Document:

Exhibit 4(b)(2)

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                               AVISTA CORPORATION

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                              OFFICER'S CERTIFICATE

                      (Under Section 301 of the Indenture,
                            dated as of _____, 2004)

                  Establishing Series of Securities Designated
                    Subordinated Debt Securities, Series ____

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                               _____________, 2004

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                               AVISTA CORPORATION

                              OFFICER'S CERTIFICATE
                      (Under Section 301 of the Indenture,
                            dated as of _____, 2004)

                  I,  _______________,  _________________  of AVISTA CORPORATION
(the  "Company"),  in accordance with Section 301 of the Indenture,  dated as of
_____,  2004 (the  "Indenture",  capitalized  terms used  herein and not defined
herein having the meanings specified in the Indenture),  of the Company to Union
Bank of California,  N.A., trustee (the "Trustee"), do hereby establish a series
of Securities having the terms and  characteristics  set forth in this Officer's
Certificate.

                                     PART I

                  Set   forth   below  in  this   Part  I  are  the   terms  and
characteristics  of the series of Securities  established  hereby referred to in
clauses (a) through (u) in the second  paragraph of Section 301 of the Indenture
(the  lettered  clauses set forth herein  corresponding  to such clauses in said
Section 301).

                  (a) the title of the  Securities of such series,  being Series
No. 1 under the Indenture,  shall be "Subordinated  Debt Securities,  Series __"
(the  Securities  of such series,  for purposes of this  Officer's  Certificate,
being sometimes hereinafter called the "Notes");  the Notes are to be issued and
sold to AVA Capital Trust III; and all references herein to the Declaration, the
Institutional Trustee and the Trust Securities relate to the Trust;

                  (b) the  aggregate  principal  amount  of Notes  which  may be
authenticated  and  delivered  under the  Indenture  shall be  limited to _____,
except as contemplated in Section 301(b) of the Indenture;

                  (c)  interest  on the Notes  shall be payable to the Person or
Persons in whose names the Notes are  registered at the close of business on the
Regular Record Date for such interest, except as otherwise expressly provided in
the form of Note attached hereto and hereby authorized and approved;

                  (d)  the   principal   of  the  Notes   shall  be  payable  on
___________, _____;

                  (e) Article 4 of the Declaration  sets forth the procedures to
determine the Distribution Rate,  Distribution  Periods and Distribution Payment
Dates  for  the  Preferred  Securities.   While  the  Preferred  Securities  are
outstanding,  the Interest Rate,  Interest  Periods,  Interest Payment Dates and
associated  terms  relating to the Notes  shall be the same as the  Distribution
Rate,  Distribution  Periods and Distribution Payment Dates and associated terms
relating to the Preferred  Securities,  respectively.  If the Trust is dissolved
and the Notes are  distributed to the holders of the Preferred  Securities,  the
interest payable,  Interest Rate,  Interest Periods,  Interest Payment Dates and
the redemption  provisions  with respect to Fixed Rate Periods for the Preferred
Securities and the Remarketing  Procedures shall remain the same with respect to
the Notes  distributed to the holders of Preferred  Securities  except:  (i) the
effects of the

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Declaration  Events of Default will only be  occasioned by the Events of Default
and (ii) the cure and waiver  provisions  relating to the Declaration  Events of
Default will be  superceded  by the cure and waiver  provisions  relating to the
Events of Default.  In  addition,  if the Trust is  dissolved  and the Notes are
distributed  to the holders of the  Preferred  Securities,  the below  described
procedures will be applicable to the Notes.

                           (i) interest  payments  shall accrue from the date of
         original  issuance until Maturity or the  Redemption  Date.  During the
         Initial  Fixed Rate Period,  interest will be payable  semiannually  in
         arrears on _____ and _____ of each  year,  commencing  on _____,  2004.
         During any Fixed Rate Period, other than the Initial Fixed Rate Period,
         interest will be payable  semiannually  in arrears on Interest  Payment
         Dates  determined  based  on the  Remarketing  Date (if the  Notes  are
         remarketed  for a new Fixed Rate  Period that begins on _____ or _____,
         interest  will be payable  on _____ and _____ of each year,  and if the
         Notes are  remarketed  for a new Fixed Rate Period that begins on _____
         or _____,  interest  will be payable on _____ and _____ of each  year).
         During any Floating Rate Period,  interest will be payable quarterly in
         arrears on _____, _____, _____ and _____ of each year;

                           (ii) if any  Interest  Payment Date with respect to a
         Fixed Rate  Period is not a Business  Day,  interest  will be  payable,
         without additional  interest,  on the immediately  succeeding  Business
         Day,  with the same force and effect as if payment was made on the date
         such  payment was  originally  payable  (and without the accrual of any
         additional  amount of  interest).  If any  Interest  Payment  Date with
         respect to a Floating  Rate Period is not a Business Day, then interest
         will be payable on the immediately succeeding Business Day and interest
         shall accrue to the actual payment date (except for an Interest Payment
         Date that coincides with Maturity or the Redemption Date);

                           (iii) the amount of interest payable on each Interest
         Payment  Date  relating  to a Fixed Rate Period will be computed on the
         basis of a 360-day year of twelve 30-day months. The amount of interest
         payable on each  Interest  Payment  Date in respect of a Floating  Rate
         Period will be computed by  multiplying  the per annum Interest Rate in
         effect for such Interest  Period by a fraction,  the numerator of which
         will be the actual number of days in such  Interest  Period (or portion
         thereof)  (determined  by including the first day thereof and excluding
         the  last  thereof)  and the  denominator  of  which  will be 360,  and
         multiplying the rate so obtained by $1,000;

                           (iv)  interest on the Notes will be  deferred  during
         any  Extension  Period (as defined  below) but will continue to accrue.
         The payment of such interest,  together with any interest thereon, will
         be  distributed  to the  holders  of Notes at the end of any  Extension
         Period;

                           (v) each Note upon  registration  of  transfer  or in
         exchange  for or in lieu of any other  Note  shall  carry the rights of
         interest accrued and unpaid, and to accrue,  which were carried by such
         other Note;

                           (vi)  during  the  Initial  Fixed  Rate  Period,  the
         Interest Rate shall be the Initial Interest Rate;

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                           (vii) prior to the  expiration  of the Initial  Fixed
         Rate Period and any subsequent  Fixed Rate Period or an Interest Period
         with respect to a Floating Rate Period or an Interest Period in a Fixed
         Rate  Period  during a time in which the Notes are  redeemable  in such
         Fixed Rate  Period,  the Company  will have the option to remarket  the
         Notes to  establish a new Fixed Rate for a new Fixed Rate Period (to be
         in effect after the expiration of the then current Interest Period). If
         the  Company  elects  to  conduct  a  Remarketing  of the Notes for the
         purpose of  establishing  a new Fixed Rate for a new Fixed Rate Period,
         the Company shall not less than 20 nor more than 35 Business Days prior
         to  the  related  Election  Date,  notify  the  Clearing  Agency,   the
         Calculation  Agent, the Trustee and the Remarketing Agent. If the Notes
         are not issued in global, fully registered form to the Clearing Agency,
         such notice shall be  delivered to the holders of the Notes  instead of
         the  Clearing  Agency.  Such notice  shall  indicate  the length of the
         proposed new Fixed Rate Period,  the proposed  Remarketing Date and any
         redemption provisions that apply during such new Fixed Rate Period. The
         Company  shall have the right to  terminate a  Remarketing  at any time
         prior  to the  Election  Date  by  notice  of such  termination  to the
         Clearing Agency, the Remarketing Agent, the Trustee and the Calculation
         Agent;

                           (viii) if the  Remarketing  Agent has determined that
         it will be able to remarket all Notes  tendered or deemed  tendered for
         purchase  in the  Remarketing  at a Fixed Rate and at a price of $1,000
         per Note, on such Remarketing Date, the Interest Rate for the new Fixed
         Rate Period will be the Fixed Rate determined by the Remarketing Agent,
         which will be the rate per annum (rounded to the nearest one-thousandth
         (0.001)  of  one  percent  per  annum)  which  the  Remarketing   Agent
         determines, in its sole judgment, to be the lowest Fixed Rate per annum
         that will enable it to remarket all Notes  tendered or deemed  tendered
         for Remarketing at a price of $1,000 per Note;

                           (ix) if the Company  does not elect to  remarket  the
         Notes or has  terminated a Remarketing or if the  Remarketing  Agent is
         unable to remarket all of the Notes  tendered or deemed  tendered for a
         purchase  price of $1,000  per  Note,  the  Interest  Rate for the next
         Interest  Period shall be the Floating Rate and the new Interest Period
         shall be a Floating Rate Period;

                           (x)  the   Calculation   Agent  shall  calculate  the
         Floating Rate on the Floating Rate Determination Date as follows:

                                    (A) Except as provided  below,  the Floating
                  Rate for any Floating  Rate Period for the Notes will be equal
                  to the  Adjustable  Rate (as  defined  below)  plus ___%.  The
                  "Adjustable Rate" for any Interest Period will be equal to the
                  highest of the 3-month  LIBOR Rate,  the 10-year  Treasury CMT
                  and the  30-year  Treasury  CMT  (each as  defined  below  and
                  collectively  referred to as the  "Benchmark  Rates") for such
                  Interest Period during the Floating Rate Period.  In the event
                  that the Calculation  Agent  determines in good faith that for
                  any reason:

                                    (1) any one of the Benchmark Rates cannot be
                                    determined  for  any  Interest  Period,  the
                                    Adjustable  Rate  for such  Interest  Period
                                    will be equal to the higher of whichever two
                                    of such rates can be so determined;

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                                    (2) only one of the  Benchmark  Rates can be
                                    determined  for  any  Interest  Period,  the
                                    Adjustable  Rate  for such  Interest  Period
                                    will be equal to whichever  such rate can be
                                    so determined; or

                                    (3)  none  of  the  Benchmark  Rates  can be
                                    determined  for  any  Interest  Period,  the
                                    Adjustable  Rate for the preceding  Interest
                                    Period will be continued  for such  Interest
                                    Period.

                                    (B) The "3-month LIBOR Rate" means, for each
                  Interest Period, the arithmetic average of the two most recent
                  weekly quotes for deposits for U.S.  Dollars  having a term of
                  three months,  as published on the first  Business Day of each
                  week  immediately  preceding the Interest Period for which the
                  Floating Rate is being  determined.  Such quotes will be taken
                  from Telerate  Page 3750 at  approximately  11:00 a.m.  London
                  time on the Floating  Rate  Determination  Date.  If such rate
                  does not appear on  Telerate  Page 3750 on the  Floating  Rate
                  Determination  Date,  the  3-month  LIBOR  Rate  will  be  the
                  arithmetic  mean of the rates  quoted by three  major banks in
                  New  York  City  selected  by  the   Calculation   Agent,   at
                  approximately  11:00 a.m., New York City time, on the relevant
                  date for loans in U.S. Dollars to leading European banks for a
                  period of three months.

                                    (C) The  "10-year  Treasury  CMT"  means the
                  rate determined in accordance with the following provisions:

                                    (1)  With  respect  to  any  Floating   Rate
                                    Determination  Date and the Interest  Period
                                    that  begins  immediately  thereafter,   the
                                    10-year   Treasury   CMT   means   the  rate
                                    displayed  on  Telerate  Page 7051 under the
                                    caption        "...Treasury         Constant
                                    Maturities...Federal  Reserve  Board Release
                                    H.15...Mondays   Approximately  3:45  P.M.",
                                    under  the  column  for the  Designated  CMT
                                    Maturity Index (as defined below).

                                    (2) If such rate is no longer  displayed  on
                                    the relevant page, or is not so displayed by
                                    3:00  P.M.,  New  York  City  time,  on  the
                                    applicable Floating Rate Determination Date,
                                    then  the  10-year  Treasury  CMT  for  such
                                    Floating  Rate  Determination  Date  will be
                                    such treasury constant maturity rate for the
                                    Designated   CMT   Maturity   Index   as  is
                                    published in H.15(519).

                                    (3) If such rate is no longer  displayed  on
                                    the relevant  page,  or if not  published by
                                    3:00  P.M.,  New  York  City  time,  on  the
                                    applicable Floating Rate Determination Date,
                                    then  the  10-year  Treasury  CMT  for  such
                                    Floating  Rate  Determination  Date  will be
                                    such constant maturity treasury rate for the
                                    Designated  CMT  Maturity  Index  (or  other
                                    United   States   Treasury   rate   for  the
                                    Designated  CMT  Maturity   Index)  for  the
                                    applicable  Floating Rate Determination Date
                                    with respect to such interest  reset date as
                                    may

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                                    then be  published  by  either  the Board of
                                    Governors of the Federal  Reserve  System or
                                    the United States Department of the Treasury
                                    that the Calculation  Agent determines to be
                                    comparable to the rate formerly displayed on
                                    the  Telerate  Page  7051 and  published  in
                                    H.15(519).

                                    (4) If such  information  is not provided by
                                    3:00  P.M.,  New  York  City  time,  on  the
                                    applicable Floating Rate Determination Date,
                                    then  the  10-year  Treasury  CMT  for  such
                                    Floating  Rate  Determination  Date  will be
                                    calculated by the Calculation Agent and will
                                    be  a  yield  to  maturity,   based  on  the
                                    arithmetic  mean  of  the  secondary  market
                                    offered rates as of approximately 3:30 P.M.,
                                    New York City  time,  on the  Floating  Rate
                                    Determination  Date  reported,  according to
                                    their  written  records,  by  three  leading
                                    primary United States government  securities
                                    dealers  in The  City of New York  (each,  a
                                    "Reference    Dealer")   selected   by   the
                                    Calculation  Agent (from five such Reference
                                    Dealers  selected by the  Calculation  Agent
                                    and eliminating  the highest  quotation (or,
                                    in  the  event  of  equality,   one  of  the
                                    highest)  and the lowest  quotation  (or, in
                                    the event of equality,  one of the lowest)),
                                    for  the   most   recently   issued   direct
                                    noncallable  fixed rate  obligations  of the
                                    United States  ("Treasury  Debentures") with
                                    an original  maturity of  approximately  the
                                    Designated   CMT   Maturity   Index   and  a
                                    remaining  term to maturity of not less than
                                    such Designated CMT Maturity Index minus one
                                    year.

                                    (5) If the  Calculation  Agent is  unable to
                                    obtain   three  such   Treasury   Debentures
                                    quotations, the 10-year Treasury CMT for the
                                    applicable  Floating Rate Determination Date
                                    will be calculated by the Calculation  Agent
                                    and will be a yield to maturity based on the
                                    arithmetic  mean  of  the  secondary  market
                                    offered rates as of approximately 3:30 P.M.,
                                    New  York  City  time,  on  the   applicable
                                    Floating  Rate  Determination  Date of three
                                    Reference  Dealers  in The  City of New York
                                    (from five such Reference  Dealers  selected
                                    by the Calculation Agent and eliminating the
                                    highest  quotation  (or,  in  the  event  of
                                    equality, one of the highest) and the lowest
                                    quotation (or, in the event of equality, one
                                    of the  lowest)),  for  Treasury  Debentures
                                    with an  original  maturity of the number of
                                    years  that  is  the  next  highest  to  the
                                    Designated   CMT   Maturity   Index   and  a
                                    remaining  term to  maturity  closest to the
                                    Designated  CMT  Maturity  Index  and  in an
                                    amount of at least $100 million.

                                    (6) If three or four  (and not five) of such
                                    Reference  Dealers  are quoting as set forth
                                    above, then the 10-year Treasury CMT will be
                                    based on the arithmetic  mean of the offered
                                    rates  obtained  and neither the highest nor
                                    lowest of such  quotes  will be  eliminated;
                                    provided,  however, that if fewer than three
                                    Reference    Dealers

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                                    selected  by  the   Calculation   Agent  are
                                    quoting  as set  forth  above,  the  10-year
                                    Treasury CMT with respect to the  applicable
                                    interest  determination date will remain the
                                    10-year  Treasury  CMT for  the  immediately
                                    preceding  Interest Period.  If two Treasury
                                    Debentures  with  an  original  maturity  as
                                    described in the second  preceding  sentence
                                    have  remaining  terms to  maturity  equally
                                    close to the Designated CMT Maturity  Index,
                                    then the quotes for the Treasury  Debentures
                                    with the shorter  remaining term to maturity
                                    will be used.

                                    (7)  "Designated  CMT Maturity  Index" means
                                    the original  period to maturity of the U.S.
                                    Treasury  securities (10 years) with respect
                                    to which the  10-year  Treasury  CMT will be
                                    calculated.

                                    (8)  "Telerate  Page 3750" means the display
                                    designated   on  page   3750  on   MoneyLine
                                    Telerate  (or such other page as may replace
                                    the 3750 page on the  service  or such other
                                    service as may be  nominated  by the British
                                    Bankers'  Association  for  the  purpose  of
                                    displaying  London  interbank  offered rates
                                    for U.S. Dollars deposits).

                                    (9)  "Telerate  Page 7051" means the display
                                    on  MoneyLine  Telerate  (or  any  successor
                                    service), on such page (or any other page as
                                    may replace such page on that service),  for
                                    the purpose of displaying  Treasury Constant
                                    Maturities as reported in H.15(519).

                                    (10) "30-year  Treasury CMT" has the meaning
                                    specified  under the  definition  of 10-year
                                    Treasury CMT, except that the Designated CMT
                                    Maturity Index for the 30-year  Treasury CMT
                                    shall be 30 years.

                                    (D) The  3-month  LIBOR  Rate,  the  10-year
                  Treasury  CMT and  the  30-year  Treasury  CMT  shall  each be
                  rounded to the nearest hundredth of a percent.

                                    (E) The  Floating  Rate with respect to each
                  Floating  Rate  Period  will  be  calculated  as  promptly  as
                  practicable  by  the   Calculation   Agent  according  to  the
                  appropriate method described above.

                           (xi) if the Company elects to defer interest during a
         Fixed Rate Period,  interest  will continue to accrue and be compounded
         semiannually  at the Fixed Rate until the  expiration of the Fixed Rate
         Period.  Prior to the  expiration  of such  Fixed  Rate  Period and any
         subsequent Fixed Rate Period during the Extension  Period,  the Company
         will have the option to remarket  the Notes for a new Fixed Rate Period
         (to take  effect upon  expiration  of such Fixed Rate  Period).  If the
         Company  does not  remarket  the Notes,  the  Floating  Rate during the
         Extension Period shall be determined as provided herein,  but shall not
         be less than the Fixed Rate for the Fixed Rate Period  just  ended.  If
         the Company  elects to defer  interest  during a Floating  Rate Period,
         interest  will  continue to

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         accrue and be compounded  quarterly at the  applicable  Floating  Rate,
         reset  quarterly,  subject to the right of the Company to remarket  the
         Notes prior to any  Interest  Payment  Date in order to establish a new
         Fixed  Rate  for a  new  Fixed  Rate  Period  in  accordance  with  the
         Remarketing Procedures;

                           (xii) in accordance  with Part II, clause (b) of this
         Officer's Certificate and the Remarketing Procedures,  the Company may,
         prior to the  expiration  of the  Initial  Fixed  Rate  Period  and any
         subsequent Fixed Rate Period, prior to any Interest Payment Date during
         a time in which the Notes are  redeemable  in any Fixed Rate  Period or
         prior to any  Interest  Payment  Date with  respect to a Floating  Rate
         Period, elect to remarket the Notes to establish a new Fixed Rate for a
         new Fixed Rate Period (to be in effect after the then current  Interest
         Period).  A Fixed Rate  Period  must be for a duration  of at least six
         months, may not extend beyond the Maturity of the Notes and may not end
         on a day other than a day  immediately  preceding  an Interest  Payment
         Date.  If a new  Fixed  Rate for a new  Fixed  Rate  Period is set in a
         Remarketing,  a new Fixed Rate  Period  shall  commence  following  the
         expiration of the then current Interest Period. If a new Fixed Rate for
         a new Fixed Rate Period is not set, for any reason, including after the
         expiration  of the Initial  Fixed Rate Period,  a Floating Rate Period,
         and the  Floating  Rate reset  quarterly  shall be in effect  until the
         Company  remarkets  the Notes and sets a new Fixed Rate for a new Fixed
         Rate Period in accordance with the Remarketing Procedures;

                           (xiii) so long as no Event of  Default  has  occurred
         and is continuing, the Company has the right at any time, and from time
         to time,  to defer  payments of interest on the Notes by extending  the
         interest  payment period (an "Extension  Period").  During an Extension
         Period,  interest will continue to accrue on the Notes.  If the Company
         decides to defer interest  payments on the Notes,  the Extension Period
         shall not exceed five consecutive  years. An Extension Period shall not
         extend beyond the Maturity of the Notes.  Prior to the  termination  of
         any  Extension  Period,  the  Company  may  further  defer  payments of
         interest provided that the Extension Period, together with all previous
         and further extensions thereof,  may not exceed five consecutive years.
         There could be multiple Extension Periods of varying lengths throughout
         the term of the  Notes.  Upon  the  termination  of any such  Extension
         Period and upon the  payment of all accrued  and unpaid  interest  then
         due,  the Company  may select a new  Extension  Period,  subject to the
         above  limitations  and  requirements.  Upon  the  termination  of  any
         Extension  Period,  which  termination  shall be on an Interest Payment
         Date,  the  Company  shall  pay  all  Deferred  Interest  on  the  next
         succeeding  Interest Payment Date to the Person in whose name the Notes
         are  registered on the Regular  Record Date for such  Interest  Payment
         Date,  provided  that Deferred  Interest  payable at Maturity or on any
         Redemption  Date  will be  paid to the  Person  to  whom  principal  is
         payable. The Company shall give the Holder or Holders of the Notes, the
         Trustee,  the Remarketing  Agent and the Calculation  Agent,  notice as
         provided in Sections 105 and 106, respectively, of the Indenture of its
         selection or extension of an Extension Period at least one Business Day
         prior to the  earlier of (i) the Regular  Record  Date  relating to the
         Interest  Payment Date on which the Extension  Period is to commence or
         relating to the Interest Payment Date on which an Extension Period that
         is  being  extended  would  otherwise  terminate,  or (ii) the date the
         Company  or the Trust is  required  to give  notice  to any  applicable
         self-regulatory  organization  of the  record  date  or the  date  such
         distributions  are payable.  The Company  shall cause the Trust

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         to give notice of the Company's  selection of such Extension  Period to
         Holders  of  the  Trust  Securities,  the  Calculation  Agent  and  the
         Remarketing Agent.

                  (f) the  corporate  trust office of Union Bank of  California,
N.A. in _____ shall be the place at which (i) the principal of, premium, if any,
and interest, if any, on the Notes at Maturity shall be payable upon presentment
and interest prior to Maturity shall be payable as specified in the form of Note
attached  hereto,  (ii)  registration  of transfer of the Notes may be effected,
(iii) exchanges of Notes may be effected and (iv) notices and demands to or upon
the Company in respect of the Notes and the Indenture  may be served;  and Union
Bank of California,  N.A. shall be the Security Registrar and a Paying Agent for
the Notes; PROVIDED,  HOWEVER, that the Company reserves the right to change, by
one or more Officer's  Certificates  supplemental to this Officer's Certificate,
any such place or the Security  Registrar or such Paying  Agent;  and  PROVIDED,
FURTHER,  that the  Company  reserves  the  right to  designate,  by one or more
Officer's Certificates supplemental to this Officer's Certificate, its principal
corporate  office  in  Spokane,  Washington  as any such  place or itself as the
Security Registrar;

                  (g)     (i) the Notes shall be subject to redemption, in whole
but not in part,  without premium or penalty,  on the last Interest Payment Date
relating to the Initial  Fixed Rate  Period,  on such dates with  respect to any
other Fixed Rate Period as the Company and the Trust may determine  prior to the
remarketing  establishing such Fixed Rate Period or on any Interest Payment Date
relating to a Floating Rate Period,  at a Redemption  Price equal to 100% of the
principal  amount  to be  redeemed  plus  accrued  but  unpaid  interest  to the
Redemption Date;

                           (ii) the Notes  shall be  subject to  redemption,  in
         whole but not in part,  at the  election  of the  Company,  on any date
         within 90 days of the  occurrence,  and during the  continuation  of, a
         Special Event (as defined  herein) at a redemption  price equal to 100%
         of the principal  amount thereof plus accrued  interest,  if any to the
         date fixed for redemption;

                           "Special  Event"  means  an "Investment  Company  Act
         Event" or "Tax Event";

                           "Investment  Company Act Event"  means the receipt by
         the Company  and the  Regular  Trustees of an Opinion of Counsel to the
         Company experienced in these matters to the effect that, as a result of
         the  occurrence of a change in law or  regulation  or a written  change
         (including  any  announced  prospective  change) in  interpretation  or
         application  of  law or  regulation  by any  legislative  body,  court,
         governmental  agency  or  regulatory  authority,  there is more than an
         insubstantial  risk  that  the  Trust  is  or  will  be  considered  an
         "investment  company"  that is  required  to be  registered  under  the
         Investment Company Act of 1940, as amended, which change or prospective
         change becomes effective or would become effective, as the case may be,
         on or after  the date of the  issuance  by the  Trust of the  Preferred
         Securities.

                           "Tax Event"  means the receipt by the Company and the
         Regular Trustees of an opinion from independent tax counsel experienced
         in such  matters  (which may be counsel to the  Company)  to the effect
         that,  as a result of (a) any amendment  to, or change  (including  any
         announced proposed change) in, the laws (or any regulations thereunder)

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         of the United States or any political  subdivision or taxing  authority
         thereof  or  therein  or  (b)  any  amendment  to,  or  change  in,  an
         interpretation  or  application of such laws or  regulations,  there is
         more than an insubstantial  risk that (i) the Trust would be subject to
         United  States  federal  income tax with  respect to income  accrued or
         received on the Notes;  (ii) interest payable on the Notes would not be
         deductible,  in whole or in part,  by the  Company  for  United  States
         federal  income tax  purposes;  or (iii) the Trust  would be subject to
         more  than  a de  minimis  amount  of  other  taxes,  duties  or  other
         governmental charges, which change or amendment becomes effective on or
         after the date of issuance by the Trust of the Preferred Securities.

                  (h) inapplicable;

                  (i) the Notes shall be issued in  denominations  of $1,000 and
any integral multiple thereof;

                  (j) inapplicable;

                  (k) inapplicable;

                  (l) inapplicable;

                  (m) inapplicable;

                  (n) inapplicable;

                  (o) inapplicable;

                  (p) inapplicable;

                  (q) inapplicable;

                  (r) inapplicable;

                  (s)      (i)  the Notes are to be initially registered  in the
name of Union Bank of California,  N.A., as Institutional  Trustee of the Trust.
The  Notes  shall not be  transferable,  nor shall  any  purported  transfer  be
registered,  except  (A) to a nominee  of such  Institutional  Trustee,  to such
Institutional  Trustee by such nominee, by such Institutional Trustee to another
nominee,  by any such  nominee to a successor  nominee or by such  Institutional
Trustee or any nominee thereof to a successor Institutional Trustee or a nominee
thereof  or (B)  to  the  holders  of  Trust  Securities  in  the  event  of the
dissolution of the Trust in accordance with the provisions of the Declaration;

                           (ii)  no  service   charge  shall  be  made  for  the
registration  of transfer or exchange  of the Notes;  PROVIDED,  HOWEVER,  that,
after the  distribution of the Notes  contemplated  in clause (i)(B) above,  the
Company  may  require  payment  of a sum  sufficient  to cover  any tax or other
governmental charge payable in connection with the exchange and transfer;

                                       9
<PAGE>

                  (t) reference is made to clause (e)(ii) above; and

                  (u) the notes are to be issued and sold to the Trust.

                                    PART II

                  Set forth  below in this Part II are  additional  terms of the
series of Notes established  hereby, as contemplated by clause (v) in the second
paragraph of Section 301 of the Indenture.

                  (a) the Notes shall have such  further  terms as are set forth
in the form of Note attached  hereto;  provided,  however,  that if the Trust is
dissolved  and  the  Notes  are  distributed  to the  holders  of the  Preferred
Securities,  the form of Note may, at the election of the Company, be revised to
specifically  include the provisions of the  determination  of the interest rate
thereon, as set forth in this Officer's Certificate;

                  (b) Article 10 of the  Declaration  sets forth the Remarketing
Procedures  to  determine  the  applicable  Fixed Rate from time to time for the
Preferred Securities. If the Trust is dissolved and the Notes are distributed to
the  holders  of the  Preferred  Securities,  the  below  described  Remarketing
Procedures will be applicable to the Notes;

                           (i) if the Company  elects to conduct a  Remarketing,
         the Company,  not less than 20 nor more than 35 Business  Days prior to
         the related  Election  Date, is required to give the written  notice of
         proposed  Remarketing of the Notes to the Clearing Agency, the Trustee,
         the Calculation  Agent and the Remarketing  Agent. If the Notes are not
         issued in global, fully registered form, such notice shall be delivered
         to the holders of the Notes instead of the Clearing Agency. Such notice
         will  describe  the  Remarketing  and will  indicate  the length of the
         proposed new Fixed Rate Period,  the proposed  Remarketing Date and any
         redemption  provisions that apply during such new Fixed Rate Period. At
         any time prior to the Election Date, the Company may elect to terminate
         a  Remarketing  by  giving  the  Clearing  Agency  (or the  Holders  as
         applicable),  the  Remarketing  Agent,  the Trustee and the Calculation
         Agent written notice of such termination;

                           (ii) not later than 4:00 p.m., New York City time, on
         an Election Date, each Holder of Notes may give a written notice to the
         Trustee of its election ("Notice of Election") (i) to retain and not to
         have all or any  portion  of the Notes  owned by it  remarketed  in the
         Remarketing,  or (ii) to tender  all or any  portion  of such Notes for
         purchase in the Remarketing (such portion,  in either case, is required
         to be in the  Liquidation  Amount of $1,000  or any  integral  multiple
         thereof).  Any  Notice  of  Election  given  to  the  Trustee  will  be
         irrevocable  and may not be  conditioned  upon the  level at which  the
         Fixed Rate is established in the Remarketing. Promptly after 4:30 p.m.,
         New York City time, on such Election  Date,  the Trustee,  based on the
         Notices of Election received by it through the Clearing Agency prior to
         such time,  will notify the Company  and the  Remarketing  Agent of the
         number of Notes to be  retained  by  holders of Notes and the number of
         Notes tendered for purchase in the Remarketing;

                                       10
<PAGE>

                           (iii)  if any  holder  of  Notes  gives a  Notice  of
         Election to tender  Notes as described  above,  the Notes so subject to
         such Notice of Election  will be deemed  tendered  for  purchase in the
         Remarketing,  notwithstanding  any failure by such holder to deliver or
         properly deliver such Notes to the Remarketing  Agent for purchase.  If
         any holder of Notes fails  timely to deliver a Notice of  Election,  as
         described  above,  such Notes will be deemed  tendered  for purchase in
         such Remarketing,  notwithstanding  such failure or the failure by such
         holder to deliver or  properly  deliver  such Notes to the  Remarketing
         Agent for purchase;

                           (iv) the right of each  holder of Notes to have Notes
         tendered for purchase in the Remarketing shall be limited to the extent
         that (i) the Remarketing  Agent conducts a Remarketing  pursuant to the
         terms of the  Remarketing  Agreement;  (ii) the Notes tendered have not
         been called for redemption; (iii) the Remarketing Agent is able to find
         a purchaser or purchasers  for tendered Notes at a Fixed Rate; and (iv)
         such purchaser or purchasers deliver the purchase price therefor to the
         Remarketing Agent;

                           (v) any holder of Notes that  desires to  continue to
         retain a number of Notes, but only if the Fixed Rate is not less than a
         specified rate per annum, shall submit a Notice of Election pursuant to
         this  clause  (b) to  tender  such  Notes  and  separately  notify  the
         Remarketing  Agent of its interest at the telephone number set forth in
         the notice of  Remarketing.  If such holder so notifies the Remarketing
         Agent,  the  Remarketing  Agent  will give  priority  to such  holder's
         purchase of such number of Notes in the Remarketing, providing that the
         Fixed Rate is not less than such specified rate;

                           (vi) if holders  submit Notices of Election to retain
         all of the Notes  then  outstanding,  the  Fixed  Rate will be the rate
         determined by the  Remarketing  Agent, in its sole  discretion,  as the
         rate that would have been  established  had a Remarketing  been held on
         the related Remarketing Date;

                           (vii)  on  any   Remarketing   Date  on   which   the
         Remarketing  is  to  be  conducted,  the  Remarketing  Agent  will  use
         commercially  reasonable efforts to remarket,  at a price equal to 100%
         of the Liquidation  Amount  thereof,  Notes tendered or deemed tendered
         for  purchase.  Except as provided in the  previous  paragraph  of this
         clause (b), if, as a result of such efforts,  on any Remarketing  Date,
         the  Remarketing  Agent has determined that it will be able to remarket
         all Notes tendered or deemed  tendered for purchase in the  Remarketing
         at a Fixed Rate and at a price of $1,000 per Note,  prior to 4:00 p.m.,
         New York City time, on such  Remarketing  Date, the  Remarketing  Agent
         will  determine  the  Fixed  Rate,  which  will be the rate  per  annum
         (rounded  to the  nearest  one-thousandth  (0.001) of one  percent  per
         annum) which the Remarketing Agent determines, in its sole judgment, to
         be the lowest  Fixed Rate per annum that will enable it to remarket all
         Notes tendered or deemed  tendered for Remarketing at a price of $1,000
         per Note;

                           (viii) if the Remarketing Agent is unable to remarket
         by 4:00 p.m., New York City time on the third Business Day prior to the
         Remarketing  Settlement Date, all Notes tendered or deemed tendered for
         a purchase  at a price of $1,000 per Note,  the  Interest  Rate for the
         next  Interest  Period shall be the Floating  Rate and the new Interest
         Period shall be a Floating Rate Period.  In such case, no Notes will be
         sold in the

                                       11
<PAGE>

         Remarketing  and each  holder  will  continue  to hold its Notes at the
         Floating Rate during such Floating Rate Period;

                           (ix) all Notes  tendered  or deemed  tendered  in the
         Remarketing  will be  automatically  delivered  to the  account  of the
         Remarketing Agent through the facilities of the Clearing Agency against
         payment of the purchase  price therefor on the  Remarketing  Settlement
         Date. The  Remarketing  Agent will make payment to the Clearing  Agency
         Participant  of each  tendering  holder  of  Notes  in the  Remarketing
         through the facilities of the Clearing  Agency by the close of business
         on the Remarketing Settlement Date;

                           (x) in accordance  with the Clearing  Agency's normal
         procedures,   on  the  Remarketing  Settlement  Date,  the  transaction
         described  above with  respect to each Note  tendered  for purchase and
         sold in the  Remarketing,  will be executed through the Clearing Agency
         Participants,  will be debited and credited and such Notes delivered by
         book entry as  necessary to effect  purchases  and sales of such Notes.
         The Clearing  Agency is expected to make payment in accordance with its
         normal procedures;

                           (xi) if any holder  selling Notes in the  Remarketing
         fails to deliver such Notes,  the Clearing  Agency  Participant of such
         selling holder and of any other person that was to have purchased Notes
         in the  Remarketing  may  deliver to any such other  person a number of
         Notes that is less than the number of Notes  that  otherwise  was to be
         purchased by such person.  In such event,  the number of Notes to be so
         delivered will be determined by such Clearing  Agency  Participant  and
         delivery of such lesser number of Notes will constitute good delivery;

                           (xii)  the  Remarketing  Agent  is not  obligated  to
         purchase any Notes that would otherwise remain unsold in a Remarketing.
         Neither the  Trustee,  the Company nor the  Remarketing  Agent shall be
         obligated  in any case to provide  funds to make payment upon tender of
         Notes for Remarketing;

                           (xiii)  prior  to  the  issuance  of the  Notes,  the
         Company and the Trust will enter into the  Remarketing  Agreement  with
         the  Remarketing  Agent,  providing,   among  other  things,  that  the
         Remarketing  Agent  will  follow  the  Remarketing  Procedures  for the
         purposes of determining the applicable Fixed Rate. The Company will pay
         the  Remarketing   Agent   compensation  for  its  services  under  the
         Remarketing Agreement;

                  (c) if the  Company  shall make any  deposit  of money  and/or
Government  Obligations  with  respect  to  any  Notes,  or any  portion  of the
principal amount thereof,  as contemplated by Section 601 of the Indenture,  the
Company  shall not deliver an Officer's  Certificate  described in clause (z) in
the first paragraph of said Section 601 unless the Company shall also deliver to
the Trustee, together with such Officer's Certificate, either:

                           (i)    an    instrument    wherein    the    Company,
         notwithstanding  the  satisfaction and discharge of its indebtedness in
         respect  of the Notes,  shall  assume the  obligation  (which  shall be
         absolute and unconditional) to irrevocably  deposit with the Trustee or
         Paying  Agent such  additional  sums of money,  if any,  or  additional
         Government  Obligations  (meeting the  requirements of Section 601), if
         any, or any

                                       12
<PAGE>

         combination  thereof,  at such  time or times,  as shall be  necessary,
         together with the money and/or  Government  Obligations  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,  all
         in accordance  with and subject to the  provisions of said Section 601;
         PROVIDED,  HOWEVER,  that such instrument may state that the obligation
         of the  Company  to make  additional  deposits  as  aforesaid  shall be
         subject  to the  delivery  to the  Company  by the  Trustee of a notice
         asserting the  deficiency  accompanied  by an opinion of an independent
         public  accountant  of  nationally   recognized  standing  showing  the
         calculation  thereof (which opinion shall be obtained at the expense of
         the Company); or

                           (ii) an Opinion  of  Counsel  to the effect  that the
         Holders of such Notes,  or portions of the  principal  amount  thereof,
         will not  recognize  income,  gain or loss for  United  States  federal
         income tax purposes as a result of the  satisfaction  and  discharge of
         the Company's  indebtedness  in respect  thereof and will be subject to
         United States federal income tax on the same amounts, at the same times
         and in the same manner as if such  satisfaction  and  discharge had not
         been effected;

                  (d) if the  Company  engages in a  conveyance  or  transfer of
property as contemplated in Section 1005 of the Indenture,  the Company will not
be released and  discharged  from all  obligations  under the  Indenture and the
Notes unless the Company  shall  deliver to the Trustee an Opinion of Counsel to
the effect that the Holders of such Notes,  or portions of the principal  amount
thereof,  will not  recognize  income,  gain or loss for United  States  federal
income tax purposes as a result of conveyance or transfer and will be subject to
United States federal  income tax on the same amounts,  at the same times and in
the same manner as if such conveyance or transfer had not been effected;

                  (e) for so long as the  Notes  are  outstanding,  the  Company
shall  not  consolidate  with or merge  into any  other  Person,  or  convey  or
otherwise transfer,  or lease, all of its properties,  as or substantially as an
entirety,  as  contemplated  by Section 1001 of the Indenture,  to any Person if
such person is organized  and existing  under the laws of Canada or any Province
thereof.

                  (f) if at any time the  Notes  are to be held by a  securities
depository,  the Company may at such time establish the matters  contemplated in
clause  (q) in the  second  paragraph  of  Section  301 of the  Indenture  in an
Officer's Certificate supplemental to this Officer's Certificate; and

                  (g) For all purposes of this Officer's Certificate,  except as
otherwise expressly provided or unless the context otherwise requires:

                           "Calculation  Agent" means Union Bank of  California,
         N.A., or its successor appointed by the Company and, if applicable, the
         Regular Trustees, acting as calculation agent.

                           "Clearing Agency" means an organization registered as
         a "clearing agency" pursuant to Section 17A of the Securities  Exchange
         Act of 1934, as amended.

                                       13
<PAGE>

                           "Clearing Agency Participant" means a broker, dealer,
         bank, other financial institution or other Person for whom from time to
         time a Clearing  Agency  effects  book-entry  transfers  and pledges of
         securities deposited with the Clearing Agency.

                           "Declaration" means the AVA Capital Trust III Amended
         and  Restated  Declaration  of Trust dated as of _____,  2004 among the
         Company,  the  trustees  named  therein,  and the holders of  undivided
         beneficial interests in the assets of the Trust.

                           "Declaration  Event of  Default"  means an  "Event of
         Default" under the Declaration.

                           "Deferred   Interest"   means  each   installment  of
         interest not paid during any Extension  Period,  and interest  thereon.
         Deferred  installments  of interest  shall bear interest at the rate of
         the  prevailing  Interest Rate per annum from the  applicable  Interest
         Payment  Date  to the  date of  payment,  compounded  on each  Interest
         Payment Date.

                           "Definitive Preferred Securities  Certificates" means
         Preferred  Securities   Certificates  issued  in  certificated,   fully
         registered form as provided in the Declaration.

                           "Distribution  Payment  Date" means each day on which
         Distributions are payable on the Preferred Securities  determined based
         on the prevailing Distribution Rate.

                           "Distribution Period" means each semiannual period in
         a Fixed Rate Period and each quarterly period in a Floating Rate Period
         for which Distributions are payable on the Trust Securities.

                           "Distribution   Rate"   means   the   rate  at  which
         Distributions will accrue on the Trust Securities.

                           "Distributions"  means amounts  payable in respect of
         the Preferred Securities pursuant to Section 4.01 of the Declaration.

                           "Election  Date"  means a date that is no later  than
         the fifth Business Day prior to the proposed Remarketing Date.

                           "Extension  Period" means any period during which the
         Company has elected to defer  payments of interest on the Notes,  which
         deferral may be for a period of up to five years.

                           "Fixed Rate" means the Distribution Rate (or Interest
         Rate with respect to the Notes) during a Fixed Rate Period.

                           "Fixed  Rate  Period"  means the  Initial  Fixed Rate
         Period and each  period set by the  Company  and,  if  applicable,  the
         Regular  Trustees  during  a  Remarketing  for  which  the  Fixed  Rate
         determined in such Remarketing will apply;  provided,  however,  that a
         Fixed Rate Period  must be for a duration  of at least six months,  may
         not extend  beyond the  Maturity  of the Notes and may not end on a day
         other than a day immediately

                                       14
<PAGE>

         preceding a  Distribution  Payment Date (or Interest  Payment Date with
         respect to the Notes).

                           "Floating  Rate" has the meaning set forth in Part I,
         clause (e).

                           "Floating Rate  Determination  Date" means the second
         London Business Day immediately preceding the first day of the relevant
         Distribution  Period (or Interest  Period with respect to the Notes) in
         the Floating Rate Period.

                           "Floating  Rate Period" means any period during which
         a Floating Rate is in effect.

                           "Initial Distribution Rate" means ___% per annum.

                           "Initial Fixed Rate Period" means the period from the
         date of original issuance through _____, 2009.

                           "Initial Interest Rate" means ___% per annum.

                           "Institutional  Trustee" means the commercial bank or
         trust  company  identified  as  the  "Institutional   Trustee"  in  the
         Declaration  solely in its  capacity  as  Institutional  Trustee of the
         Trust.

                           "Interest  Payment  Dates"  means  the dates on which
         interest on the Notes is payable.

                           "Interest Period" means the period for which interest
         on the Notes is payable.

                           "Interest  Rate" means the rate,  in effect from time
         to time, at which interest shall accrue on the Notes.

                           "Liquidation  Amount"  means  the  stated  amount  of
         $1,000 per Trust Security or the principal amount of the Notes.

                           "Liquidation  Distribution" has the meaning specified
         in Section 9.05 of the Declaration.

                           "London  Business Day" means a day that is a Business
         Day  and a day on  which  dealings  in  deposits  in U.S.  dollars  are
         transacted,  or with  respect to any  future  date are  expected  to be
         transacted, in the London interbank market.

                           "Preferred  Security"  means an undivided  beneficial
         ownership  interest  in the  assets of the Trust  having a  Liquidation
         Amount  of  $1,000  and  having   rights   provided   therefor  in  the
         Declaration,  including  the  right  to  receive  Distributions  and  a
         Liquidation Distribution as provided herein.

                                       15
<PAGE>

                           "Preferred    Securities    Certificate"    means   a
         certificate evidencing ownership of a Preferred Security or Securities,
         substantially in the form attached as Exhibit A to the Declaration.

                           "Regular  Trustee"  means  each  of  the  individuals
         identified as a "Regular Trustee" in the Declaration.

                           "Remarketing" means the conduct by which a Fixed Rate
         shall be determined in accordance with the Remarketing Procedures.

                           "Remarketing  Agent" means Lehman  Brothers Inc., its
         successors or assigns,  or such other  remarketing  agent  appointed to
         such  capacity by the Company and, if  applicable,  the  Administrative
         Trustees.

                           "Remarketing Agreement" means the agreement among the
         Company,  the Trust and Lehman  Brothers  Inc., as  remarketing  agent,
         dated as of _____, 2004.

                           "Remarketing  Date" means any  Business  Day no later
         than the third Business Day prior to any Remarketing Settlement Date.

                           "Remarketing  Procedures"  means those procedures set
         forth in Article 10 of the  Declaration and Part II, clause (b) of this
         Officer's Certificate.

                           "Remarketing  Settlement  Date" means,  to the extent
         applicable,  (i) the first Business Day of the next Distribution Period
         (or Interest Period with respect to the Notes) following the expiration
         of the Initial Fixed Rate Period and any subsequent  Fixed Rate Period,
         (ii) any  Distribution  Payment  Date (or  Interest  Payment  Date with
         respect  to the  Notes)  during a  Floating  Rate  Period  or (iii) any
         Distribution Payment Date (or Interest Payment Date with respect to the
         Notes)  during  a time in  which  Preferred  Securities  or  Notes  are
         redeemable in a Fixed Rate Period  subsequent to the Initial Fixed Rate
         Period.

                           "Trust"  means AVA  Capital  Trust III,  a  statutory
         trust  formed  by  the  Company  under  Delaware  law  to  issue  Trust
         Securities, the proceeds of which will be used to purchase the Notes.

                           "Trust  Indenture Act" means the Trust  Indenture Act
         of  1939 as in  force  at the  date as of  which  this  instrument  was
         executed;  provided, however, that in the event the Trust Indenture Act
         of 1939 is amended after such date, "Trust Indenture Act" means, to the
         extent required by any such amendment,  the Trust Indenture Act of 1939
         as so amended.

                           "Trust   Security"   means  any  one  of  the  Common
         Securities (as defined in the Declaration) or the Preferred Securities.

                                       16
<PAGE>

                  IN WITNESS WHEREOF, I have executed this Officer's Certificate
this ___ day of __________, 2004.

                                            ------------------------------------
                                            Name:
                                            Title:

                                       17
<PAGE>

                                                                    FORM OF NOTE

                   (See legend at the end of this Security for
                  restrictions on transfer and change of form)

                               AVISTA CORPORATION
                          _______________, Series _____

<TABLE>
<S>                                                      <C>
[ORIGINAL INTEREST ACCRUAL DATE:                         REDEEMABLE:   YES____ NO____
STATED MATURITY:                                                  INITIAL REDEMPTION DATE:
INTEREST RATE:  DETERMINED BY PROCEDURES SET FORTH IN             INITIAL REDEMPTION PRICE:
THE INDENTURE
INTEREST PAYMENT DATES:  DETERMINED BY PROCEDURES SET             REDUCTION PERCENTAGE:
FORTH IN THE INDENTURE
REGULAR RECORD DATES:  THE OPENING OF BUSINESS ON THE             REDEMPTION LIMITATION DATE:
BUSINESS DAY IMMEDIATELY PRECEDING THE RELEVANT
INTEREST PAYMENT DATE
OTHER PROVISIONS:]
</TABLE>

                                OID: YES __ NO __
                            TOTAL AMOUNT OF OID (%):
                             YIELD TO MATURITY (%):
                                 INITIAL ACCRUAL
                                 PERIOD OID (%):
                            (CONSTANT - YIELD METHOD)

                   ------------------------------------------
                    This Security is not a Discount Security
              within the meaning of the within-mentioned Indenture.
                   ------------------------------------------

Principal Amount                                         Registered No.
$                                                        CUSIP

AVISTA CORPORATION,  a corporation  organized and existing under the laws of the
State of  Washington  (herein  called the  "Company",  which term  includes  any
successor  corporation  under  the  Indenture  referred  to  below),  for  value
received, hereby promises to pay to

or registered assigns, the principal sum of

                                                                         DOLLARS

on the Stated Maturity specified above (or upon earlier redemption),  and to pay
interest thereon from the Original Interest Accrual Date specified above or from
the most recent  Interest  Payment Date to which  interest has been paid or duly
provided  for, on each  Interest  Payment  Date,  commencing  with the  Interest
Payment Date next succeeding the Original Interest Accrual Date specified above,
and at Maturity  (or upon  earlier  redemption),  at the  Interest  Rate then in
effect,  until the  principal  hereof and any  overdue  interest is paid or duly
provided  for. The interest so payable,  and paid or duly  provided  for, on any
Interest  Payment  Date shall,  as provided  in such  Indenture,  be paid to the
Person in whose name this Security (or one or more  Predecessor  Securities)  is
registered at the close of business on the Regular Record Date

                                       1
<PAGE>

specified above next preceding such Interest Payment Date.  Notwithstanding  the
foregoing, (a) if the Original Interest Accrual Date of this Security is after a
Regular Record Date and before the corresponding Interest Payment Date, interest
so payable for the period from and including the Original  Interest Accrual Date
to but excluding such Interest Payment Date shall be paid on the next succeeding
Interest  Payment Date to the Holder hereof on the related  Regular Record Date;
and (b)  interest  payable  at  Maturity  shall  be paid to the  Person  to whom
principal shall be paid.  Except as otherwise  provided in said  Indenture,  any
such  interest  not so paid or duly  provided  for shall  forthwith  cease to be
payable to the Holder on such Regular  Record Date and may either be paid to the
Person in whose name this Security (or one or more  Predecessor  Securities)  is
registered at the close of business on a Special  Record Date for the payment of
such Unpaid Interest to be fixed by the Trustee,  notice of which shall be given
to  Holders  of  Securities  of this  series not less than 15 days prior to such
Special  Record  Date,  or be paid at any time in any other  lawful  manner  not
inconsistent  with the  requirements  of any  securities  exchange  on which the
Securities of this series may be listed, and upon such notice as may be required
by such exchange, all as more fully provided in said Indenture.

                  So long as no Event of  Default  shall  have  occurred  and be
continuing,  the  Company  has the right to defer  payments  of interest on this
Security by  extending  the  interest  payment  period from time to time on this
Security  (an  "Extension  Period").  If the Company  decides to defer  interest
payments  on  this  Security,   the  Extension  Period  shall  not  exceed  five
consecutive  years.  An  Extension  Period  shall not  extend  beyond the Stated
Maturity of this Security. Prior to the termination of any Extension Period, the
Company may further  defer  payments of  interest  provided  that the  Extension
Period,  together with all such previous and further extensions thereof, may not
exceed five consecutive  years. Upon termination of any Extension Period and the
payments of all amounts then due, the Company may select a new Extension Period,
subject to the above requirements.  There could be multiple Extension Periods of
varying  lengths  throughout  the term of this  Security.  During  an  Extension
Period,  Unpaid Interest  (together with interest thereon) will compound on each
Interest  Payment Date at the prevailing  Interest Rate  ("Deferred  Interest").
Upon the  termination  of each  Extension  Period,  which  shall be an  Interest
Payment Date, the Company shall pay all Deferred Interest on the next succeeding
Interest  Payment Date to the Person in whose name this  Debenture is registered
at the close of business on the Regular  Record Date for such  Interest  Payment
Date,  provided that any Deferred  Interest payable at Stated Maturity or on any
Redemption Date will be paid to the Person to whom principal is payable.

                  The  Company  shall  give the  Holder  of this  Security,  the
Trustee, the Remarketing Agent and the Calculation Agent notice of its selection
or  extension  of an  Extension  Period at least one  Business  Day prior to the
earlier of (i) the Regular Record Date relating to the Interest  Payment Date on
which the  Extension  Period is to commence or relating to the Interest  Payment
Date on  which  an  Extension  Period  that is being  extended  would  otherwise
terminate  or (ii) the date the  Company or Trust is  required to give notice to
any  applicable  self-regulatory  organization  of the  record  date or the date
distributions are payable.

                  Payment  of the  principal  of and  premium,  if any,  on this
Security and interest hereon at Maturity shall be made upon presentation of this
Security at the  Corporate  Trust  Office of Union Bank of  California,  N.A. in
_____,  or at such other office or agency as may be

                                       2
<PAGE>

designated  for such  purpose  by the  Company  from  time to time.  Payment  of
interest on this  Security  (other than  interest at Maturity)  shall be made by
check mailed to the address of the Person entitled thereto as such address shall
appear in the Security Register,  except that if such Person shall be a Trust or
securities  depositary,  such payment may be made by such other means in lieu of
check,  as shall be agreed upon by the  Company,  the  Trustee and such  Person.
Payment of the principal of and premium,  if any, and interest on this Security,
as  aforesaid,  shall be made in such coin or currency  of the United  States of
America  as at the time of  payment  shall be legal  tender  for the  payment of
public and private debts.

                  This Security is one of a duly authorized  issue of securities
of the Company (herein called the  "Securities"),  issued and issuable in one or
more series under and equally secured by an Indenture,  dated as of _____,  2004
(such  Indenture as originally  executed and delivered  and as  supplemented  or
amended from time to time thereafter,  together with any constituent instruments
establishing  the  terms of  particular  Securities,  being  herein  called  the
"Indenture"),  between  the  Company  and  _____,  trustee  (herein  called  the
"Trustee,"  which term includes any successor  trustee under the Indenture),  to
which Indenture and all indentures supplemental thereto reference is hereby made
for a description of the respective  rights,  limitations of rights,  duties and
immunities  of the  Company,  the  Trustee  and the  Holders  of the  Securities
thereunder  and of the terms and conditions  upon which the Securities  are, and
are to be,  authenticated  and  delivered  and secured.  The  acceptance of this
Security  shall be deemed to constitute  the consent and agreement by the Holder
hereof to all terms and provisions of the Indenture. This Security is one of the
series designated above.

                  The  Securities of this series are subject to  redemption,  in
whole but not in part, without premium or penalty,  on the last Interest Payment
Date  relating to the Initial  Fixed Rate Period,  on such dates with respect to
any other Fixed Rate Period as the Company and the Trust may determine  prior to
the remarketing  establishing  such Fixed Rate Period or on any Interest Payment
Date relating to a Floating Rate Period,  at a Redemption Price equal to 100% of
the  principal  amount to be redeemed  plus  accrued but unpaid  interest to the
Redemption Date

                  The  Securities of this series are subject to  redemption,  in
whole but not in part,  at the  election of the  Company,  on any date within 90
days of the  occurrence,  and during the  continuation  of, a Special  Event (as
defined  herein) at a  redemption  price equal to 100% of the  principal  amount
thereof plus accrued interest, if any to the date fixed for redemption.

                  "Special  Event"  means an  "Investment  Company Act Event" or
"Tax Event".

                  "Investment  Company  Act  Event"  means  the  receipt  by the
Company  and the  Regular  Trustees  of an Opinion  of  Counsel  to the  Company
experienced  in these matters to the effect that, as a result of the  occurrence
of a change in law or regulation or a written  change  (including  any announced
prospective change) in interpretation or application of law or regulation by any
legislative body, court,  governmental agency or regulatory authority,  there is
more  than an  insubstantial  risk that the  Trust is or will be  considered  an
"investment company" that is required to be registered under the 1940 Act, which
change or prospective change becomes effective or would become effective, as the
case may be, on or after the date of the issuance by the Trust of the  Preferred
Securities.

                                       3
<PAGE>

                  "Tax  Event"  means  receipt by the  Company  and the  Regular
Trustees of an opinion from independent tax counsel  experienced in such matters
(which may be counsel to the Company) to the effect that, as a result of (a) any
amendment to, or change  (including any announced  proposed change) in, the laws
(or  any  regulations   thereunder)  of  the  United  States  or  any  political
subdivision or taxing  authority  thereof or therein or (b) any amendment to, or
change in, an interpretation  or application of such laws or regulations,  there
is more than an insubstantial risk that (i) the Trust would be subject to United
States  federal  income tax with  respect to income  accrued or  received on the
Notes;  (ii) interest payable on the Notes would not be deductible,  in whole or
in part, by the Company for United States federal income tax purposes;  or (iii)
the Trust  would be  subject to more than a de  minimis  amount of other  taxes,
duties  or  other  governmental  charges,  which  change  or  amendment  becomes
effective  on or  after  the date of  issuance  by the  Trust  of the  Preferred
Securities.

                  Notice  of  redemption  shall be given by mail to  Holders  of
Securities, not less than 30 days nor more than 60 days prior the date fixed for
redemption,  all as provided  in the  Indenture.  As provided in the  Indenture,
notice of  redemption at the election of the Company as aforesaid may state that
such  redemption  shall be conditional  upon the receipt by the Trustee of money
sufficient to pay the principal of and premium, if any and interest,  if any, on
this  Security  on or prior  the date  fixed  for such  redemption;  a notice of
redemption so conditioned shall be of no force or effect if such money is not so
received  and, in such event,  the Company  shall not be required to redeem this
Security.

                  The  Company  also  shall  be  obligated  to pay  when due and
without  extension  all  additional  amounts as may be  required so that the net
amount  received and retained by the Holder of this Security (if the Holder is a
Trust) after paying taxes,  duties,  assessments or governmental  charges of any
nature (other than withholding  taxes) imposed by the United States or any other
taxing  authority  will not be less than the  amounts  such  Holder  would  have
received had no such taxes,  duties,  assessments or other governmental  charges
been imposed.

                  If an Event of  Default  shall  occur and be  continuing,  the
principal  of this  Security  may be declared  due and payable in the manner and
with the effect provided in the Indenture.

                  The indebtedness  evidenced by this Security is, to the extent
provided in the Indenture,  subordinated  and subject in right of payment to the
prior  payment in full of all Senior  Indebtedness,  and this Security is issued
subject to the provisions of the Indenture with respect thereto.  Each Holder of
this  Security,  by accepting the same, (a) agrees to and shall be bound by such
provisions,  (b)  authorizes  and directs the Trustee on his behalf to take such
action as may be necessary or  appropriate  to  acknowledge  or  effectuate  the
subordination so provided and (c) appoints the Trustee his  attorney-in-fact for
any and all such purposes.  Each Holder hereof, by his acceptance hereof, hereby
waives all notice of the acceptance of the  subordination  provisions  contained
herein and in the Indenture by each holder of Senior  Indebtedness,  whether now
outstanding or hereafter incurred,  and waives reliance by each such Holder upon
said provisions.

                  Each Holder hereof, by his acceptance hereof,  agrees to treat
this Security as indebtedness for all United States tax purposes.

                  The  Indenture  permits,  with certain  exceptions  as therein
provided, the Trustee to

                                       4
<PAGE>

enter into one or more  supplemental  indentures  for the  purpose of adding any
provisions  to, or changing in any manner or  eliminating  any of the provisions
of, the Indenture with the consent of the Holders of not less than a majority in
aggregate  principal  amount of the  Securities  of all series then  Outstanding
under the Indenture,  considered as one class; provided,  however, that if there
shall be Securities of more than one series  Outstanding under the Indenture and
if a proposed  supplemental  indenture  shall directly  affect the rights of the
Holders if  Securities of one or more,  but less than all, of such series,  then
the consent only of the Holders of a majority in aggregate  principal  amount of
the Outstanding Securities of all series so directly affected, considered as one
class, shall be required;  and provided,  further, that if the Securities of any
series  shall  have been  issued in more than one  Tranche  and if the  proposed
supplemental  indenture  shall  directly  affect  the  rights of the  Holders of
Securities of one or more, but less than all, of such Tranches, then the consent
only  of  the  Holders  of a  majority  in  aggregate  principal  amount  of the
Outstanding  Securities of all Tranches so directly affected,  considered as one
class, shall be required; and provided,  further, that the Indenture permits the
Trustee to enter into one or more  supplemental  indentures for limited purposes
without the consent of any Holders of  Securities.  The Indenture  also contains
provisions  permitting  the  Holders of a majority  in  principal  amount of the
Securities  then  Outstanding,  on behalf of the Holders of all  Securities,  to
waive  compliance  by the Company with certain  provisions  of the Indenture and
certain past  defaults  under the  Indenture  and their  consequences.  Any such
consent or waiver by the Holder of this Security shall be conclusive and binding
upon  such  Holder  and upon all  future  Holders  of this  Security  and of any
Security issued upon the  registration of transfer hereof or in exchange thereof
or in lieu  hereof,  whether or not  notation of such  consent or waiver is made
upon this Security.

                  As   provided  in  the   Indenture   and  subject  to  certain
limitations  therein set forth,  this  Security or any portion of the  principal
amount hereof will be deemed to have been paid for all purposes of the Indenture
and to be no longer Outstanding thereunder, and, at the election of the Company,
the  Company's  entire  indebtedness  in respect  thereof will be satisfied  and
discharged,  if there has been  irrevocably  deposited  with the  Trustee or any
Paying Agent (other than the Company),  in trust,  money in an amount which will
be  sufficient  and/or  Eligible  Obligations,  the principal of and interest on
which when due, without regard to any reinvestment  thereof, will provide moneys
which, together with moneys so deposited, will be sufficient to pay when due the
principal of and interest on this Security when due.

                  The  Indenture  contains  terms,   provisions  and  conditions
relating to the  consolidation  or merger of the Company  with or into,  and the
conveyance or other transfer,  or lease,  of assets to, another  Person,  to the
assumption  by  such  other  Person,  in  certain  circumstances,  of all of the
obligations  of the Company under the Indenture and on the Securities and to the
release  and  discharge  of the  Company,  in certain  circumstances,  from such
obligation.

                  As   provided  in  the   Indenture   and  subject  to  certain
limitations  therein set forth,  the transfer of this Security is registrable in
the Security  Register,  upon  surrender of this  Security for  registration  of
transfer at the  corporate  trust  office of Union Bank of  California,  N.A. in
_____,  or such other office or agency as may be  designated by the Company from
time to time,  duly  endorsed  by, or  accompanied  by a written  instrument  of
transfer in form  satisfactory  to the Company and the Security  Registrar  duly
executed by, the Holder hereof or his attorney duly  authorized in writing,  and
thereupon one or more new Securities of this series of authorized  denominations
and of  like  tenor  and  aggregate  principal  amount,  will be  issued  to the
designated

                                       5
<PAGE>

transferee or transferees.

                  If any  Interest  Payment  Date with  respect  to a Fixed Rate
Period is not a Business  Day,  interest  will be  payable,  without  additional
interest,  on the immediately  succeeding  Business Day, with the same force and
effect as if payment was made on the date such  payment was  originally  payable
(and without the accrual of any additional amount of interest).  If any Interest
Payment Date with respect to a Floating  Rate Period is not a Business Day, then
interest will be payable on the immediately succeeding Business Day and interest
shall accrue to the actual  payment  date  (except for an Interest  Payment Date
that coincides with Maturity or the Redemption Date).

                  The  Securities of this series are issuable only as registered
Securities,  without  coupons,  and in  denominations of $1,000 or any amount in
excess  thereof  that is an  integral  multiple  of $1,000.  As  provided in the
Indenture and subject to certain  limitations  therein set forth,  Securities of
this Series are exchangeable for a like aggregate principal amount of Securities
of the same series and Tranche, of any authorized denominations, as requested by
the  Holder  surrendering  the same,  and of like tenor  upon  surrender  of the
Security or Securities  to be exchanged at the  corporate  trust office of Union
Bank of  California,  N.A.  in _____,  or such other  office or agency as may be
designated by the Company from time to time.

                  No service charge shall be made for any such  registration  of
transfer or exchange, but the Company may require payment of a sum sufficient to
cover any tax or other governmental charge payable in connection therewith.

                  Prior to due  surrender of this Security for  registration  of
transfer,  the Company,  the Trustee and any agent of the Company or the Trustee
may treat the Person in whose name this  Security is  registered as the absolute
owner hereof for all purposes (subject to Section 307 of the Indenture), whether
or not this  Security be overdue,  and neither the Company,  the Trustee nor any
such agent shall be affected by notice to the contrary.

                  The  Indenture  and the  Securities  shall be  governed by and
construed in  accordance  with the laws of the State of New York,  except to the
extent that the Trust Indenture Act shall be applicable .

                  As used herein,  "Business  Day" means any day,  other than an
Saturday or Sunday,  which is not a day on which banking  institutions  or trust
companies  in the City of New York,  New York or other  city in which is located
any office or agency maintained for the payment of principal,  premium,  if any,
or interest on this Security,  are authorized or required by law,  regulation or
executive  order to remain  closed.  All other terms used in this Security which
are defined in the  Indenture  shall have the  meanings  assigned to them in the
Indenture, any supplemental indenture, Officer's Certificate or Board Resolution
hereto.

                  As provided in the Indenture, no recourse shall be had for the
payment of the principal of or premium,  if any, or interest on any  Securities,
or any part  thereof,  or for any claim based  thereon or  otherwise  in respect
thereof,  or of the indebtedness  represented  thereby,  or upon any obligation,
covenant or agreement under the Indenture,  against,  and no personal  liability
whatsoever  shall attach to, or be incurred by, any  incorporator,  shareholder,
officer or director,  as

                                       6
<PAGE>

such, past,  present or future of the Company or of any
predecessor or successor  corporation (either directly or through the Company or
a predecessor or successor corporation), whether by virtue of any constitutional
provision,  statute or rule of law, or by the  enforcement  of any assessment or
penalty  or  otherwise;  it  being  expressly  agreed  and  understood  that the
Indenture and all the Securities are solely  corporate  obligations and that any
such personal  liability is hereby  expressly waived and released as a condition
of, and as part of the consideration for, the execution of the Indenture and the
issuance of the Securities.

                  Unless  the  certificate  of  authentication  hereon  has been
executed by the Trustee or an  Authenticating  Agent by manual  signature,  this
Security shall not be entitled to any benefit under the Indenture or be valid or
obligatory for any purpose.

                                       7
<PAGE>

                  IN WITNESS WHEREOF,  the Company has caused this instrument to
be duly executed.

                           AVISTA CORPORATION

                           By:
                                ------------------------------------------------
                                       [Title]

                          CERTIFICATE OF AUTHENTICATION

                  This is one of the Securities of the series designated therein
referred to in the within-mentioned Indenture.

Dated:
         -----------------------------------

         -----------------------------------   OR ------------------------------

         -----------------------------------      ------------------------------
         as Trustee                                          as Trustee
    By:                                           By: [                     ],
         -----------------------------------
         Authorized Officer

                                                       AS AUTHENTICATING AGENT

                                                  By:
                                                     ---------------------------
                                                       Authorized Officer

                                       8
<PAGE>

                  THIS  SECURITY  SHALL  NOT  BE  TRANSFERABLE,  NOR  SHALL  ANY
PURPORTED  TRANSFER  BE  REGISTERED,  EXCEPT  (A)  TO A  NOMINEE  OF  _____,  AS
INSTITUTIONAL  TRUSTEE,  TO SUCH INSTITUTIONAL  TRUSTEE BY SUCH NOMINEE, BY SUCH
INSTITUTIONAL  TRUSTEE TO ANOTHER  NOMINEE,  BY ANY SUCH  NOMINEE TO A SUCCESSOR
NOMINEE OR BY SUCH  INSTITUTIONAL  TRUSTEE OR ANY NOMINEE THEREOF TO A SUCCESSOR
INSTITUTIONAL  TRUSTEE  OR A  NOMINEE  THEREOF  OR (B) TO THE  HOLDERS  OF TRUST
SECURITIES IN THE EVENT OF THE  DISSOLUTION OF THE TRUST IN ACCORDANCE  WITH THE
PROVISIONS OF THE DECLARATION.

                               -------------------

FOR VALUE RECEIVED the undersigned hereby sells, assigns and transfers unto

     -----------------------------------------------------------------------
     [please insert social security or other identifying number of assignee]

     -----------------------------------------------------------------------
            [please print or typewrite name and address of assignee]

     -----------------------------------------------------------------------

the within Security of AVISTA CORPORATION and does hereby irrevocably constitute
and appoint _________________,  Attorney, to transfer said Security on the books
of  the  within-mentioned  Company,  with  full  power  of  substitution  in the
premises.

Dated:   ________________

                           --------------------------

Notice:  The  signature  to this  assignment  must  correspond  with the name as
written upon the face of the Security in every particular  without alteration or
enlargement or any change whatsoever.

                                       9Exhibit 4(e)

                               GUARANTEE AGREEMENT

                                     BETWEEN

                               AVISTA CORPORATION
                                 (AS GUARANTOR)

                                       AND

                         UNION BANK OF CALIFORNIA, N.A.
                                  (AS TRUSTEE)

                                   DATED AS OF

                                ___________, 2004

                             (AVA CAPITAL TRUST III)

<PAGE>

                             CROSS-REFERENCE TABLE(1)

Section of Trust Indenture Act                                       Section of
of 1939, as amended                                         Guarantee Agreement
------------------------------------                        -------------------
310(a)..................................................................4.01(a)
310(b)............................................................4.01(c), 2.08
310(c).............................................................Inapplicable
311(a)..................................................................2.02(b)
311(b)..................................................................2.02(b)
311(c).............................................................Inapplicable
312(a)..................................................................2.02(a)
312(b)..................................................................2.02(b)
313........................................................................2.03
314(a).....................................................................2.04
314(b).............................................................Inapplicable
314(c).....................................................................2.05
314(d).............................................................Inapplicable
314(e).........................................................1.01, 2.05, 3.02
314(f)...............................................................2.01, 3.02
315(a)..................................................................3.01(d)
315(b).....................................................................2.07
315(c).....................................................................3.01
315(d)..................................................................3.01(d)
315(e).............................................................Inapplicable
316(a)............................................................5.04(i), 2.06
316(b).....................................................................5.03
316(c).....................................................................2.02
317(a) ............................................................Inapplicable
317(b).............................................................Inapplicable
318(a)..................................................................2.01(b)
318(b).....................................................................2.01
318(c)..................................................................2.01(a)

----------
(1)    This  Cross-Reference  Table does not  constitute  part of the  Guarantee
       Agreement and shall not affect the  interpretation of any of its terms or
       provisions.

                                        i
<PAGE>

                                TABLE OF CONTENTS

                                                                            PAGE

                                    ARTICLE I

                                   DEFINITIONS

SECTION 1.01.    Definitions...................................................1

                                   ARTICLE II

                               TRUST INDENTURE ACT

SECTION 2.01.    Trust Indenture Act; Application..............................3

SECTION 2.02.    Lists of Holders of Securities................................4

SECTION 2.03.    Reports by the Trustee........................................4

SECTION 2.04.    Periodic Reports to Trustee...................................4

SECTION 2.05.    Evidence of Compliance with Conditions Precedent..............4

SECTION 2.06.    Events of Default; Waiver.....................................4

SECTION 2.07.    Event of Default; Notice......................................5

SECTION 2.08.    Conflicting Interests.........................................5

                                   ARTICLE III

                      POWERS, DUTIES AND RIGHTS OF TRUSTEE

SECTION 3.01.    Powers and Duties of the Trustee..............................5

SECTION 3.02.    Certain Rights of Trustee.....................................6

SECTION 3.03.    Compensation; Fees; Indemnity.................................8

                                   ARTICLE IV

                                     TRUSTEE

SECTION 4.01.    Trustee; Eligibility..........................................8

SECTION 4.02.    Appointment, Removal and Resignation of Trustee...............9

                                       ii
<PAGE>

                           TABLE OF CONTENTS (CONT'D)

                                                                            PAGE

                                    ARTICLE V

                                    GUARANTEE

SECTION 5.01.    Guarantee.....................................................9

SECTION 5.02.    Waiver of Notice and Demand..................................10

SECTION 5.03.    Obligations Not Affected.....................................10

SECTION 5.04.    Rights of Holders............................................10

SECTION 5.05.    Guarantee of Payment.........................................11

SECTION 5.06.    Subrogation..................................................11

SECTION 5.07.    Independent Obligations......................................11

                                   ARTICLE VI

                                  SUBORDINATION

SECTION 6.01.    Subordination................................................11

                                   ARTICLE VII

                                   TERMINATION

SECTION 7.01.    Termination..................................................12

                                  ARTICLE VIII

                                  MISCELLANEOUS

SECTION 8.01.    Successors and Assigns.......................................12

SECTION 8.02.    Amendments...................................................12

SECTION 8.03.    Notices......................................................12

SECTION 8.04.    Benefit......................................................13

SECTION 8.05.    Interpretation...............................................13

SECTION 8.06.    Governing Law................................................14

                                      iii
<PAGE>

                               GUARANTEE AGREEMENT

       This  GUARANTEE  AGREEMENT  ("Guarantee  Agreement"),  dated as of _____,
2004, between AVISTA  CORPORATION,  a Washington  corporation (the "Guarantor"),
and Union Bank of California, N.A., a California banking corporation, as trustee
(the "Trustee"), for the benefit of the Holders (as defined herein) from time to
time of the Preferred  Securities (as defined herein) and the Common  Securities
(as defined  herein) of AVA CAPITAL TRUST III, a Delaware  statutory  trust (the
"Trust").

       WHEREAS,  pursuant to an Amended and Restated  Declaration  of Trust (the
"Declaration"),  dated as of _____, 2004, among the Trustee,  the other Trustees
named  therein,  Avista  Corporation,  as Sponsor,  and the holders of undivided
beneficial  interests  in the  assets of the  Trust,  the Trust is issuing as of
_____, 2004, $_____ aggregate liquidation amount of its Flexible Trust Preferred
Securities  (the  "Preferred   Securities")   representing  preferred  undivided
beneficial  interests  in the assets of the Trust and having the terms set forth
in the Declaration;

       WHEREAS,  the  Preferred  Securities  will be issued by the Trust and the
proceeds thereof will be used to purchase the  Subordinated  Debt Securities (as
defined in the Declaration) of the Guarantor, which will be held by the Trust as
trust assets; and

       WHEREAS,   as  incentive  for  the  Holders  to  purchase  the  Preferred
Securities,  the Guarantor desires to irrevocably and unconditionally  agree, to
the extent set forth herein,  to pay to the Holders the  Guarantee  Payments (as
defined  herein) and to make certain other  payments on the terms and conditions
set forth herein.

       NOW, THEREFORE, in consideration of the payment for Common Securities and
for  Preferred  Securities  by each Holder (as defined  herein)  thereof,  which
payment the Guarantor  hereby agrees shall benefit the Guarantor,  the Guarantor
executes and delivers  this  Guarantee  Agreement for the benefit of the Holders
from time to time of the Common Securities (as defined herein) and the Preferred
Securities.

                                   ARTICLE I

                                   DEFINITIONS

       SECTION 1.01. DEFINITIONS. As used in this Guarantee Agreement, the terms
set forth below shall, unless the context otherwise requires, have the following
meanings.  Capitalized or otherwise defined terms used but not otherwise defined
herein shall have the meanings  assigned to such terms in the  Declaration as in
effect on the date hereof.

       "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 the  purposes  of this  definition,
"control"  when used with  respect to any  specified  Person  means the power to
direct the  management  and  policies of such  Person,  directly or  indirectly,
whether  through the ownership of voting  securities,  by contract or otherwise;
and the terms  "controlling" and "controlled"  have meanings  correlative to the
foregoing.

<PAGE>

       "Common  Securities" means the securities  representing  common undivided
beneficial interests in the assets of the Trust.

       "Distributions"  means amounts payable in respect of the Trust Securities
as provided in the Declaration.

       "Event of Default" means a failure by the Guarantor to perform any of its
payment  obligations  under this  Guarantee  Agreement  or to perform  any other
obligations  under this Guarantee  Agreement if such default remains  unremedied
for 30 days.

       "Guarantee  Payments" shall mean the following payments or distributions,
without  duplication,  with respect to the Common  Securities  and the Preferred
Securities, to the extent not paid or made by or on behalf of the Trust: (i) any
accrued  and unpaid  distributions  that are  required to be paid on such Common
Securities  and  Preferred  Securities to the extent the Trust has funds on hand
available  therefor to make such payment;  (ii) the redemption price,  including
all accrued and unpaid  distributions to the date of redemption (the "Redemption
Price"),  with respect to the Common Securities and Preferred  Securities called
for  redemption  by the  Trust to the  extent  that the  Trust has funds on hand
available therefor  sufficient to make such payment;  and (iii) upon a voluntary
or involuntary  dissolution,  winding-up or liquidation of the Trust (other than
in connection  with the  distribution  of  Subordinated  Debt  Securities to the
holders  of  Trust  Securities  or  the  redemption  of  all  of  the  Preferred
Securities),  the lesser of (a) the aggregate of the liquidation  amount and all
accumulated and unpaid  distributions on the Common Securities and the Preferred
Securities  to the date of  payment,  to the  extent the Trust has funds on hand
available  therefor,  and  (b) the  amount  of  assets  of the  Trust  remaining
available for  distribution  to Holders in  liquidation  of the Trust (in either
case, the "Liquidation Distribution").

       "Holder" shall mean any holder, as registered on the books and records of
the Trust, of any Common Securities and Preferred Securities; provided, however,
that in determining whether the holders of the requisite percentage of Preferred
Securities have given any request, notice, consent or waiver hereunder, "Holder"
shall not include the Guarantor or any Affiliate of the Guarantor.

       "Indenture"  means the  Indenture  dated as of _____,  2004,  between the
Guarantor,  as issuer of the  Subordinated  Debt  Securities,  and Union Bank of
California,  N.A.,  as  trustee,  as  the  same  may  be  modified,  amended  or
supplemented in accordance with the applicable provisions thereof.

       "Majority in liquidation amount of Preferred  Securities" means a vote by
Holder(s) of Preferred  Securities,  voting  separately as a class, of more than
50% of the  liquidation  amount of all Preferred  Securities  outstanding at the
time of determination.

       "Officers' Certificate" means a certificate signed by the Chairman of the
Board,  the President or a Vice  President,  and by the Treasurer,  an Assistant
Treasurer,  the  Secretary  or an Assistant  Secretary,  of the  Guarantor,  and
delivered to the Trustee.  Any Officers'  Certificate  delivered with respect to
compliance with a condition or covenant provided for in this Guarantee Agreement
shall include:

                                       2
<PAGE>

              (a)    a  statement  that  each  officer   signing  the  Officers'
       Certificate  has read  the  covenant  or  condition  and the  definitions
       relating thereto;

              (b)    a  brief   statement   of  the  nature  and  scope  of  the
       examination or investigation  undertaken by each officer in rendering the
       Officers' Certificate;

              (c)    a   statement   that  each  such   officer  has  made  such
       examination or investigation as, in such officer's opinion,  is necessary
       to enable such  officer to express an  informed  opinion as to whether or
       not such covenant or condition has been complied with; and

              (d)    a  statement  as to  whether,  in the  opinion of each such
       officer, such condition or covenant has been complied with.

       "Person"  means  any  individual,   corporation,   partnership,   limited
liability  company,  joint  venture,  trust,   unincorporated   organization  or
government or any agency or political subdivision thereof.

       "Responsible  Officer"  means,  with  respect  to the  Trustee,  any vice
president, any assistant vice president, the secretary, any assistant secretary,
the treasurer,  any assistant treasurer, any senior trust officer, trust officer
or  assistant  trust  officer  or  any  other  officer  of the  Corporate  Trust
Department  of the Trustee  customarily  performing  functions  similar to those
performed by any of the above designated  officers and also means,  with respect
to a particular corporate trust matter, any other officer to whom such matter is
referred  because  of that  officer's  knowledge  of and  familiarity  with  the
particular subject.

       "Successor   Trustee"   means  a   successor   Trustee   possessing   the
qualifications to act as Trustee under Section 4.01.

       "Trust Indenture Act" means the Trust Indenture Act of 1939, as amended.

       "Trust Security" means any one of the Common  Securities or the Preferred
Securities.

       "Trustee" means Union Bank of California,  N.A. until a Successor Trustee
has been  appointed and has accepted such  appointment  pursuant to the terms of
this Guarantee Agreement and thereafter means each such Successor Trustee.

                                   ARTICLE II

                               TRUST INDENTURE ACT

       SECTION 2.01. TRUST INDENTURE ACT; APPLICATION.

       (a)    This Guarantee Agreement is subject to the provisions of the Trust
Indenture  Act that are  required  to be part of this  Guarantee  Agreement  and
shall, to the extent applicable, be governed by such provisions; and

                                       3
<PAGE>

       (b)    If and  to  the  extent  that  any  provision  of  this  Guarantee
Agreement limits, qualifies or conflicts with the duties imposed by Sections 310
to 317,  inclusive,  of the Trust  Indenture  Act,  such  imposed  duties  shall
control.

       SECTION 2.02. LISTS OF HOLDERS OF SECURITIES.

       (a)    The  Guarantor  shall  furnish  or  cause to be  furnished  to the
Trustee (a)  semiannually,  not later than _____ and _____ in each year, a list,
in such form as the Trustee may reasonably  require,  of the names and addresses
of the Holders  ("List of  Holders") as of a date not more than 15 days prior to
the time such list is furnished,  and (b) at such other times as the Trustee may
request in  writing,  within 30 days after the receipt by the  Guarantor  of any
such request,  a List of Holders as of a date not more than 15 days prior to the
time such list is furnished; provided that, the Guarantor shall not be obligated
to provide  such List of Holders at any time the List of Holders does not differ
from the most recent List of Holders given to the Trustee by the Guarantor or at
any time the Trustee is the  Securities  Registrar  under the  Declaration.  The
Trustee may destroy any List of Holders  previously  given to it on receipt of a
new List of Holders.

       (b)    The Trustee  shall  comply  with its  obligations  under  Sections
311(a), 311(b) and 312(b) of the Trust Indenture Act.

       SECTION 2.03. REPORTS BY THE TRUSTEE.  Within 60 days after _____ of each
year  commencing  _____,  2004,  the Trustee shall provide to the Holders of the
Preferred Securities such reports as are required by Section 313(a) of the Trust
Indenture Act, if any, in the form and in the manner  provided by Section 313 of
the  Trust  Indenture  Act.  The  Trustee  shall  also  comply  with  the  other
requirements of Section 313 of the Trust Indenture Act.

       SECTION 2.04. PERIODIC REPORTS TO TRUSTEE. The Guarantor shall provide to
the Trustee such  documents,  reports and information as required by Section 314
of the Trust  Indenture Act (if any) in the form, in the manner and at the times
required by Section 314 of the Trust  Indenture Act, and shall  provide,  within
120 days after the end of each of its fiscal years,  the compliance  certificate
required by Section  314(a)(4) of the Trust Indenture Act in the form and in the
manner  required by such  Section.  Delivery of such  reports,  information  and
documents to the Trustee is for  informational  purposes  only and the Trustee's
receipt  of  such  reports,  information  and  documents  shall  not  constitute
constructive  notice of any information  contained  therein or determinable from
information contained therein.

       SECTION  2.05.  EVIDENCE OF COMPLIANCE  WITH  CONDITIONS  PRECEDENT.  The
Guarantor  shall  provide to the Trustee such  evidence of  compliance  with any
conditions  precedent,  if  any,  provided  for  in  this  Guarantee  Agreement,
including an Officers'  Certificate and an opinion of counsel that relate to any
of the  matters  set forth in Section  314(c) of the Trust  Indenture  Act.  Any
certificate  or opinion  required to be given by an officer  pursuant to Section
314(c)(1) may be given in the form of an Officers' Certificate.

       SECTION  2.06.  EVENTS OF DEFAULT;  WAIVER.  The Holders of a Majority in
liquidation amount of Preferred Securities may, by vote, on behalf of all of the
Holders, waive any past Event of Default and its consequences. Upon such waiver,
any such Event of Default shall cease

                                       4
<PAGE>

to exist,  and any Event of Default  arising  therefrom  shall be deemed to have
been cured,  for every purpose of this Guarantee  Agreement,  but no such waiver
shall extend to any  subsequent  or other  default or Event of Default or impair
any right consequent thereon.

       SECTION 2.07. EVENT OF DEFAULT; NOTICE.

       (a)    The Trustee shall, within 90 days after the occurrence of an Event
of Default,  transmit by mail,  first class  postage  prepaid,  to the  Holders,
notices of all Events of Default  actually  known to the  Trustee,  unless  such
defaults  have been cured  before the giving of such notice,  provided  that the
Trustee  shall be  protected  in  withholding  such notice if and so long as the
board of directors,  the executive committee,  or a trust committee of directors
and/or  Responsible  Officers of the Trustee in good faith  determines  that the
withholding of such notice is in the interests of the Holders.

       (b)    The Trustee shall not be deemed to have  knowledge of any Event of
Default unless the Trustee shall have received written notice,  or a Responsible
Officer charged with the  administration  of the Declaration shall have obtained
written notice, of such Event of Default.

       SECTION 2.08. CONFLICTING  INTERESTS.  The Declaration shall be deemed to
be specifically described in this Guarantee Agreement for the purposes of clause
(i) of the first proviso contained in Section 310(b) of the Trust Indenture Act.

                                  ARTICLE III

                      POWERS, DUTIES AND RIGHTS OF TRUSTEE

       SECTION 3.01. POWERS AND DUTIES OF THE TRUSTEE.

       (a)    This  Guarantee  Agreement  shall be held by the  Trustee  for the
benefit of the  Holders,  and the  Trustee  shall not  transfer  this  Guarantee
Agreement to any Person,  except the Trustee shall assign rights  hereunder to a
Holder to the extent such  assignment  is  necessary to exercise  such  Holder's
rights  pursuant to Section 5.04 or to a Successor  Trustee upon  acceptance  by
such  Successor  Trustee of its  appointment  to act as Successor  Trustee.  The
right,  title  and  interest  of the  Trustee  shall  automatically  vest in any
Successor  Trustee,  and such vesting and  cessation of title shall be effective
whether or not conveyancing  documents have been executed and delivered pursuant
to the appointment of such Successor Trustee.

       (b)    If an Event of Default has occurred and is continuing, the Trustee
shall enforce this Guarantee Agreement for the benefit of the Holders.

       (c)    The  Trustee,  before the  occurrence  of any Event of Default and
after the curing or waiving  of all  Events of Default  that may have  occurred,
shall  undertake  to perform only such duties as are  specifically  set forth in
this  Guarantee  Agreement,  and no  implied  covenants  shall be read into this
Guarantee  Agreement  against  the  Trustee.  In case an  Event of  Default  has
occurred  (that has not been  cured or waived  pursuant  to Section  2.06),  the
Trustee  shall  exercise  such of the  rights  and  powers  vested in it by this
Guarantee  Agreement,  and use the same degree of care and skill in its exercise
thereof,  as a prudent person would exercise or use under the  circumstances  in
the conduct of his or her own affairs.

                                       5
<PAGE>

       (d)    No provision  of this  Guarantee  Agreement  shall be construed to
relieve  the  Trustee  from  liability  for its own  negligent  action,  its own
negligent failure to act, or its own willful misconduct, except that:

              (i)    prior to the  occurrence  of any Event of Default and after
       the  curing  or  waiving  of all such  Events  of  Default  that may have
       occurred:

                     (A)    the duties and  obligations  of the Trustee shall be
              determined  solely by the  express  provisions  of this  Guarantee
              Agreement,  and the  Trustee  shall not be liable  except  for the
              performance of such duties and obligations as are specifically set
              forth in this Guarantee Agreement; and

                     (B)    in the  absence  of bad  faith  on the  part  of the
              Trustee, the Trustee may conclusively rely, as to the truth of the
              statements and the correctness of the opinions  expressed therein,
              upon any  certificates  or opinions  furnished  to the Trustee and
              conforming to the requirements of this Guarantee Agreement; but in
              the  case  of  any  such  certificates  or  opinions  that  by any
              provision hereof are specifically  required to be furnished to the
              Trustee,  the Trustee shall be under a duty to examine the same to
              determine  whether or not they conform to the requirements of this
              Guarantee Agreement;

              (ii)   the  Trustee  shall not be liable for any error of judgment
       made in good faith by a  Responsible  Officer of the  Trustee,  unless it
       shall be proved  that the  Trustee  was  negligent  in  ascertaining  the
       pertinent facts upon which such judgment was made;

              (iii)  the Trustee  shall not be liable with respect to any action
       taken or omitted to be taken by it in good faith in  accordance  with the
       direction  of the  Holders of a  Majority  in  liquidation  amount of the
       Preferred Securities relating to the time, method and place of conducting
       any proceeding for any remedy available to the Trustee, or exercising any
       trust or power conferred upon the Trustee under this Guarantee Agreement;
       and

              (iv)   no provision of this Guarantee  Agreement shall require the
       Trustee  to  expend  or risk its own funds or  otherwise  incur  personal
       financial  liability  in the  performance  of any of its duties or in the
       exercise  of any of its  rights or  powers,  if the  Trustee  shall  have
       reasonable  grounds for  believing  that the  repayment  of such funds or
       liability  is not  reasonably  assured  to it  under  the  terms  of this
       Guarantee  Agreement or adequate indemnity against such risk or liability
       is not reasonably assured to it.

       SECTION 3.02. CERTAIN RIGHTS OF TRUSTEE.

       (a)    Subject to the provisions of Section 3.01:

              (i)    the  Trustee  may  conclusively  rely  and  shall  be fully
       protected  in acting  or  refraining  from  acting  upon any  resolution,
       certificate,  statement,  instrument,  opinion,  report, notice, request,
       direction,  consent,  order,  bond,  debenture,  note,  other evidence of
       indebtedness or other paper or document  believed by it to be genuine and
       to have been signed, sent or presented by the proper party or parties;

                                       6
<PAGE>

              (ii)   any direction or act of the Guarantor  contemplated by this
       Guarantee  Agreement  shall be  sufficiently  evidenced  by an  Officers'
       Certificate;

              (iii)  whenever,   in  the   administration   of  this   Guarantee
       Agreement, the Trustee shall deem it desirable that a matter be proved or
       established  before taking,  suffering or omitting any action  hereunder,
       the Trustee  (unless other  evidence is herein  specifically  prescribed)
       may,  in the  absence of bad faith on its part,  request and rely upon an
       Officers'  Certificate  which,  upon  receipt of such  request,  shall be
       promptly delivered by the Guarantor;

              (iv)   the Trustee may consult  with  counsel or other  experts of
       its choice,  and the written  advice or opinion of such  counsel or other
       experts  shall be full  and  complete  authorization  and  protection  in
       respect of any action taken,  suffered or omitted by it hereunder in good
       faith and in accordance with such advice or opinion;  such counsel may be
       counsel to the Guarantor or any of its  Affiliates and may include any of
       its  employees;  the  Trustee  shall  have the  right at any time to seek
       instructions  concerning the  administration of this Guarantee  Agreement
       from any court of competent jurisdiction;

              (v)    the Trustee shall be under no obligation to exercise any of
       the  rights or powers  vested in it by this  Guarantee  Agreement  at the
       request  or  direction  of any  Holder,  unless  such  Holder  shall have
       provided to the Trustee such  adequate  security  and  indemnity as would
       satisfy a reasonable  person in the  position of the Trustee  against the
       costs,  expenses (including attorneys' fees and expenses) and liabilities
       that might be incurred by it in complying with such request or direction,
       including  such  reasonable  advances as may be requested by the Trustee;
       provided that nothing contained in this Section 3.02(a)(v) shall be taken
       to relieve the Trustee,  upon the  occurrence of an Event of Default,  of
       its  obligation  to exercise  the rights and powers  vested in it by this
       Guarantee Agreement;

              (vi)   the  Trustee  shall not be bound to make any  investigation
       into  the  facts  or  matters  stated  in  any  resolution,  certificate,
       statement,  instrument,  opinion,  report,  notice,  request,  direction,
       consent, order, bond, debenture,  note, other evidence of indebtedness or
       other paper or document,  but the Trustee,  in its  discretion,  may make
       such further  inquiry or  investigation  into such facts or matters as it
       may see fit;

              (vii)  the  Trustee  may  execute  any of  the  trusts  or  powers
       hereunder  or  perform  any duties  hereunder  either  directly  or by or
       through agents or attorneys, and the Trustee shall not be responsible for
       any  misconduct  or  negligence  on the  part of any  agent  or  attorney
       appointed with due care by it hereunder;

              (viii) whenever in the administration of this Guarantee  Agreement
       the Trustee shall deem it desirable to receive  instructions with respect
       to enforcing  any remedy or right or taking any other  action  hereunder,
       the Trustee  (i) may  request  instructions  from the  Holders,  (ii) may
       refrain from  enforcing  such remedy or right or taking such other action
       until such  instructions  are  received,  and (iii) shall be protected in
       acting in accordance with such instructions; and

                                       7
<PAGE>

              (ix)   the  rights,   privileges,   protections,   immunities  and
       benefits given to the Trustee, including , without limitation, its rights
       to be  indemnified,  are  extended to, and shall be  enforceable  by, the
       Trustee  in  each of its  respective  capacities  hereunder,  and to each
       agent, custodian and other Person employed to act hereunder.

       (b)    No provision of this Guarantee Agreement shall be deemed to impose
any duty or obligation on the Trustee to perform any act or acts or exercise any
right, power, duty or obligation  conferred or imposed on it in any jurisdiction
in which it shall be illegal,  or in which the Trustee shall be  unqualified  or
incompetent in accordance  with  applicable law, to perform any such act or acts
or to exercise any such right, power, duty or obligation. No permissive power or
authority available to the Trustee shall be construed to be a duty.

       SECTION 3.03. COMPENSATION; FEES; INDEMNITY. The Guarantor agrees:

       (a)    to pay to the Trustee  from time to time  reasonable  compensation
for all services rendered by the Trustee hereunder (which compensation shall not
be limited by any provision of law in regard to the compensation of a trustee of
an express trust);

       (b)    except as otherwise  expressly  provided herein,  to reimburse the
Trustee upon request for all  reasonable  expenses,  disbursements  and advances
incurred  or made by the  Trustee  in  accordance  with  any  provision  of this
Guarantee Agreement (including the reasonable  compensation and the expenses and
disbursements of its agents and counsel), except any such expense,  disbursement
or advance as may be attributable to its negligence or bad faith; and

       (c)    to indemnify  the Trustee  for,  and to hold the Trustee  harmless
against, any and all loss, damage, claims, liability or expense incurred without
negligence or bad faith on its part,  arising out of or in  connection  with the
acceptance or  administration of this Guarantee  Agreement,  including the costs
and expenses of defending  itself  against any claim or liability in  connection
with the exercise or performance of any of its powers or duties hereunder.

       The provisions of this Section 3.03 shall survive the termination of this
Guarantee Agreement.

                                   ARTICLE IV

                                     TRUSTEE

       SECTION 4.01. TRUSTEE; ELIGIBILITY.

       (a)    There shall at all times be a Trustee which shall:

              (i)    not be an Affiliate of the Guarantor; and

              (ii)   be a  corporation  organized and doing  business  under the
       laws of the United States of America or any State or Territory thereof or
       of the District of Columbia,  or a corporation or Person permitted by the
       Securities  and Exchange  Commission to act as an  institutional  trustee
       under the Trust  Indenture  Act,  authorized  under such laws to exercise
       corporate trust powers, having a combined capital and surplus of at least
       50 million U.S.

                                       8
<PAGE>

       dollars  ($50,000,000),  and subject to  supervision  or  examination  by
       Federal,  State,  Territorial or District of Columbia authority.  If such
       corporation publishes reports of condition at least annually, pursuant to
       law or to the  requirements  of the  supervising  or examining  authority
       referred to above,  then,  for the purposes of this Section  4.01(a)(ii),
       the combined capital and surplus of such  corporation  shall be deemed to
       be its  combined  capital  and  surplus  as set forth in its most  recent
       report of condition so published.

       (b)    If at any time the  Trustee  shall  cease to be eligible to so act
under Section 4.01(a),  the Trustee shall  immediately  resign in the manner and
with the effect set out in Section 4.02(c).

       (c)    If the Trustee has or shall  acquire  any  "conflicting  interest"
within the meaning of Section 310(b) of the Trust Indenture Act, the Trustee and
Guarantor  shall in all respects comply with the provisions of Section 310(b) of
the  Trust  Indenture  Act,  subject  to the  rights  of the  Trustee  under the
penultimate paragraph thereof.

       SECTION 4.02. APPOINTMENT, REMOVAL AND RESIGNATION OF TRUSTEE.

       (a)    Subject  to Section  4.02(b),  the  Trustee  may be  appointed  or
removed without cause at any time by the Guarantor.

       (b)    The Trustee  shall not be removed  until a  Successor  Trustee has
been appointed and has accepted such appointment by written instrument  executed
by such Successor Trustee and delivered to the Guarantor.

       (c)    The  Trustee  appointed  to  office  shall  hold  office  until  a
Successor Trustee shall have been appointed or until its removal or resignation.
The  Trustee  may  resign  from  office  (without  need for prior or  subsequent
accounting) by an instrument in writing executed by the Trustee and delivered to
the Guarantor, which resignation shall not take effect until a Successor Trustee
has been  appointed and has accepted such  appointment  by instrument in writing
executed  by such  Successor  Trustee and  delivered  to the  Guarantor  and the
resigning Trustee.

       (d)    If no Successor  Trustee  shall have been  appointed  and accepted
appointment  as provided in this Section  4.02 within 60 days after  delivery to
the  Guarantor  of an  instrument  of  resignation,  the  resigning  Trustee may
petition  any court of competent  jurisdiction  for  appointment  of a Successor
Trustee. Such court may thereupon,  after prescribing such notice, if any, as it
may deem proper, appoint a Successor Trustee.

                                   ARTICLE V

                                    GUARANTEE

       SECTION 5.01.  GUARANTEE.  The Guarantor  irrevocably and unconditionally
agrees to pay in full to the Holders the Guarantee Payments (without duplication
of  amounts  theretofore  paid by or on behalf of the  Trust),  as and when due,
regardless of any defense,  right of set-off or counterclaim which the Guarantor
or the Trust may have or assert  against any  Person,  other than the defense of
payment. The Guarantor's obligation to make a Guarantee Payment may be satisfied
by direct payment of the required  amounts by the Guarantor to the Holders or by
causing the Trust to pay such amounts to the Holders.

                                       9
<PAGE>

       SECTION 5.02.  WAIVER OF NOTICE AND DEMAND.  The Guarantor  hereby waives
notice of acceptance of this  Guarantee  Agreement and of any liability to which
it applies or may apply, presentment, demand for payment, any right to require a
proceeding first against the Trust or any other Person before proceeding against
the  Guarantor,  protest,  notice of nonpayment,  notice of dishonor,  notice of
redemption and all other notices and demands.

       SECTION 5.03.  OBLIGATIONS NOT AFFECTED.  The obligation of the Guarantor
to make the Guarantee Payments under this Guarantee Agreement shall in no way be
affected or impaired by reason of the happening  from time to time of any of the
following:

       (a)    the release or waiver,  by operation of law or  otherwise,  of the
performance  or  observance  by the Trust of any  express or implied  agreement,
covenant, term or condition relating to the Preferred Securities to be performed
or observed by the Trust;

       (b)    the  extension  of time for the payment by the Trust of all or any
portion of the Distributions,  Redemption Price, Liquidation Distribution or any
other sums payable under the terms of the Preferred  Securities or the extension
of time for the performance of any other obligation under, arising out of, or in
connection with, the Preferred  Securities  (other than an extension of time for
payment of Distributions,  Redemption Price,  Liquidation  Distribution or other
sum payable that results from the  extension of any interest  payment  period on
the Subordinated Debt Securities permitted by the Indenture);

       (c)    any failure,  omission,  delay or lack of diligence on the part of
the Holders to enforce, assert or exercise any right, privilege, power or remedy
conferred on the Holders pursuant to the terms of the Preferred  Securities,  or
any action on the part of the Trust  granting  indulgence  or  extension  of any
kind;

       (d)    the voluntary or involuntary liquidation, dissolution, sale of any
collateral, receivership,  insolvency, bankruptcy, assignment for the benefit of
creditors, reorganization,  arrangement, composition or readjustment of debt of,
or other similar  proceedings  affecting,  the Trust or any of the assets of the
Trust;

       (e)    any  invalidity  of, or defect or  deficiency  in,  the  Preferred
Securities;

       (f)    the settlement or compromise of any obligation  guaranteed  hereby
or hereby incurred; or

       (g)    any other circumstance  whatsoever that might otherwise constitute
a legal or equitable discharge or defense of a guarantor, it being the intent of
this Section  5.03 that the  obligations  of the  Guarantor  hereunder  shall be
absolute and unconditional under any and all circumstances.

       There shall be no  obligation of the Holders to give notice to, or obtain
consent of, the Guarantor with respect to the happening of any of the foregoing.

       SECTION 5.04.  RIGHTS OF HOLDERS.  The Guarantor  expressly  acknowledges
that: (i) this Guarantee Agreement will be deposited with the Trustee to be held
for the benefit of the  Holders;  (ii) the Trustee has the right to enforce this
Guarantee Agreement on behalf of the

                                       10
<PAGE>

Holders;  (iii) the Holders of a Majority in liquidation amount of the Preferred
Securities have the right to direct the time, method and place of conducting any
proceeding for any remedy  available to the Trustee in respect of this Guarantee
Agreement or exercising any trust or power conferred upon the Trustee under this
Guarantee  Agreement;  and (iv) any  Holder  may  institute  a legal  proceeding
directly  against  the  Guarantor  to enforce  its rights  under this  Guarantee
Agreement, without first instituting a legal proceeding against or requesting or
directing  that  action be taken by the  Trustee or any other  Person;  it being
understood and intended that no one or more of such Holders shall have any right
in any manner  whatsoever by virtue of, or by availing of, any provision of this
Guarantee  Agreement to affect,  disturb or prejudice the rights of any other of
such Holders or to obtain or to seek to obtain  priority or preference  over any
other of such  Holders or to enforce any right under this  Guarantee  Agreement,
except in the manner  herein  provided and for the equal and ratable  benefit of
all of such Holders.

       SECTION 5.05.  GUARANTEE OF PAYMENT.  This Guarantee  Agreement creates a
guarantee of payment and not of collection. This Guarantee Agreement will not be
discharged  except  by  payment  of the  Guarantee  Payments  in  full  (without
duplication) or upon the  distribution  of  Subordinated  Debt Securities to the
Holders in exchange for all of the Preferred Securities.

       SECTION 5.06.  SUBROGATION.  The Guarantor shall be subrogated to all (if
any) rights of the Holders  against the Trust in respect of any amounts  paid to
the Holders by the Guarantor under this Guarantee Agreement;  provided, however,
that the  Guarantor  shall not  (except  to the  extent  required  by  mandatory
provisions  of law) be entitled to enforce or exercise  any rights  which it may
acquire  by  way  of  subrogation  or  any  indemnity,  reimbursement  or  other
agreement,  in all cases as a result of payment under this Guarantee  Agreement,
if, at the time of any such payment,  any amounts of Guarantee  Payments are due
and unpaid under this  Guarantee  Agreement.  If any amount shall be paid to the
Guarantor in violation of the preceding  sentence,  the Guarantor agrees to hold
such amount in trust for the Holders and to pay over such amount to the Holders.

       SECTION 5.07.  INDEPENDENT  OBLIGATIONS.  The Guarantor acknowledges that
its  obligations  hereunder are independent of the obligations of the Trust with
respect to the Preferred  Securities  and that the Guarantor  shall be liable as
principal and as debtor  hereunder to make  Guarantee  Payments  pursuant to the
terms of this Guarantee  Agreement  notwithstanding  the occurrence of any event
referred to in subsections (a) through (g), inclusive, of Section 5.03 hereof.

                                   ARTICLE VI

                                  SUBORDINATION

       SECTION 6.01. SUBORDINATION.  This Guarantee Agreement will constitute an
unsecured  obligation of the Guarantor and will rank (i)  subordinate and junior
in right of payment to all other  liabilities  of the  Guarantor,  including the
Subordinated Debt Securities,  except those obligations or liabilities made pari
passu or  subordinate  by their  terms;  (ii) pari  passu  with the most  senior
preferred or preference  stock now or hereafter issued by the Guarantor and with
any guarantee  now or hereafter  entered into by the Guarantor in respect of any
preferred or

                                       11
<PAGE>

preference securities of any Affiliate of the Guarantor; and (iii) senior to all
common stock of the Guarantor.

                                  ARTICLE VII

                                   TERMINATION

       SECTION 7.01.  TERMINATION.  This Guarantee Agreement shall terminate and
be of no further force and effect upon: (i) full payment of the Redemption Price
of  all  Preferred  Securities;  (ii)  the  distribution  of  Subordinated  Debt
Securities  to the Holders in exchange for all of the Preferred  Securities;  or
(iii) full payment of the amounts  payable in  accordance  with the  Declaration
upon  liquidation of the Trust.  Notwithstanding  the foregoing,  this Guarantee
Agreement will continue to be effective or will be  reinstated,  as the case may
be, if at any time any Holder must restore payment of any sums paid with respect
to Preferred Securities or under this Guarantee Agreement.

                                  ARTICLE VIII

                                  MISCELLANEOUS

       SECTION 8.01.  SUCCESSORS  AND ASSIGNS.  All  guarantees  and  agreements
contained  in this  Guarantee  Agreement  shall  bind the  successors,  assigns,
receivers,  trustees and representatives of the Guarantor and shall inure to the
benefit of the Holders of the Preferred  Securities then outstanding.  Except in
connection  with  a  consolidation,   merger,  conveyance,  transfer,  or  lease
involving the Guarantor  that is permitted  under Article Ten of the  Indenture,
the Guarantor shall not assign its obligations hereunder.

       SECTION 8.02. AMENDMENTS. Except with respect to any changes which do not
materially  adversely  affect the rights of Holders (in which case no consent of
Holders will be required), this Guarantee Agreement may only be amended with the
prior  approval  of the  Holders  of a  Majority  in  liquidation  amount of the
Preferred Securities. The provisions of Article VI of the Declaration concerning
meetings of Holders shall apply to the giving of such approval.

       SECTION  8.03.  NOTICES.  Any  notice,  request  or  other  communication
required or permitted to be given hereunder shall be in writing,  duly signed by
the party giving such notice, and delivered, telecopied or mailed by first class
mail as follows:

       (a)    if given to the Guarantor,  to the address set forth below or such
other  address  as the  Guarantor  may give  notice  of to the  Trustee  and the
Holders:

                  Avista Corporation
                  1411 East Mission Avenue
                  Spokane, Washington 99202
                  Facsimile No.: [(509) 482-4879]
                  Attn:  [Treasurer]

                                       12
<PAGE>

       (b)    if given to the Trust,  in care of the Trustee,  or to the Trustee
at the Trust's (and the Trustee's) address set forth below or such other address
as the Trustee on behalf of the Trust may give notice to the Holders:

                  AVA Capital Trust III c/o Union Bank of California, N.A.
                  --------------------
                  ------, --  -----
                  Facsimile No.:  (___) ___-____
                  Attn:  Corporate Trust Administration

       (c)    if given to any Holder,  at the address set forth on the books and
records of the Trust.

       All notices hereunder shall be deemed to have been given when received in
person,  telecopied  with  receipt  confirmed,  or mailed by first  class  mail,
postage  prepaid,  except that if a notice or other document is refused delivery
or cannot be  delivered  because  of a changed  address  of which no notice  was
given,  such notice or other  document shall be deemed to have been delivered on
the date of such refusal or inability to deliver.

       SECTION 8.04. BENEFIT. This Guarantee Agreement is solely for the benefit
of the Holders and, subject to Section 3.01(a),  is not separately  transferable
from the Common Securities and the Preferred Securities.

       SECTION 8.05.  INTERPRETATION.  In this Guarantee  Agreement,  unless the
context otherwise requires:

       (a)    capitalized terms used in this Guarantee Agreement but not defined
in the preamble hereto have the respective  meanings assigned to them in Section
1.01;

       (b)    a term defined  anywhere in this Guarantee  Agreement has the same
meaning throughout;

       (c)    all  references to "the  Guarantee  Agreement" or "this  Guarantee
Agreement" are to this Guarantee Agreement as modified,  supplemented or amended
from time to time;

       (d)    all  references  in  this  Guarantee  Agreement  to  Articles  and
Sections  are to  Articles  and  Sections  of this  Guarantee  Agreement  unless
otherwise specified;

       (e)    a term  defined in the Trust  Indenture  Act has the same  meaning
when used in this Guarantee Agreement unless otherwise defined in this Guarantee
Agreement or unless the context otherwise requires;

       (f)    a reference  to the  singular  includes the plural and vice versa;
and

       (g)    the  masculine,  feminine  or neuter  genders  used  herein  shall
include the masculine, feminine and neuter genders.

                                       13
<PAGE>

       SECTION 8.06.  GOVERNING LAW. THIS GUARANTEE  AGREEMENT SHALL BE GOVERNED
BY AND CONSTRUED  AND  INTERPRETED  IN ACCORDANCE  WITH THE INTERNAL LAWS OF THE
STATE OF NEW YORK. THE GUARANTOR HEREBY IRREVOCABLY  SUBMITS TO THE JURISDICTION
OF THE UNITED STATES  DISTRICT  COURT FOR THE SOUTHERN  DISTRICT OF NEW YORK AND
ANY COURT IN THE STATE OF NEW YORK LOCATED IN THE CITY AND COUNTY OF NEW YORK IN
ANY  ACTION,  SUIT  OR  PROCEEDING  BROUGHT  AGAINST  IT  AND  RELATED  TO OR IN
CONNECTION  WITH  THIS  GUARANTEE  AGREEMENT  OR THE  TRANSACTIONS  CONTEMPLATED
THEREBY,  AND TO THE EXTENT  PERMITTED BY APPLICABLE  LAW, THE GUARANTOR  HEREBY
WAIVES AND AGREES NOT TO ASSERT BY WAY OF MOTION,  AS A DEFENSE OR  OTHERWISE IN
ANY SUCH SUIT, ACTION OR PROCEEDING, ANY CLAIM THAT IT IS NOT PERSONALLY SUBJECT
TO THE  JURISDICTION  OF SUCH COURTS,  THAT THE SUIT,  ACTION OR  PROCEEDING  IS
BROUGHT  IN AN  INCONVENIENT  FORUM,  THAT THE  VENUE  OF THE  SUIT,  ACTION  OR
PROCEEDING IS IMPROPER,  OR THAT THIS GUARANTEE AGREEMENT OR ANY DOCUMENT OR ANY
INSTRUMENT  REFERRED TO HEREIN OR THE SUBJECT MATTER HEREOF MAY NOT BE LITIGATED
IN OR BY SUCH COURTS.  THE GUARANTOR  AGREES THAT SERVICE OF PROCESS MAY BE MADE
UPON IT BY CERTIFIED OR REGISTERED  MAIL TO THE ADDRESS FOR NOTICES SET FORTH IN
THIS GUARANTEE AGREEMENT OR ANY METHOD AUTHORIZED BY THE LAWS OF NEW YORK.

       This  instrument may be executed in any number of  counterparts,  each of
which so executed shall be deemed to be an original,  but all such  counterparts
shall together constitute but one and the same instrument.

                                       14
<PAGE>

       THIS  GUARANTEE  AGREEMENT is executed as of the day and year first above
written.

                                        AVISTA CORPORATION

                                        By:
                                             -----------------------------------
                                             Name:
                                             Title:

                                        UNION BANK OF CALIFORNIA, N.A.

                                        By:
                                             -----------------------------------
                                             Name:
                                             Title:

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