BUSINESS ACQUISITIONS

Alaska Energy and Resources Company - Avista Corporation

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

The primary subsidiary of AERC is AEL&P, the sole provider of electric services to approximately 16,000 customers in the City and Borough of Juneau, Alaska. In 2012, AEL&P had annual revenues of $42 million, a total rate base of $111 million and had 60 full-time employees. The utility has a firm retail peak load of approximately 80 MW. AEL&P owns four hydroelectric generating facilities, having a total present capacity of 24.7 MW, and has a power purchase commitment for the output of the Snettisham hydroelectric project, having a present capacity of 78 MW, for a total hydroelectric capacity of 102.7 MW. AEL&P is not interconnected to any other electric system; therefore, the utility has 93.9 MW of diesel generating present capacity to provide back-up service to firm customers when necessary.

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 is subject to other customary closing adjustments (Merger Consideration). The transaction will be funded primarily through the issuance of Avista Corp. common stock to the shareholders of AERC. The transaction is expected to close by July 1, 2014, following the receipt of necessary regulatory approvals, the approval of the merger transaction by the requisite number of AERC shareholders 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 account. 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, the UTC, the U.S. Federal Trade Commission and the Antitrust Division of the U.S. Department of Justice, 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 RCA, the IPUC, the OPUC 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.

For the year ended December 31, 2013, Avista Corp. incurred $1.6 million (pre-tax) of transaction related fees which have been expensed and presented in the Consolidated Statements of Income in other operating expenses within utility operating expenses. Avista Corp. expects to incur additional transaction related fees upon consummation of the transaction.

Prenova and LPB Energy Management (LPB) - Subsidiary Acquisitions

On November 30, 2011, Ecova acquired all of the capital stock of Prenova, Inc. (Prenova), an Atlanta-based energy management company. The cash paid for the acquisition of Prenova of $35.7 million was funded primarily through borrowings under Ecova’s committed credit agreement. The acquired assets and assumed liabilities of Prenova were recorded at their respective estimated fair values as of the date of acquisition. These intangible assets are included in intangible assets on the Consolidated Balance Sheets. The results of operations of Prenova are included in the consolidated financial statements beginning December 1, 2011.

On January 31, 2012, Ecova acquired all of the capital stock of LPB Energy Management (LPB), a Dallas, Texas-based energy management company. The cash paid for the acquisition of LPB of $50.6 million was funded by Ecova through $25.0 million of borrowings under its committed credit agreement, a $20.0 million equity infusion from existing shareholders (including Avista Capital and the other owners of Ecova), and available cash. The acquired assets and assumed liabilities of LPB were recorded at their respective estimated fair values as of the date of acquisition. The results of operations of LPB are included in the consolidated financial statements beginning February 1, 2012.

At the time of the LPB acquisition, the Company recorded a contingent liability of $0.4 million related to additional purchase price payments the sellers had the potential to receive of $0.5 million in 2012, $1.0 million in 2013 and $1.5 million in 2014. The sellers of LPB did not receive the additional purchase price payments in 2012 and 2013. The sellers still have the potential to receive additional purchase price payments in the amount of $1.5 million in 2014; however, based on management's assessment of the probability that the revenue thresholds will be achieved, there is no contingent liability recorded as of December 31, 2013. There was an estimated contingent liability of $0.3 million recorded as of December 31, 2012 associated with these additional purchase price payments.

Pro forma disclosures reflecting the effects of Ecova’s acquisitions are not presented, as the acquisitions are not material to Avista Corp.’s consolidated financial condition or results of operations.