"Acquired Debt" means, with respect to any specified Person:
(1) Indebtedness of any other Person existing at the time such other
Person is merged with or into or became a Subsidiary of such specified
Person, whether or not such Indebtedness is incurred in connection with, or
in contemplation of, such other Person merging with or into, or becoming a
Subsidiary of, such specified Person; and
(2) Indebtedness secured by a Lien encumbering any asset acquired by such
specified Person.
"Affiliate" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control",
as used with respect to any Person, shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the management or
policies of such Person, whether through the ownership of voting securities, by
agreement or otherwise; provided that beneficial ownership of 10% or more of
the Voting Stock of a Person shall be deemed to be control. For purposes of
this definition, the terms "controlling", "controlled by" and "under common
control with" shall have correlative meanings.
"Asset Sale" means any sale, transfer or other disposition (including by way
of merger, consolidation or Sale/Leaseback Transaction) in one or a series of
transactions by Avista Corp. or any Restricted Subsidiary to any Person other
than Avista Corp. or any Restricted Subsidiary of Avista Corp., of:
(1) all or any of the Capital Stock of any Restricted Subsidiary of
Avista Corp.;
(2) all or substantially all of the assets of any operating unit,
Facility, division or line of business of Avista Corp. or any Restricted
Subsidiary; or
(3) any other property or assets or rights to acquire property or assets
of Avista Corp. or any Restricted Subsidiary of Avista Corp. outside of the
ordinary course of business of Avista Corp. or such Restricted Subsidiary.
Notwithstanding the preceding, the following items shall not be deemed to be
Asset Sales:
(1) any single transaction or series of related transactions that
involves assets having a fair market value of less than $10.0 million;
(2) an issuance of Equity Interests by a Restricted Subsidiary to Avista
Corp. or to another Restricted Subsidiary of Avista Corp.;
(3) any sale or lease of obsolete equipment or other assets that are no
longer being used by Avista Corp. or any of its Restricted Subsidiaries;
(4) any primary offering of Common Stock of Avista Communications, Avista
Advantage or Avista Labs, or any Subsidiary of any of them, provided that
the issuer of such Common Stock is operating substantially the same business
as is conducted by such issuer (or in case of a Subsidiary, all or a portion
of the same business as is conducted by the respective parent company named
above in this clause (4)) as of the date of the indenture;
(5) a Restricted Payment or Permitted Investment that is not prohibited
by the covenant described above under the caption "--Certain
Covenants--Restricted Payments"; and
50
(6) any disposition of property or assets by a Restricted Subsidiary of
Avista Corp. to Avista Corp. or by Avista Corp. or a Restricted Subsidiary
of Avista Corp. to a Restricted Subsidiary of Avista Corp.
"Attributable Debt" means, in respect of a Sale/Leaseback Transaction, as of
the time of determination, the present value discounted at the interest rate
assumed in making calculations in accordance with GAAP of the total obligations
of the lessee for rental payments during the remaining term of the lease
included in such Sale/Leaseback Transaction, including any period for which
such lease has been extended or may be extended at the option of the lessor.
"Beneficial Owner" has the meaning assigned to such term in Rule 13d-3 and
Rule 13d-5 under the Exchange Act. The terms "Beneficially Owns" and
"Beneficially Owned" shall have a corresponding meaning.
"Board of Directors" means:
(1) with respect to a corporation, the board of directors of the
corporation or any duly authorized committee of such board of directors;
(2) with respect to a partnership, the Board of Directors of the general
partner of the partnership; and
(3) with respect to any other Person, the board or committee of such
Person serving a similar function.
"Capital Lease Obligation" means, at the time any determination thereof is
to be made, the amount of the liability in respect of a capital lease that
would at that time be required to be capitalized on a balance sheet in
accordance with GAAP.
"Capital Stock" of any Person means any and all shares, interests,
participations or other equivalents, however designated, of corporate stock or
other equity participations, including partnership interests, whether general
or limited, of the Person.
"Cash Equivalents" means:
(1) United States dollars;
(2) securities issued or directly and fully guaranteed or insured by the
United States government or any agency or instrumentality thereof (provided
that the full faith and credit of the United States is pledged in support
thereof) having maturities of not more than twelve months from the date of
acquisition;
(3) certificates of deposit and eurodollar time deposits with maturities
of twelve months or less from the date of acquisition, bankers' acceptances
with maturities not exceeding twelve months and overnight bank deposits, in
each case, issued or accepted by any financial institution organized under
the laws of the United States or any state thereof or the District of
Columbia that either (x) has a long-term deposit rating of at least A-2 from
Moody's and A from S&P or (y) is at least "adequately capitalized" (as
defined in the regulations of its primary federal banking regulator) and (b)
has Tier 1 Capital (as defined in such regulations) of not less than
$100,000,000;
(4) repurchase obligations with a term of not more than seven days for
underlying securities of the types described in clauses (2) and (3) above
entered into with any financial institution meeting the qualifications
specified in clause (3) above;
(5) commercial paper having the highest rating obtainable from Moody's or
S&P (or in their absence an equivalent rating from another nationally
recognized securities rating agency) and in each case maturing within twelve
months after the date of acquisition; and
(6) money market funds at least 95% of the assets of which constitute
Cash Equivalents of the kinds described in clauses (1) through (5) of this
definition.
51
"Change of Control" means the occurrence of any of the following:
(1) the direct or indirect sale, transfer, conveyance or other
disposition (other than by way of merger or consolidation), in one or a
series of related transactions, of all or substantially all of the
properties or assets of Avista Corp. and its Restricted Subsidiaries taken
as a whole to any "person" (as that term is used in Section 13(d)(3) of the
Exchange Act);
(2) the adoption of a plan relating to the liquidation or dissolution of
Avista Corp. other than in a transaction that complies with the provisions
of the covenant described above under "-Certain Covenants--Merger,
Consolidation or Sale of Assets";
(3) the consummation of any transaction (including, without limitation,
any merger or consolidation) the result of which is that any "person" (as
defined above) becomes the Beneficial Owner, directly or indirectly, of more
than 35% of the Voting Stock of Avista Corp., measured by voting power
rather than number of shares;
(4) the first day on which a majority of the members of the Board of
Directors of Avista Corp. are not Continuing Directors; or
(5) Avista Corp. consolidates with, or merges with or into, any Person,
or any Person consolidates with, or merges with or into, Avista Corp., in
any such event pursuant to a transaction in which any of the outstanding
Voting Stock of Avista Corp. or such other Person is converted into or
exchanged for cash, securities or other property, other than any such
transaction where the Voting Stock of Avista Corp. outstanding immediately
prior to such transaction is converted into or exchanged for Voting Stock
(other than Disqualified Stock) of the surviving or transferee Person
constituting a majority of the outstanding shares of such Voting Stock of
such surviving or transferee Person (immediately after giving effect to such
issuance).
"Commodity Price Protection Obligation" means any forward contract,
commodity swap, commodity option or other similar financial agreement or
arrangement relating to, or the value of which is dependent on, fluctuations in
commodity prices entered into in the ordinary course of business.
"Common Stock" of any Person means any class of Capital Stock of such Person
that has no preference, as to dividends or upon liquidation, over any other
class of Capital Stock of such Person and that is not convertible into or
exchangeable for any other class of Capital Stock or other securities of such
Person.
"Consolidated Cash Flow" means, with respect to any specified Person for any
period, the Consolidated Net Income of such Person for such period plus:
(1) provision for taxes based on income or profits of such Person and its
Restricted Subsidiaries for such period, to the extent that such provision
for taxes was deducted in computing such Consolidated Net Income; plus
(2) consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued and whether or not
capitalized (including, without limitation, amortization of debt issuance
costs (other than those in existence on or created on the date of the
indenture) and original issue discount, non-cash interest payments, the
interest component of any deferred payment obligations, the interest
component of all payments associated with Capital Lease Obligations, imputed
interest with respect to Attributable Debt, commissions, discounts and other
fees and charges incurred in respect of letter of credit or bankers'
acceptance financings, and net of the effect of all payments made or
received pursuant to Hedging Obligations), to the extent that any such
expense was deducted in computing such Consolidated Net Income; plus
(3) depreciation, amortization (including amortization of goodwill and
other intangibles but excluding amortization of prepaid cash expenses that
were paid in a prior period, and excluding amortization of power and natural
gas cost deferrals, to the extent such deferrals were previously financed
with Indebtedness
52
permitted by clause (9) of the definition of Permitted Debt) and other
non-cash expenses (excluding any such non-cash expense to the extent that it
represents an accrual of or reserve for cash expenses in any future period
or amortization of a prepaid cash expense that was paid in a prior period)
of such Person and its Restricted Subsidiaries for such period to the extent
that such depreciation, amortization and other non-cash expenses were
deducted in computing such Consolidated Net Income; minus
(4) non-cash items increasing such Consolidated Net Income for such
period (including power and natural gas cost deferrals, but only to the
extent not financed with Indebtedness permitted by clause (9) of the
definition of Permitted Debt) in each case, on a consolidated basis and
determined in accordance with GAAP.
"Consolidated Net Income" means, with respect to any specified Person for
any period, the aggregate of the net income of such Person and its Restricted
Subsidiaries for such period, on a consolidated basis, determined in accordance
with GAAP; provided that:
(1) the net income (but not loss) of any Person that is not a Restricted
Subsidiary or that is accounted for by the equity method of accounting shall
be included only to the extent of the amount of dividends or distributions
paid in cash to the specified Person or a Wholly Owned Subsidiary thereof;
(2) the net income of any Restricted Subsidiary shall be excluded to the
extent that the declaration or payment of dividends or similar distributions
by the Restricted Subsidiary of that net income is not at the date of
determination permitted without any prior governmental approval (that has
not been obtained) or, directly or indirectly, by operation of the terms of
its charter or any agreement, instrument, judgment, decree, order, statute,
rule or governmental regulation applicable to that Restricted Subsidiary or
its stockholders;
(3) the net income of any Person acquired in a pooling of interests
transaction for any period prior to the date of such acquisition shall be
excluded;
(4) the cumulative effect of a change in accounting principles shall be
excluded;
(5) all extraordinary or nonrecurring gains and losses (including without
limitation any one-time costs incurred in connection with acquisitions, or
regulatory disallowances or write-offs of regulatory assets) shall be
excluded; and
(6) any gain or loss realized upon the sale or other disposition of any
property, plant or equipment of Avista Corp. or its Restricted Subsidiaries
(including pursuant to any sale-and-leaseback arrangement) which is not sold
or otherwise disposed of in the ordinary course of business and any gain or
loss realized upon the sale or other disposition by Avista Corp. or any
Restricted Subsidiary of any Capital Stock of any Person shall be excluded.
"Continuing Directors" means, as of any date of determination, any member of
the Board of Directors of Avista Corp. who:
(1) was a member of such Board of Directors on the date of the indenture;
or
(2) was nominated for election or elected to such Board of Directors with
the approval of a majority of the Continuing Directors who were members of
such Board at the time of such nomination or election.
"Credit Facilities" means one or more debt facilities or commercial paper
facilities, in each case with banks or other institutional lenders providing
for revolving credit loans, term loans, or letters of credit, in each case, as
amended, restated, modified, renewed, refunded, restructured, supplemented,
replaced or refinanced in whole or in part from time to time, including without
limitation any amendment increasing the amount of Indebtedness incurred or
available to be borrowed thereunder, extending the maturity of any Indebtedness
incurred thereunder or contemplated thereby or deleting, adding or substituting
one or more parties thereto (whether or not with banks or other institutional
lenders).
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"Currency Hedging Obligations" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect
against the fluctuations in currency values entered into in the ordinary course
of business and not for speculative purposes.
"Debt Rating" shall mean the rating assigned to the notes offered hereby by
Moody's or S&P, as the case may be.
"Default" means any event that is, or with the passage of time or the giving
of notice or both would be, an Event of Default.
"Disinterested Director" means, with respect to any transaction or series of
related transactions, a member of the Board of Directors of Avista Corp. who
does not have any material direct or indirect financial interest in or with
respect to such transaction or series of related transactions.
"Disqualified Stock" means any Capital Stock that, by its terms (or by the
terms of any security into which it is convertible, or for which it is
exchangeable, in each case at the option of the holder thereof), or upon the
happening of any event, matures or is mandatorily redeemable, pursuant to a
sinking fund obligation or otherwise, or redeemable at the option of the holder
thereof, in whole or in part, on or prior to the date on which the notes
mature. Notwithstanding the preceding sentence, any Capital Stock that would
constitute Disqualified Stock solely because the holders thereof have the right
to require Avista Corp. to repurchase such Capital Stock upon the occurrence of
a change of control or an asset sale shall not constitute Disqualified Stock if
the terms of such Capital Stock provide that Avista Corp. may not repurchase or
redeem any such Capital Stock pursuant to such provisions unless such
repurchase or redemption complies with the covenant described above under the
caption "--Certain Covenants--Restricted Payments."
"Eligible Institution" means a commercial banking institution that has
combined capital and surplus of not less that $500.0 million or its equivalent
in foreign currency, whose debt is rated "A" or higher (or the equivalent
rating or higher), according to Moody's or S&P (or such similar equivalent
rating by at least one "nationally recognized statistical rating organization"
(as defined in Rule 436 under the Securities Act)), respectively, at the time
as of which any investment or rollover therein is made.
"Equity Interests" means Capital Stock and all warrants, options or other
rights to acquire Capital Stock (but excluding any debt security that is
convertible into, or exchangeable for, Capital Stock).
"Existing Indebtedness" means Indebtedness of Avista Corp. and its
Subsidiaries in existence on the date of the indenture, other than amounts
outstanding under Credit Facilities, until such amounts are repaid.
"Facility" means retail electric and natural gas distribution and storage
facilities, electric transmission facilities and electric generation and
production facilities, and assets related to or used in the operation of such
facilities.
"Fixed Charges" means, with respect to any specified Person for any period,
the sum, without duplication, of:
(1) the consolidated interest expense of such Person and its Restricted
Subsidiaries for such period, whether paid or accrued, including, without
limitation, amortization of debt issuance costs (other than those in
existence on or created on the date of the indenture) and original issue
discount, non-cash interest payments, the interest component of any deferred
payment obligations, the interest component of all payments associated with
Capital Lease Obligations, imputed interest with respect to Attributable
Debt, commissions, discounts and other fees and charges incurred in respect
of letter of credit or bankers' acceptance financings, and net of the effect
of all payments made or received pursuant to Hedging Obligations; plus
(2) the consolidated interest of such Person and its Restricted
Subsidiaries that was capitalized during such period (excluding interest
capitalized in connection with the construction of a new Facility or
addition to a Facility, in each case, to the extent such interest is
capitalized during the construction of such Facility); plus
54
(3) any interest expense actually paid on Indebtedness of another Person
that is Guaranteed by such Person or one of its Restricted Subsidiaries or
secured by a Lien on assets of such Person or one of its Restricted
Subsidiaries, whether or not such Guarantee or Lien is called upon; plus
(4) the product of (a) all dividends, whether paid or accrued and whether
or not in cash, on any series of preferred stock of such Person or any of
its Restricted Subsidiaries, other than dividends on Equity Interests
payable solely in Equity Interests of such Person (other than Disqualified
Stock) or to such Person or a Restricted Subsidiary of such Person, times
(b) a fraction, the numerator of which is one and the denominator of which
is one minus the then current combined federal, state and local statutory
tax rate of such Person, expressed as a decimal; in each case, calculated on
a consolidated basis and in accordance with GAAP.
"Fixed Charge Coverage Ratio" means with respect to any specified Person for
any period, the ratio of the Consolidated Cash Flow of such Person for such
period to the Fixed Charges of such Person for such period. In the event that
the specified Person or any of its Subsidiaries incurs, assumes, Guarantees,
repays, repurchases or redeems any Indebtedness (other than ordinary working
capital borrowings) or issues, repurchases or redeems preferred stock
subsequent to the commencement of the period for which the Fixed Charge
Coverage Ratio is being calculated and on or prior to the date of the event for
which the calculation of the Fixed Charge Coverage Ratio is made (the
"Calculation Date"), including the incurrence of the Indebtedness giving rise
to the need to make such calculation, then the Fixed Charge Coverage Ratio
shall be calculated giving pro forma effect to such incurrence, assumption,
Guarantee, repayment, repurchase or redemption of Indebtedness, or such
issuance, repurchase or redemption of preferred stock, and the use of the
proceeds therefrom including to refinance other Indebtedness as if the same had
occurred at the beginning of the applicable four-quarter reference period.
In addition, for purposes of calculating the Fixed Charge Coverage Ratio:
(1) acquisitions that have been made by the specified Person or any of
its Subsidiaries, including through mergers or consolidations and including
any related financing transactions, during the four-quarter reference period
or subsequent to such reference period and on or prior to the Calculation
Date shall be given pro forma effect as if they had occurred on the first
day of the four-quarter reference period and Consolidated Cash Flow for such
reference period shall be calculated on a pro forma basis (calculated in
accordance with Regulation S-X under the Securities Act), but without giving
effect to clause (3) of the proviso set forth in the definition of
Consolidated Net Income;
(2) the consolidated interest expense attributable to interest on any
Indebtedness computed on a pro forma basis and (a) bearing a floating
interest rate shall be computed as if the rate in effect on the date of
computation had been the applicable rate for the entire period and (b) that
was not outstanding during the period for which the computation is being
made but which bears, at the option of such Person, a fixed or floating rate
of interest, shall be computed by applying at the option of such Person
either the fixed or floating rate;
(3) the consolidated interest expense attributable to interest on any
working capital borrowings under a revolving credit facility computed on a
pro forma basis shall be computed based upon the average daily balance of
such working capital borrowings during the applicable period; and
(4) acquisitions and dispositions that have been made by any Person that
has become a Restricted Subsidiary of Avista Corp. or been merged with or
into Avista Corp. or any Restricted Subsidiary of Avista Corp. during the
four-quarter reference period, or subsequent to the four-quarter reference
period but prior to the Calculation Date, shall be calculated on a pro forma
basis, including all of the calculations referred to above, assuming that
such acquisitions and dispositions had occurred on the first day of the
reference period.
In addition, in calculating the Fixed Charge Coverage Ratio, discontinued
operations will be given pro forma effect as follows:
(1) the Consolidated Cash Flow attributable to discontinued operations,
as determined in accordance with GAAP, and operations or businesses disposed
of on or prior to the Calculation Date, shall be excluded, and
55
(2) the Fixed Charges attributable to discontinued operations, as
determined in accordance with GAAP, and operations or businesses disposed of
on or prior to the Calculation Date, shall be excluded, but only to the
extent that the obligations giving rise to such Fixed Charges will not be
obligations of Avista Corp. or any of its Restricted Subsidiaries following
the Calculation Date.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as have been approved by a significant segment of the accounting
profession, which are in effect (i) with respect to periodic reporting
requirements, from time to time, and (ii) otherwise on the date of the
indenture.
"Government Securities" means securities issued directly and fully
guaranteed or insured by the United States government or any agency or
instrumentality thereof (provided that the full faith and credit of the United
States is pledged in support thereof).
"Guarantee" means a guarantee other than by endorsement of negotiable
instruments for collection in the ordinary course of business, direct or
indirect, in any manner including, without limitation, by way of a pledge of
assets or through letters of credit or reimbursement agreements in respect
thereof, of all or any part of any Indebtedness.
"Hedging Obligations" means, with respect to any specified Person, the
obligations of such Person under:
(1) interest rate swap agreements, interest rate cap agreements and
interest rate collar agreements; and
(2) other agreements or arrangements designed to protect such Person
against fluctuations in interest rates.
"Indebtedness" means, with respect to any specified Person, any indebtedness
of such Person, whether or not contingent:
(1) in respect of borrowed money;
(2) evidenced by bonds, notes, debentures or similar instruments or
letters of credit (or reimbursement agreements in respect thereof);
(3) representing banker's acceptances;
(4) representing Capital Lease Obligations;
(5) representing the balance deferred and unpaid of the purchase price of
any property, except any such balance that constitutes an accrued expense or
trade payable; or
(6) representing any Hedging Obligations,
if and to the extent any of the preceding items (other than letters of credit
and Hedging Obligations) appears as a liability upon a balance sheet of the
specified Person prepared in accordance with GAAP. In addition, the term
"Indebtedness" includes all Indebtedness of others secured by a Lien on any
asset of the specified Person (whether or not such Indebtedness is assumed by
the specified Person) and, to the extent not otherwise included, the Guarantee
by the specified Person of any indebtedness of any other Person.
The amount of any Indebtedness outstanding as of any date shall be:
(1) the accreted value thereof, in the case of any Indebtedness issued
with original issue discount; and
56
(2) the principal amount thereof, together with any interest thereon that
is more than 30 days past due, in the case of any other Indebtedness;
provided that for purposes of determining the amount of any Indebtedness, if
recourse with respect to such Indebtedness is limited to such asset, the
amount of such Indebtedness shall be limited to the lesser of the fair
market value of such asset or the amount of such Indebtedness.
"Investments" means, with respect to any Person, all direct or indirect
investments by such Person in other Persons (including Affiliates) in the forms
of loans (including Guarantees of Indebtedness or other obligations), advances
or capital contributions (excluding commission, travel, entertainment, moving
and similar advances or loans to officers, directors, consultants and employees
made in the ordinary course of business), purchases or other acquisitions for
consideration of Indebtedness, Equity Interests or other securities, together
with all items that are or would be classified as investments on a balance
sheet prepared in accordance with GAAP. The term "Investment" shall exclude
extensions of trade credit on commercially reasonable terms in accordance with
normal trade terms. If Avista Corp. or any Subsidiary of Avista Corp. sells or
otherwise disposes of any Equity Interests of any direct or indirect Subsidiary
of Avista Corp. such that, after giving effect to any such sale or disposition,
such Person is no longer a Subsidiary of Avista Corp., Avista Corp. shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Equity Interests of such Subsidiary not
sold or disposed of in an amount determined as provided in the final paragraph
of the covenant described above under the caption "--Certain
Covenants--Restricted Payments." The acquisition by Avista Corp. or any
Subsidiary of Avista Corp. of a Person that holds an Investment in a third
Person shall be deemed to be an Investment by Avista Corp. or such Subsidiary
in such third Person in an amount equal to the fair market value of the
Investment held by the acquired Person in such third Person in an amount
determined as provided in the final paragraph of the covenant described above
under the caption "--Certain Covenants--Restricted Payments."
"Lancaster Project" means a 270 MW combined cycle project, presently under
construction, in Rathdrum, Idaho, in which Avista Power owns an indirect 49%
interest through its wholly-owned subsidiary Avista Rathdrum, LLC. The project
is presently scheduled to begin commercial operation in August 2001. All of the
output has been sold to Avista Energy under a 25-year capacity sales contract,
under which Avista Energy is responsible for dispatch and delivery of fuel to
the project.
"Lien" means, with respect to any asset, any mortgage, lien, pledge, charge,
security interest or encumbrance of any kind in respect of such asset, whether
or not filed, recorded or otherwise perfected under applicable law, including
any conditional sale or other title retention agreement, any lease in the
nature thereof, any option or other agreement to sell or give a security
interest in and any filing of or agreement to give any financing statement
under the Uniform Commercial Code (or equivalent statutes) of any jurisdiction.
"Liquidity Condition Date" means the date on which Avista Corp. obtains
funding in cash from completed financing transactions, or contractual
entitlement to such funding on such date pursuant to definitive credit
facilities then in effect and available to be drawn pursuant to arrangements
put into effect (or amendments increasing the amount available under existing
credit facilities) after the date of the indenture, in an aggregate amount
that, when added to the net proceeds of the offering of the Old Notes, is not
less than $475.0 million.
"Marketable U.S. Securities" means: (i) any time deposit account, money
market deposit and certificate of deposit maturing not more that 365 days after
the date of acquisition issued by, or time deposit of, an Eligible Institution;
(ii) commercial paper maturing not more than 365 days after the date of
acquisition issued by a corporation (other than an Affiliate of Avista Corp.)
with a rating, at the time as of which any investment therein is made, of "P-1"
or higher according to Moody's or "A-1" or higher according to S&P (or such
similar equivalent rating by at least one "nationally recognized statistical
rating organization" (as defined in Rule 436 under the Securities Act)); (iii)
any banker's acceptances or money market deposit accounts issued or offered by
an Eligible Institution; (iv) repurchase obligations with a term of not more
than 7 days for Government Securities entered into with an Eligible
Institution; and (v) any fund investing exclusively in investments of the types
described in clauses (i) through (iv) above and or Government Securities.
"Moody's" mean Moody's Investors Service, Inc., and its successors.
57
"Net Proceeds" means the aggregate cash proceeds and Cash Equivalents
received by Avista Corp. or any of its Restricted Subsidiaries in respect of
any Asset Sale (including, without limitation, any cash received upon the sale
or other disposition of any non-cash consideration received in any Asset Sale),
net of the direct costs relating to such Asset Sale, including, without
limitation, legal, accounting and investment banking fees, and sales
commissions, and any relocation expenses incurred as a result thereof, taxes
paid or payable as a result thereof, in each case, after taking into account
any available tax credits or deductions and any tax sharing arrangements, any
amounts that Avista Corp. may be required by any regulatory authority to refund
or repay to customers in respect of or as a result of such Asset Sale, any
amounts required to be applied to the repayment of Indebtedness secured by a
Lien on the asset or assets that were the subject of such Asset Sale and any
reserve for adjustment in respect of the sale price of such asset or assets
established in accordance with GAAP.
"Non-Recourse Debt" means Indebtedness:
(1) as to which neither Avista Corp. nor any of its Restricted
Subsidiaries (a) provides credit support of any kind (including any
undertaking, agreement or instrument that would constitute Indebtedness but
excluding any agreement to provide managerial support), (b) is directly or
indirectly liable as a guarantor or otherwise, or (c) constitutes the
lender; and
(2) no default with respect to which (including any rights that the
holders thereof may have to take enforcement action against an Unrestricted
Subsidiary) would permit upon notice, lapse of time or both any holder of
any other Indebtedness (other than the notes) of Avista Corp. or any of its
Restricted Subsidiaries to declare a default on such other Indebtedness or
cause the payment thereof to be accelerated or payable prior to its stated
maturity.
"Obligations" means any principal, interest, penalties, fees,
indemnifications, reimbursements, damages and other liabilities payable under
the documentation governing any Indebtedness.
"Peaker Turbine Project" means a 95 MW simple cycle project presently under
development, currently expected to be located in southwest Washington and
currently 100% owned by Avista Power. A letter of intent has been signed for
the purchase of the output of the facility for five years under a capacity
sales contract for a fixed price per KW-month. The purchaser will be
financially responsible for purchasing natural gas to fuel the turbines and for
contracting for gas transportation. The turbines are General Electric simple
cycle LM6000.
"Permitted Business" means the business of acquiring, developing,
constructing, expanding, managing, improving, owning and operating Facilities,
as well as any other activities reasonably related, complimentary or ancillary
to the foregoing activities (including acquiring and holding reserves),
including but not limited to investing in Persons engaged in one or more
Permitted Businesses.
"Permitted Debt" has the meaning set forth under "--Certain Other
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock."
"Permitted Investments" means:
(1) any Investment in Avista Corp. or in a Restricted Subsidiary of
Avista Corp.; provided, that prior to the Liquidity Condition Date, Avista
Corp. and its Restricted Subsidiaries will not make Investments in
Subsidiaries of Avista Corp. (other than Avista Energy or Avista Power)
exceeding $35.0 million in the aggregate; provided further that Avista Corp.
may nonetheless make reimbursement to a Subsidiary, pursuant to the Tax
Sharing Agreement as in effect on the date of the indenture, in an amount
not to exceed the net tax benefit realized by Avista Corp. in any period, as
reflected in its consolidated federal income tax return, by reason of losses
incurred by such Subsidiary;
(2) any Investment in cash or Cash Equivalents or Marketable U.S.
Securities;
(3) any Investment by Avista Corp. or any Subsidiary of Avista Corp. in a
Person, if as a result of such Investment:
58
(a) such Person becomes a Restricted Subsidiary of Avista Corp.; or
(b) such Person is merged, consolidated or amalgamated with or into,
or transfers or conveys substantially all of its assets to, or is
liquidated into, Avista Corp. or a Restricted Subsidiary of Avista
Corp.;
(4) any Investment made as a result of the receipt of non-cash
consideration from an Asset Sale that was made pursuant to and in compliance
with the covenant described above under the caption "--Repurchase at the
Option of Holders--Asset Sales";
(5) any Investment in exchange for the issuance of Equity Interests other
than Disqualified Stock of Avista Corp.;
(6) Hedging Obligations;
(7) Investments in any of the notes;
(8) Indebtedness of Avista Corp. or a Restricted Subsidiary of Avista
Corp. described under clause (5) of the definition of Permitted Debt;
(9) Investments in existence on the date of the indenture or made
pursuant to a legally binding written commitment in existence on the date of
the indenture;
(10) Guarantees of Indebtedness of a Restricted Subsidiary of Avista
Corp. given by Avista Corp. or another Restricted Subsidiary of Avista
Corp., in each case, in accordance with the terms of the indenture;
(11) Investments in prepaid expenses, negotiable instruments held for
collection and lease, utility and worker's compensation, performance and
other similar deposits provided to third parties in the ordinary course of
business;
(12) Hedging Obligations, Currency Hedging Obligations and Commodity
Price Protection Obligations permitted by the indenture that are entered
into in the ordinary course of business;
(13) Investments representing Capital Stock or obligations issued to
Avista Corp. or any Restricted Subsidiary of Avista Corp. (i) in settlement
of claims against any other Person by reason of a composition or
readjustment of debt or a reorganization of any debtor (including customers
and suppliers) of Avista Corp. or such Restricted Subsidiary, or (ii) as a
result of an Asset Sale in which the Capital Stock of Avista Communications,
Avista Advantage or Avista Labs is exchanged for Capital Stock or other
securities of another Person, upon completion of which the subject or
transferee Person is not a Subsidiary of Avista Corp.;
(14) Investments in the Lancaster Project and the Peaker Turbine Project
in an aggregate amount not to exceed $40.0 million;
(15) Investments by Avista Corp. or any Restricted Subsidiary in Avista
-STEAG, LLC; and
(16) loans or advances, or performance guarantees in support of Avista
Energy or Avista Power to customers or suppliers in the ordinary course of
business.
"Permitted Liens" means:
(1) Liens securing Indebtedness and other Obligations of Avista Corp. and
its Restricted Subsidiaries under Credit Facilities (to the extent that such
Indebtedness and Obligations under such Credit Facilities were permitted by
the terms of the indenture to be incurred);
(2) Liens in favor of Avista Corp. or a Restricted Subsidiary of Avista
Corp.;
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(3) Liens on assets or Equity Interests of a Person existing at the time
such Person is merged with or into or consolidated with Avista Corp. or any
Restricted Subsidiary of Avista Corp.; provided that such Liens were in
existence prior to the contemplation of such merger or consolidation and do
not extend to any assets other than those of the Person merged into or
consolidated with Avista Corp. or the Restricted Subsidiary;
(4) Liens on assets existing at the time of acquisition thereof by Avista
Corp. or any Restricted Subsidiary of Avista Corp., provided that such Liens
were in existence prior to the contemplation of such acquisition;
(5) Liens to secure the performance of statutory obligations, surety or
appeal bonds, performance bonds, performance bids, tenders or contracts,
statutory and common law landlord's liens or other obligations of a like
nature incurred in the ordinary course of business;
(6) Liens existing on the date of the indenture;
(7) Liens for taxes, assessments or governmental charges or claims that
are not yet delinquent or that are being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted,
provided that any reserve or other appropriate provision as shall be
required in conformity with GAAP shall have been made therefor;
(8) Liens to secure any refinancing, refunding, extension, renewal or
replacement (or successive refinancings, refundings, extensions, renewals or
replacements) as a whole, or in part, of any Indebtedness secured by any
Lien referred to in the foregoing clauses (3), (4), or (6), provided,
however, that (x) such new Lien shall be limited to all or part of the same
assets that secured the original Lien (plus improvements on such property)
and (y) the Indebtedness secured by such Lien at such time is not increased
(other than by an amount necessary to pay fees and expenses, including
premiums, related to the refinancing, refunding, extension, renewal or
replacement of such Indebtedness);
(9) any Lien securing Indebtedness permitted to be incurred under Hedging
Obligations or otherwise incurred to hedge interest rate risk or risks of
commodity price fluctuations;
(10) Liens securing Indebtedness relating to governmental obligations the
interest on which is not included in gross income for purposes of federal
income taxation pursuant to Section 103 of the Internal Revenue Code of
1986, as amended (or any successor provision of law), for the purpose of
financing or refinancing, in whole or in part, costs of acquisition or
construction of property to be used by Avista Corp., to the extent that the
Lien which secures such secured Indebtedness is required either by
applicable law or by the issuer of such governmental obligations or is
otherwise necessary in order to establish or maintain such exclusion from
gross income;
(11) any Lien securing Capital Lease Obligations or other Indebtedness
incurred pursuant to clause (8) of the definition of Permitted Debt; and
(12) any Lien securing Indebtedness permitted to be incurred pursuant to
clause (9) of the definition of Permitted Debt.
"Permitted Refinancing Indebtedness" means any Indebtedness of Avista Corp.
or any of its Restricted Subsidiaries issued in exchange for, or the net
proceeds of which are used to extend, refinance, renew, replace, restructure,
supplement, defease or refund other Indebtedness of Avista Corp. or any of its
Restricted Subsidiaries (other than intercompany Indebtedness); provided that:
(1) the principal amount (or accreted value, if applicable) of such
Permitted Refinancing Indebtedness does not exceed the principal amount (or
accreted value, if applicable) of the Indebtedness so extended, refinanced,
renewed, replaced, restructured, supplemented, defeased or refunded (plus
all accrued interest thereon and the amount of all expenses and premiums
incurred in connection therewith);
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(2) if the Indebtedness being extended, refinanced, renewed, replaced,
defeased or refunded is subordinated in right of payment to the notes, such
Permitted Refinancing Indebtedness is subordinated in right of payment to
the notes on terms at least as favorable to the holders of notes as those
contained in the documentation governing the Indebtedness being extended,
refinanced, renewed, replaced, defeased or refunded; and
(3) Indebtedness is incurred by Avista Corp. if the Indebtedness being
extended, refinanced, renewed, replaced, defeased or refunded was
Indebtedness of Avista Corp.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization, limited
liability company, government, governmental subdivision or other entity.
"Restricted Investment" means an Investment other than a Permitted
Investment.
"Restricted Subsidiary" means any Subsidiary of the referent Person that is
not an Unrestricted Subsidiary.
"RTO Transaction" means an Asset Sale entered into in connection with the
formation of a regional transmission organization pursuant to or in a manner
consistent with regulatory requirements applicable to Avista Corp.
"Sale/Leaseback Transaction" means an arrangement relating to property owned
as of the date of the indenture or thereafter acquired whereby Avista Corp. or
a Restricted Subsidiary transfers such property to a Person and leases it back
from such Person, other than leases for a term of not more than 36 months or
between Avista Corp. and a Restricted Subsidiary or between Restricted
Subsidiaries.
"S&P" means Standard & Poor's, and its successors.
"Significant Subsidiary" means any Subsidiary that would be a "significant
subsidiary" as defined in Article 1, Rule 1-02 of Regulation S-X, promulgated
pursuant to the Securities Act, as such Regulation is in effect on the date
hereof.
"Stated Maturity" means, with respect to any installment of interest or
principal on any series of Indebtedness, or any redemption or similar payment
in respect of Disqualified Stock, the date on which such payment was scheduled
to be paid in the original documentation governing such Indebtedness or
Disqualified Stock, and shall not include any contingent obligations to repay,
redeem or repurchase any such interest or principal, or made such redemption of
other payment, prior to the date originally scheduled for the payment thereof.
"Subsidiary" means, with respect to any specified Person:
(1) any corporation, association or other business entity of which more
than 50% of the total voting power of shares of Capital Stock entitled
(without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by such Person or one or more of the
other Subsidiaries of that Person (or a combination thereof); and
(2) any partnership (a) the sole general partner or the managing general
partner of which is such Person or a Subsidiary of such Person or (b) the
only general partners of which are such Person or one or more Subsidiaries
of such Person (or any combination thereof).
"Tax Sharing Agreement" means the Tax Sharing Agreement among Avista Corp.
and its Subsidiaries as in effect on the date of the indenture.
"Unrestricted Subsidiary" means any Subsidiary of Avista Corp. that is
designated by the Board of Directors as an Unrestricted Subsidiary pursuant to
a Board Resolution, but only to the extent that such Subsidiary:
(1) has no Indebtedness other than Non-Recourse Debt;
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(2) is not party to any agreement, contract, arrangement or understanding
with Avista Corp. or any Restricted Subsidiary of Avista Corp. unless the
terms of any such agreement, contract, arrangement or understanding are no
less favorable to Avista Corp. or such Restricted Subsidiary than those that
might be obtained at the time from Persons who are not Affiliates of Avista
Corp.;
(3) is a Person with respect to which neither Avista Corp. nor any of its
Restricted Subsidiaries has any direct or indirect obligation (a) to
subscribe for additional Equity Interests or (b) to maintain or preserve
such Person's financial condition or to cause such Person to achieve any
specified levels of operating results; and
(4) has not guaranteed or otherwise directly or indirectly provided
credit support for any Indebtedness of Avista Corp. or any of its Restricted
Subsidiaries.
Any designation of a Subsidiary of Avista Corp. as an Unrestricted
Subsidiary shall be evidenced to the trustee by filing with the trustee a
certified copy of the Board Resolution giving effect to such designation and an
Officers' Certificate certifying that such designation complied with the
preceding conditions and was permitted by the covenant described above under
the caption "--Certain Covenants--Restricted Payments." If, at any time, any
Unrestricted Subsidiary would fail to meet the preceding requirements as an
Unrestricted Subsidiary, it shall thereafter cease to be an Unrestricted
Subsidiary for purposes of the indenture and any Indebtedness of such
Subsidiary shall be deemed to be incurred by a Restricted Subsidiary of Avista
Corp. as of such date and, if such Indebtedness is not permitted to be incurred
as of such date under the covenant described under the caption "--Certain
Covenants--Incurrence of Indebtedness and Issuance of Preferred Stock", Avista
Corp. shall be in default of such covenant. The Board of Directors of Avista
Corp. may at any time designate any Unrestricted Subsidiary to be a Restricted
Subsidiary; provided that such designation shall be deemed to be an incurrence
of Indebtedness by a Restricted Subsidiary of Avista Corp. of any outstanding
Indebtedness of such Unrestricted Subsidiary and such designation shall only be
permitted if (1) such Indebtedness is permitted under the covenant described
under the caption "--Certain Covenants--Incurrence of Indebtedness and Issuance
of Preferred Stock", calculated on a pro forma basis as if such designation had
occurred at the beginning of the four-quarter reference period; and (2) no
Default or Event of Default would be in existence following such designation.
"Voting Stock" of any Person as of any date means the Capital Stock of such
Person that is at the time entitled to vote in the election of the Board of
Directors of such Person.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
or Disqualified Stock at any date, the number of years obtained by dividing (i)
the sum of the products obtained by multiplying (a) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
or principal or redemption or similar payment, including payment at final
maturity, in respect thereof, by (b) the number of years (calculated to the
nearest one-twelfth) that will elapse between such date and the making of such
payment, by (ii) the sum of all such payments.
"Wholly Owned Subsidiary" of any specified Person means a Subsidiary of such
Person all of the outstanding capital stock or other ownership interests of
which (other than directors' qualifying shares) will at the time be owned by
such Person or by one or more Wholly Owned Subsidiaries of such Person and one
or more Wholly Owned Subsidiaries of such Person.
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BANK CREDIT AGREEMENTS
Avista Corp.
Avista Corp. has a $220.0 million line of credit with various banks under a
credit agreement that expires May 29, 2002. We have pledged our shares of
common stock of Avista Capital as security for our indebtedness under this
agreement. We currently pay commitment fees of up to .40% per annum on the
average daily unused portion of the credit agreement, and utilization fees of
up to .50%. As of June 30, 2001, no borrowings were outstanding under this line
of credit, and as of the date of this prospectus, $125.0 million was
outstanding. This agreement contains customary covenants and default
provisions, including covenants not to permit (1) the ratio of "consolidated
total debt" (as defined in the Avista Corp. agreement) to "consolidated total
capitalization" (as defined in the Avista Corp. agreement) of Avista Corp. to
be, at the end of any fiscal quarter, greater than 0.60 to 1.00; and (2) the
ratio of "consolidated cash flow" (as defined in the Avista Corp. agreement) to
"consolidated fixed charges" (as defined in the Avista Corp. agreement) of
Avista Corp. or Avista Utilities for any four-fiscal-quarter period ending on
any date set forth below to be less than certain specified ratios.
We have determined that we would not comply with the fixed charge coverage
covenant with respect to Avista Corp. described above for the
four-fiscal-quarter period ending September 30, 2001 or for any subsequent
period through the expiration date of the agreement. Accordingly, Avista Corp.
requested, and has obtained, a waiver of this covenant. The failure to comply
with the covenant for these periods will not constitute an event of default
under the agreement. In connection with this waiver, on September 21, 2001
Avista Corp. issued to the agent bank $220.0 million in principal amount of
non-transferable first mortgage bonds under the 1939 Mortgage in order to
provide the benefit of the lien of the 1939 Mortgage to secure Avista Corp.'s
obligations under the credit agreement.
Avista Energy
Avista Energy and its subsidiary, Avista Energy Canada, Ltd., as
co-borrowers, have a credit agreement with two commercial banks in the
aggregate amount of $155.0 million expiring June 28, 2002. The credit agreement
may be terminated by the banks at any time and all extensions of credit under
the agreement are payable upon demand, in either case at the lenders' sole
discretion. The agreement also provides, on an uncommitted basis, for the
issuance of letters of credit to secure contractual obligations to
counterparties. The facility is guaranteed by Avista Capital and is secured by
substantially all of Avista Energy's assets. The maximum amount of credit
extended by the lenders for cash advances is $30.0 million. At June 30, 2001,
there were no cash advances (demand notes payable) outstanding, and letters of
credit outstanding totaled approximately $22.8 million. At August 31, 2001,
there were no cash advances outstanding, and letters of credit outstanding
totaled approximately $38.8 million.
The Avista Energy agreement contains customary covenants and default
provisions, including covenants to maintain "minimum net working capital" and
"minimum net worth" (as defined in the Avista Energy agreement) and a covenant
limiting the amount of indebtedness, which the co-borrowers may incur. In
addition, the agreement contains certain restricted payment provisions
generally prohibiting asset distributions. However, dividends are permitted up
to 50% of quarterly consolidated net income provided that certain financial
thresholds are met.
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CERTAIN U.S. FEDERAL INCOME TAX CONSIDERATIONS
This section describes the material United States federal income tax
consequences of exchanging the Old Notes for New Notes and of owning and
disposing of notes. This section reflects the opinion of Thelen Reid & Priest
LLP, counsel to Avista Corp. This section applies to you only if you acquired
the Old Notes in the offering at the offering price and you hold your notes as
capital assets for tax purposes. This section does not apply to you if you are
a member of a class of holders subject to special rules, such as:
. a dealer in securities or currencies,
. a trader in securities that elects to use a mark-to-market method of
accounting for your securities holdings,
. a bank,
. a life insurance company,
. a tax-exempt organization,
. a person that owns notes that are a hedge or that are hedged against
interest rate risks,
. a person that owns notes as part of a straddle or conversion transaction
for tax purposes, or
. a person whose functional currency for tax purposes is not the U.S.
dollar.
If you purchase notes at a price other than the offering price, the
amortizable bond premium or market discount rules may also apply to you. You
should consult your tax advisor regarding this possibility.
This section is based on the Internal Revenue Code of 1986, as amended, its
legislative history, existing and proposed regulations under the Internal
Revenue Code, published rulings and court decisions, all as currently in
effect. These laws are subject to change, possibly on a retroactive basis.
United States Holders
This subsection describes the tax consequences to a United States holder.
You are a United States holder if you are a beneficial owner of a note and you
are:
. a citizen or resident of the United States,
. a domestic corporation or partnership,
. an estate whose income is subject to United States federal income tax
regardless of its source, or
. a trust if a United States court can exercise primary supervision over the
trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
If you are not a United States holder, this subsection does not apply to you
and you should refer to "United States Alien Holders" below.
Exchange of Old Notes for New Notes
An exchange of Old Notes for New Notes will not be a taxable event for
federal income tax purposes. Rather, the New Notes will be treated as a
continuation of the Old Notes in the hands of a United States holder. As a
result, you will not recognize any income, gain or loss for federal income tax
purposes upon an exchange of Old Notes for New Notes, and you will have the
same tax basis and holding period in the New Notes as you had in the Old Notes.
Payments of Interest
You will be taxed on interest on your notes as ordinary income at the time
you receive the interest or when it accrues, depending on your method of
accounting for tax purposes.
Purchase, Sale and Retirement of the Notes
Your tax basis in your Old Notes generally will be their cost, and your tax
basis in any New Notes acquired in the Exchange Offer will be equal to your tax
basis in the Old Notes surrendered. You will generally recognize capital gain
or loss on the sale or retirement of notes equal to the difference between the
amount you realize on the sale or retirement, excluding any amounts
attributable to accrued but unpaid interest, and your tax basis in your notes.
Capital gain of a noncorporate United States holder is generally taxed at a
maximum rate of 20% where the property is held more than one year.
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United States Alien Holders
This subsection describes the tax consequences to a United States alien
holder. You are a United States alien holder if you are the beneficial owner of
a note and are, for United States federal income tax purposes:
. a nonresident alien individual,
. a foreign corporation,
. a foreign partnership,
. an estate unless its income is subject to United States federal income tax
regardless of its source, or
. a trust unless a United States court can exercise primary supervision over
the trust's administration and one or more United States persons are
authorized to control all substantial decisions of the trust.
If you are a United States holder, this section does not apply to you.
An exchange of Old Notes for New Notes will not constitute a taxable event
for federal income tax purposes. Rather, the New Notes will be treated as a
continuation of the Old Notes in the hands of a United States alien holder. As
a result, you will not recognize any income, gain or loss for federal income
tax purposes upon an exchange of Old Notes for New Notes, and you will have the
same tax basis and holding period in the New Notes as you had in the Old Notes.
Under United States federal income and estate tax law, and subject to the
discussion of backup withholding below, if you are a United States alien holder
of a note:
. we and other U.S. payors generally will not be required to deduct United
States withholding tax from payments of principal, premium, if any, and
interest to you if, in the case of payments of interest:
(1)you do not actually or constructively own 10% or more of the total
combined voting power of all classes of stock of Avista Corp.
entitled to vote,
(2)you are not a controlled foreign corporation that is related to
Avista Corp. through stock ownership,
(3)your income or gain from the note is not effectively connected with a
trade or business that you conduct within the United States, and
(4)either (i) you furnish the U.S. payor an Internal Revenue Service
Form W-8BEN certifying under penalties of perjury that you are not a
United States person, or (ii) the payor can otherwise be satisfied
that you are not a United States person by relying on account
documentation or other evidence as prescribed in Treasury
regulations. However, this requirement will not be considered
satisfied if the payor has actual knowledge or reason to know that
you are a United States person notwithstanding the certificate or
other documentation.
. no deduction for any United States federal withholding tax will be made
from any gain that you realize on the sale or exchange of your note,
including the exchange of Old Notes for New Notes.
We and other payors are required to report payments of interest on your
notes on Internal Revenue Service Form 1042-S even if the payments are not
otherwise subject to information reporting requirements.
If you are engaged in a trade or business within the United States and the
interest on the note is effectively connected with your United States business,
the interest and any gain on the note will not be subject to withholding if you
have provided the payor an Internal Revenue Service Form W-8 as prescribed in
the Treasury regulations. However, interest on a note that is effectively
connected with your United States business will be subject to United States
taxation in the same manner as applies to United States holders. In addition,
if you are
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entitled to the benefits of a tax treaty with the United States, interest and
gain from the note will generally not be taxable, even if effectively connected
with a United States trade or business, unless you also have a permanent
establishment in the United States to which the interest or gain is
attributable. In order to claim benefits under a tax treaty with the United
States, you must furnish an Internal Revenue Service Form W-8BEN to the payor.
Further, a note held by an individual who at death is not a citizen or
resident of the United States will not be includible in the individual's gross
estate for United States federal estate tax purposes if:
. the decedent did not actually or constructively own 10% or more of the
total combined voting power of all classes of stock of Avista Corp.
entitled to vote at the time of death, and
. the income on the note would not have been effectively connected with a
United States trade or business of the decedent at the same time.
Backup Withholding and Information Reporting
We and other payors, including brokers, may be required to report to you and
to the Internal Revenue Service any payments of principal, premium and interest
on your note and the amount of any proceeds from the sale or exchange of your
note. As described more fully below, we and other payors may also be required
to make "backup withholding" from payments of principal, premium, interest and
sales proceeds if you fail to provide an accurate taxpayer identification
number or otherwise establish an exemption from backup withholding.
Backup withholding is not an additional tax. If you are subject to backup
withholding, you may obtain a credit or refund of the amount withheld by filing
the required information with the Internal Revenue Service.
United States Holders
In general, if you are a noncorporate United States holder, we and other
payors are required to report to the Internal Revenue Service all payments of
principal, any premium and interest on your note. In addition, we and other
payors are required to report to the Internal Revenue Service any payment of
proceeds of the sale of your note before maturity within the United States.
Additionally, backup withholding at a rate of 30.5% (30% for amounts paid after
December 31, 2001) will apply to any payments if you fail to provide an
accurate taxpayer identification number, or you are notified by the Internal
Revenue Service that you have failed to report all interest and dividends
required to be shown on your federal income tax returns.
United States Alien Holders
In general, payments of principal, premium or interest made by us and other
payors to you will not be subject to backup withholding and information
reporting, provided that the certification requirements described above under
"United States Alien Holders" are satisfied or you otherwise establish an
exemption.
In general, proceeds of your sale of a note will not be subject to backup
withholding or information reporting if:
. you furnish your broker an Internal Revenue Service Form W-8BEN certifying
under penalties of perjury that you are not a United States person, or
. your broker possesses other documentation concerning your account on which
the broker is permitted to rely under Treasury regulations to establish
that you are a non-United States person, or
. you otherwise establish an exemption.
If you are not exempted from backup withholding and information reporting
under the preceding paragraph:
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. Backup withholding and information reporting will apply to the proceeds of
any sale that you make through the United States office of any broker,
foreign or domestic.
. Information reporting will also apply to the proceeds of sales that are
made through a foreign office of a broker if the proceeds are paid into a
United States account, or such proceeds or the confirmation of the sale
are mailed to you at a United States address, or if you have opened an
account with a United States office of your broker, or regularly
communicated with the broker from the United States concerning the sale in
question and other sales, or negotiated the sale in question through the
broker's United States office. Backup withholding will also apply unless
the proceeds of such a sale are paid to an account maintained at a bank or
other financial institution located outside the United States.
. Information reporting, but not backup withholding, will apply to sales
made through a foreign office of a broker that is a United States person,
or that is a foreign corporation or partnership controlled by U.S. persons
or that derives more than 50% of its income from U.S. business activities
over a three-year period as specified in the Treasury regulations.
Notwithstanding any withholding certificate or documentary evidence in a
broker's possession, a broker who has actual knowledge or reason to know that
you are a United States person will be required to make backup withholdings and
file information reports with the Internal Revenue Service if the broker is a
U.S. person or is a foreign person that has a U.S. connection of the type
discussed in the last bullet point of the preceding paragraph.
PLAN OF DISTRIBUTION
As discussed under THE EXCHANGE OFFER, based on an interpretation of the
staff of the SEC, New Notes issued pursuant to the Exchange Offer may be
offered for resale and resold or otherwise transferred by any Holder of such
New Notes (other than any such Holder which is an "affiliate" of Avista Corp.
within the meaning of Rule 405 under the Securities Act and except as otherwise
discussed below with respect to Holders which are broker-dealers) without
compliance with the registration and prospectus delivery requirements of the
Securities Act so long as such New Notes are acquired in the ordinary course of
such Holder's business and such Holder has no arrangement or understanding with
any person to participate in the distribution (within the meaning of the
Securities Act) of such New Notes.
Each broker-dealer that receives New Notes for its own account in exchange
for Old Notes which were acquired by such broker-dealer as a result of
market-making activities or other trading activities must, and must agree to,
deliver a prospectus in connection with any resale of such New Notes. This
prospectus, as it may be amended or supplemented from time to time, may be used
by a broker-dealer in connection with resales of New Notes received in exchange
for Old Notes where such Old Notes were acquired as a result of market-making
activities or other trading activities. Avista Corp. will for a period of 180
days after the Expiration Date make this prospectus, as amended or
supplemented, available to any broker-dealer for use in connection with any
such resale.
New Notes received by broker-dealers for their own account in the Exchange
Offer as described above may be sold from time to time in one or more
transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the New Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at prices
related to such prevailing market prices or at negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from any
such broker-dealer and/or the purchasers of any such New Notes. Any
broker-dealer that resells New Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such New Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New Notes and any commissions or concessions received by any
such persons may be deemed to be
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underwriting compensation under the Securities Act. The letter of transmittal
states that by acknowledging that it will deliver and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act.
The interpretation of the staff of the SEC referred to in the first
paragraph of this section does not apply to, and this prospectus may not be
used in connection with, the resale by any broker-dealer of any New Notes
received in exchange for an unsold allotment of Old Notes purchased directly
from Avista Corp.
Avista Corp. will not receive any proceeds from the issuance of the New
Notes pursuant to the Exchange Offer or from any subsequent sale of the New
Notes. Avista Corp. has agreed to pay all expenses incident to the Exchange
Offer other than commissions or concessions of any brokers or dealers and
expenses of counsel for the holders of the New Notes and will indemnify the
holders of the New Notes (including any broker-dealers) against certain
liabilities, including liabilities under the Securities Act.
WHERE YOU CAN FIND MORE INFORMATION
Avista Corp. files annual, quarterly and special reports, proxy statements
and other information with the SEC. You may read and copy any document Avista
Corp. files at the SEC's public reference room at 450 Fifth Street, N.W.,
Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 for further
information on the public reference room. Avista Corp. SEC filings are also
available to the public from the SEC's website at http://www.sec.gov. However,
information on this website does not constitute a part of this prospectus.
During 2001, Avista Corp. has filed the following documents with the SEC
pursuant to the Exchange Act:
. Annual Report on Form 10-K for the year ended December 31, 2000, as
amended by Form 10-K/A (the "Form 10-K").
. Quarterly Reports on Form 10-Q for the quarters ended March 31 and June
30, 2001.
. Current Reports on Form 8-K filed May 2 and July 18, 2001.
These documents, as well as any other documents subsequently filed with the
SEC before the termination of the offering of the New Notes, are incorporated
herein by reference and are considered to be part of this prospectus. Later
information contained in this prospectus updates and supersedes the information
set forth in the Form 10-K and any other incorporated documents.
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS
We are including the following cautionary statement in this prospectus to
make applicable and to take advantage of the safe harbor provisions of the
Private Securities Litigation Reform Act of 1995 for any forward-looking
statements made by, or on behalf of, Avista Corp. Forward-looking statements
include statements concerning plans, objectives, goals, strategies, projections
of future events or performance, and underlying assumptions (many of which are
based, in turn, upon further assumptions) and are all statements which are
other than statements of historical fact, including without limitation those
that are identified by the use of the words "anticipates", "estimates",
"expects", "intends", "plans", "predicts", and similar expressions. From time
to time, we may publish or otherwise make available forward-looking statements
of this nature. All such subsequent forward-looking statements, whether written
or oral and whether made by or on behalf of Avista Corp., are also expressly
qualified by these cautionary statements.
Forward-looking statements involve risks and uncertainties that could cause
actual results or outcomes to differ materially from those expressed. Our
expectations, beliefs and projections are expressed in good faith and
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are believed by us to have a reasonable basis, including without limitation
management's examination of historical operating trends, data contained in our
records and other data available from third parties, but there can be no
assurance that our expectations, beliefs or projections will be achieved or
accomplished. Furthermore, any forward-looking statement speaks only as of the
date on which such statement is made, and we undertake no obligation to update
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 management to predict all of such factors, nor can it
assess the impact of each such factor on Avista Corp.'s business or the extent
to which any such factor, or combination of factors, may cause actual results
to differ materially from those contained in any forward-looking statement.
Avista Utilities' Operations
In addition to other factors and matters discussed elsewhere herein, some
important factors that could cause actual results or outcomes for Avista
Utilities' operations to differ materially from those discussed in
forward-looking statements include continuing legislative developments,
governmental policies and regulatory actions with respect to allowed rates of
return, financings, or industry and rate structures, the effects of weather
conditions on both the demand for and supply of electric energy and natural gas
and the availability of hydroelectric resources, wholesale and retail
competition (including but not limited to electric retail wheeling and
transmission cost), availability of economic supplies of purchased power and
natural gas, present or prospective natural gas distribution or transmission
competition (including but not limited to prices of alternative fuels and
system deliverability costs), the costs of electric capacity and energy and
natural gas in wholesale markets as well as volatility and illiquidity in these
markets and the ability to recover purchased power and purchased gas costs, the
ability to make profitable sales of any surplus electric capacity or energy in
wholesale markets, present or prospective generation, operations and
construction of plant facilities, and acquisition and disposal of assets or
facilities.
Energy Trading and Marketing Operations
Energy Trading and Marketing includes the operations of Avista Energy and
Avista Power. In addition to other factors and matters discussed elsewhere
herein, some important factors that could cause actual results or outcomes for
the Energy Trading and Marketing operations to differ materially from those
discussed in forward-looking statements include further industry restructuring
evolving from federal and/or state legislation, regulatory actions by federal
and state utility commissions, demand for and availability of electrical energy
and natural gas in the Northwest and elsewhere, wholesale competition,
availability of economic supplies of natural gas, governmental controls on
market operations and prices, margins on purchased power, changes in market
factors, the formation of additional alliances or entities, the availability of
economically feasible generating projects and the availability of funding for
new generating assets.
Information and Technology, and Avista Ventures' Operations
Certain additional important factors which could cause actual results or
outcomes for the remaining Avista Corp. subsidiaries' operations to differ
materially from those discussed in forward-looking statements include
competition from other companies and other technologies, obsolescence of
technologies, the ability or inability to reduce costs of the technologies down
to economic levels, the ability to obtain new customers and retain old ones,
reliability of customer orders, business acquisitions, disposal of assets, the
availability of funding from other sources, research and development findings
and the availability of economic expansion or development opportunities.
Factors Common to All Operations
The business and profitability of Avista Corp. are also influenced by, among
other things, economic risks, changes in and compliance with environmental and
safety laws and policies, weather conditions, population
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growth rates and demographic patterns, market demand for energy from plants or
facilities, changes in tax rates or policies, unanticipated project delays or
changes in project costs, unanticipated changes in operating expenses or
capital expenditures, labor negotiation or disputes, changes in credit ratings
or capital market conditions, inflation rates, inability of the various
counterparties to meet their obligations with respect to financial instruments,
changes in accounting principles and/or the application of such principles to
Avista Corp., changes in technology and legal proceedings.
LEGAL MATTERS
The validity of the New Notes will be passed upon for Avista Corp. by Thelen
Reid & Priest LLP and Heller Ehrman White & McAuliffe LLP. In addition, matters
of federal income tax law and federal securities law will be passed upon by
Thelen Reid & Priest LLP. In giving their opinion, Thelen Reid & Priest LLP may
rely as to matters of Washington, California, Idaho, Montana and Oregon law
upon the opinion of Heller Ehrman White & McAuliffe LLP.
EXPERTS
The financial statements incorporated in this prospectus by reference from
Avista Corp.'s Annual Report on Form 10-K for the year ended December 31, 2000
have been audited by Deloitte & Touche LLP, independent auditors, as stated in
their report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
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