SUBSEQUENT EVENTS

On November 4, 2013, the Company entered into an agreement and plan of merger (Merger Agreement) with Alaska Energy and Resources Company (AERC), a privately-held company based in Juneau, Alaska. When the transaction is complete, AERC will become a wholly-owned subsidiary of Avista Corp.

The primary subsidiary of AERC is Alaska Electric Light & Power Company (AEL&P), the oldest regulated electric utility in Alaska. In 2012, AEL&P had annual revenues of $42 million and a total rate base of $111 million. AEL&P has 60 full-time employees and is the sole provider of electric services to approximately 15,900 customers in the city and borough of Juneau.

In addition to the regulated utility, AERC owns the AJT Mining subsidiary, which is an inactive mining company holding certain mining properties.

The merger consideration at closing will be $170 million, less AERC's indebtedness and subject to other customary closing adjustments (Merger Consideration). The transaction will be funded primarily through the issuance of Avista common stock to the shareholders of AERC. The transaction is expected to close by July 1, 2014, following the receipt of necessary regulatory approvals and the satisfaction of other closing conditions. Avista Corp. shareholder approval is not required.

Pursuant to the Merger Agreement, among other things, each of the issued and outstanding shares of AERC common stock (other than Dissenting Shares) will be converted into the right to receive consideration as follows:


i.	the number of shares of Avista Corp. common stock equal to one share of AERC common stock multiplied by the Exchange Ratio; and


ii.	a portion of the Representative Reimbursement Amount.

For purposes of the foregoing:

The Exchange Ratio is the ratio obtained by dividing the Per Share Amount by (i) $21.48 if the Avista Corp. Closing Price is less than or equal to $21.48, (ii) the Avista Corp. Closing Price, if the Avista Corp. Closing Price is greater than $21.48 and less than $34.30 or (iii) $34.30 if the Avista Corp. Closing Price is greater than or equal to $34.30.

The Per Share Amount is the amount determined by dividing (a) the Merger Consideration (as adjusted) by (b) the aggregate number of shares of AERC common stock outstanding immediately prior to the closing of the transaction.

The Representative Reimbursement Amount is a $500,000 cash payment to be made by Avista Corp. at the Closing to the Shareholders’ Representative. The purpose of the Representative Reimbursement Amount is to reimburse the Shareholders’ Representative for expenses incurred by the Shareholders’ Representative in acting for the current shareholders of AERC in connection with the Merger. The total Merger Consideration will be reduced by the Representative Reimbursement Amount.

Dissenting Shares will not be converted into, or represent the right to receive, the Merger Consideration or any portion of the Representative Reimbursement Amount. Such shareholders will be entitled to receive payment of the fair value of Dissenting Shares held by them in accordance with the provisions of AS 10.06.580 of the Alaska Corporations Code. Any amounts paid to Dissenting Shares over the amounts otherwise payable in the form of Merger Consideration are indemnified expenses owed by AERC to Avista Corp.

The Merger Agreement has been approved by Avista Corp.'s and AERC's Boards of Directors, but the consummation of the transaction is subject to the satisfaction or waiver of specified closing conditions, including:


•	the registration under the Securities Act of 1933 of the shares of common stock that will be issued to AERC shareholders;


•	the approval of such shares for listing on the New York Stock Exchange;


•	the approval of the merger transaction by the requisite number of AERC shareholders;

•

the receipt of regulatory approvals and other consents required to consummate the merger transaction, including, among others, approvals from the FERC, the Regulatory Commission of Alaska, the UTC, the IPUC, the Public Utility Commission of Oregon (OPUC), the Public Service Commission of the State of Montana, the U.S. Federal Trade Commission (the FTC), the Antitrust Division of the U.S. Department of Justice (the DOJ) and any other applicable regulatory bodies on the terms and conditions specified in the definitive purchase agreement;


•	the absence of the occurrence of a material adverse effect (as defined in the Merger Agreement) relating to either AERC or Avista Corp. after the date of the signed agreement; and


•	other customary closing conditions.

The Merger Agreement also provides for customary termination rights for each of the Company and AERC, including the right for either party to terminate if the Merger has not been consummated by December 31, 2014; provided, however, that the failure of the Merger to have been consummated on or before December 31, 2014 was not caused by the failure of such party or any affiliate of such party to perform any of its obligations under the Merger Agreement. Upon termination of the Merger Agreement in accordance with its terms, there will be no further liability under the agreement except that nothing shall relieve any party thereto from liability for any breach of the agreement.

There may be certain commitments and contingencies that will be assumed when the merger transaction is consummated; however, Avista Corp. has not fully completed its evaluation of all the potential commitments and contingencies as of the date of this filing.

During the three and nine month periods ended September 30, 2013, Avista Corp. incurred $0.1 million (pre-tax) of transaction related fees which have been expensed and presented in the Condensed Consolidated Statements of Income in other operating expenses within other non-utility operating expenses. Avista Corp. expects to incur additional transaction related fees upon consummation of the transaction.