Exhibit 10.3

SECURITY AGREEMENT

This SECURITY AGREEMENT dated as of June 30, 2007 (this “Security Agreement”) is
given by Avista Capital, Inc., a Washington corporation (“Debtor”), in favor of
Coral Energy Holding, L.P., a Delaware limited partnership (“Coral”), for the
benefit of Coral, Coral Energy Resources, L.P., a Delaware limited partnership,
Coral Power, L.L.C., a Delaware limited liability company and Coral Energy
Canada Inc., an Alberta corporation (collectively, the “Coral Entities”).

RECITALS

 

A. Pursuant to that certain Guaranty dated June 30, 2007, Debtor has agreed to
guaranty certain Obligations of its affiliates, Avista Energy, Inc., Avista
Energy Canada Ltd. and Avista Turbine Power, Inc. to the Coral Entities (the
“Guaranty”).

 

B. Debtor has agreed to grant to Coral for the benefit of the Coral Entities a
security interest in certain of its property as provided herein.

 

C. Coral has agreed to act as agent for and on behalf of the Coral Entities for
purposes of this Security Agreement.

AGREEMENT

For and in consideration of the promises and the agreements contained in this
Agreement and for other good and valuable consideration, the receipt and
sufficient of which are hereby acknowledged, the parties agree as follows:

 

1. Definitions. Capitalized terms used and not otherwise defined herein shall
have the meanings ascribed to them as set forth in Appendix A attached to and
made a part of this Security Agreement. In the absence of such definitions, any
other terms used herein (whether or not capitalized) shall have the meaning
ascribed to them by the Code to the extent the same are defined in the Code.

 

2. Grant of Security Interest. Debtor hereby grants to Coral for the benefit of
the Coral Entities a first priority security interest in the Collateral to
secure the Obligations including, without limitation:

 

  2.1. the prompt and complete payment of all Obligations;

 

  2.2. the timely performance and observance by Debtor of all covenants,
obligations and conditions contained in the Guaranty; and

 

  2.3. without limiting the generality of the foregoing and to the fullest
extent permitted under applicable law, the payment of all amounts, including
without limitation, interest which constitutes part of the Obligations and would
be owed by Debtor to one or more of the Coral Entities under the Guaranty but
for the fact that they are unenforceable or not allowable due to the existence
of a bankruptcy, reorganization or similar proceeding involving Debtor

and Debtor hereby agrees to deliver the Collateral to the Escrow Agent under the
Escrow Agreement, to be held by the Escrow Agent as the Escrow Fund under the
Escrow Agreement, for the benefit of the Coral Entities. Provided, however, that
under no circumstances shall the aggregate of all such obligations secured by
this Security Agreement, including the Obligations and any other amounts
referred to above, exceed at any time an aggregate value of Twenty-Five Million
Dollars ($25,000,000.00).

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Security Agreement

 

3. Substitute Collateral. Debtor shall be entitled at any time, and from time to
time, to substitute any of the following, in form and substance reasonably
acceptable to Coral, as substitute collateral for the Collateral: (a) a cash
deposit in an amount equal to Twenty-Five Million Dollars ($25,000,000.00);
(b) an irrevocable letter of credit in a face amount equal to Twenty-Five
Million Dollars ($25,000,000.00), issued by a U.S. commercial bank or the U.S.
branch of a foreign bank, with such bank having a credit rating of at least A-
from the Standard & Poor’s Rating Group (a division of McGraw-Hill, Inc.) or its
successor, or a rating of at least A3 from Moody’s Investor Services, Inc. or
its successor, or (c) such other form of collateral security as Coral and Debtor
may mutually agree upon. Upon completion of any such substitution of collateral,
the substitute collateral shall become the “Collateral” hereunder, and Coral
shall release, return, surrender, and otherwise terminate any security interest
granted hereunder in, the property or instruments previous serving as
“Collateral” hereunder.

 

4. Authorization to File Financing Statements. Debtor authorizes Coral to file
with the Department of Licensing for the State of Washington an initial
financing statement and continuation statements that (a) indicate the
Collateral; and (b) provide any other information required by part 5 of Article
9 of the Code or as required by such other jurisdiction for the sufficiency or
filing office acceptance of such financing statement or continuation statement,
including whether Debtor is an organization, the type of organization and any
organization identification number issued to Debtor. Debtor agrees to furnish
any such information to Coral promptly upon the request.

 

5. Covenants Concerning Debtor’s Legal Status. Debtor covenants with Coral as
follows:

 

  5.1. Without providing at least 30 days prior written notice to Coral, Debtor
will not change its name, its place of business or, if more than one, chief
executive office, or its mailing address or organizational identification number
if it has one;

 

  5.2. If Debtor does not have an organizational identification number and later
obtains one, Debtor will promptly notify Coral of such organizational
identification number; and

 

  5.3. Without providing at least 30 days prior written notice to Coral, Debtor
will not change its type of organization, jurisdiction of organization or other
legal structure.

 

6. Representations and Warranties Concerning Collateral. Debtor further
represents and warrants to Coral as follows:

 

  6.1. Except for the security interests granted to Coral in this Agreement,
Debtor owns good and marketable title to the Collateral free and clear of all
Liens, and neither the Collateral nor any interest in the Collateral has been
transferred to any other party. Debtor has full right, power and authority to
grant a first-priority security interest in the Collateral to Coral in the
manner provided in this Security Agreement, free and clear of any other Liens,
adverse claims and options and without the consent of any other person or entity
or if consent is required, such consent has been obtained. No other Lien,
adverse claim or option has been created by Debtor or is known by Debtor to
exist with respect to any Collateral; and to the best of Debtor’s knowledge and
belief no financing statement or other security instrument is on file in any
jurisdiction covering such Collateral other than the security interest in favor
of Coral under this Security Agreement. The security interest granted is a first
lien security interest.

 

  6.2. There are no actions, suits or proceedings pending or threatened against
or affecting the Collateral before any court or by or before any governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, which in any manner draws into question the validity of this Security
Agreement.

 

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Security Agreement

 

7. Covenants Concerning the Collateral.

 

  7.1. Debtor covenants with Coral that while this Security Agreement remains in
effect, that except for the security interest herein granted and the deposit of
the Collateral with the Escrow Agent under the Escrow Agreement, Debtor is and
shall be the owner of or have other transferable rights in the Collateral free
from any right or claim of any other person or any Lien, security interest or
other encumbrance, and Debtor shall defend the same against all claims and
demands of all persons at any time claiming the same or any interest therein
adverse to Coral. Debtor shall not pledge, mortgage or create, or suffer to
exist any right of any person in or claim by any person to the Collateral, or
any security interest, Lien or other encumbrance in the Collateral in favor of
any person other than Coral; nor permit any person, other than Coral, to file
any financing statement or security interest in the Collateral.

 

  7.2. In the event of (a) a sale, transfer, disposition or reorganization of
greater than 50% of the equity of Debtor’s subsidiary, Advantage IQ, Inc, a
Washington corporation (“Advantage”), (b) Debtor ceasing to own and control
shares of stock of and other equity interests in Advantage representing a
majority of the votes entitled to be cast by shareholders of Advantage and a
majority of the equity value of Advantage, or (c) the sale, transfer or other
disposition of the underlying assets of Advantage outside the ordinary course of
business, Debtor agrees to replace the Collateral with substitute Collateral as
set forth Section 3.

 

8. Securities and Deposits. Coral may at any time following and during the
continuance of an Event of Default, at its option, transfer to itself or any
nominee any securities constituting Collateral, receive any income thereon and
hold such income as additional Collateral or apply it to the Obligations.
Whether or not any Obligations are due, Coral may following and during the
continuance of an Event of Default demand, sue for, collect or make any
settlement or compromise that it deems desirable with respect to the Collateral.

 

9. Rights and Remedies. If an Event of Default shall have occurred and is
continuing, Coral shall have in any jurisdiction in which enforcement hereof is
sought, in addition to all other rights and remedies, the rights and remedies of
a secured party under the Code and any additional rights and remedies as may be
provided to a secured party in any jurisdiction in which Collateral is located,
including, without limitation, the right to take possession of the Collateral.

 

10. No Waiver by Coral. Coral shall not be deemed to have waived any of its
rights and remedies in respect of the Obligations or the Collateral unless such
waiver shall be made in writing and signed by Coral. No delay or omission on the
part of Coral in exercising any right or remedy shall operate as a waiver of
such right or remedy or any other right or remedy. A waiver on any occasion
shall not be construed as a bar to or a waiver of any right or remedy on any
future occasion. All rights and remedies of Coral with respect to the
Obligations or the Collateral, whether evidenced hereby or by any other
instrument or papers, may be exercised by Coral, shall be cumulative and may be
exercised singularly, alternatively, successively or concurrently at such time
or at such times as Coral deems expedient.

 

11.

Marshalling. Subject to the terms and conditions of this Security Agreement and
the Indemnification Agreement, Coral shall not be required to marshal the
Collateral, or other assurances of payment of the Obligations, or any of them or
to resort to the Collateral or other

 

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Security Agreement

 

 

assurance of payment in any particular order, and all of the rights and remedies
hereunder and in respect of the Collateral and other assurances of payment shall
be cumulative and in addition to all other rights and remedies, however existing
or arising. TO THE EXTENT THAT IT LAWFULLY MAY, DEBTOR HEREBY AGREES THAT IT
WILL NOT INVOKE ANY LAW RELATING TO THE MARSHALLING OF COLLATERAL WHICH MIGHT
CAUSE DELAY IN OR IMPEDE THE ENFORCEMENT OF CORAL’S RIGHTS AND REMEDIES UNDER
THIS SECURITY AGREEMENT OR UNDER ANY OTHER INSTRUMENT CREATING OR EVIDENCING ANY
OF THE OBLIGATIONS OR UNDER WHICH ANY OF THE OBLIGATIONS IS OUTSTANDING OR BY
WHICH ANY OF THE OBLIGATIONS IS SECURED OR PAYMENT THEREOF IS OTHERWISE ASSURED,
AND, TO THE EXTENT THAT IT LAWFULLY MAY, DEBTOR HEREBY IRREVOCABLY WAIVES THE
BENEFITS OF ALL SUCH LAWS.

 

12. Overdue Amounts. Until paid, all amounts due and payable by Debtor hereunder
shall be a debt secured by the Collateral and shall bear, whether before or
after judgment, interest determined by reference to the U.S. Dollar London
Interbank Offer Rate (LIBOR) quoted on Bloomberg page BBAM applicable for the
relevant one-month period (or any successor or substitute page of such
publication, or any successor to or substitute for such publication, providing
rate quotations comparable to those currently provided on such page or such
publication) at approximately 11:00 a.m., London time, two Business Days prior
to the commencement of such interest period.

 

13. Notices. All communications hereunder shall be in writing and may be
delivered by hand delivery, United States mail, overnight courier service or
facsimile. Notice by facsimile or hand delivery shall be effective on the day
actually received, if received during business hours on a Business Day, and
otherwise shall be effective at the beginning of the recipient’s next Business
Day. Notice by overnight United States mail or courier shall be effective on the
next Business Day after it was sent to the appropriate notice address set forth
below or at such other address as any party hereto may have furnished to the
other party in writing:

If to the Coral Entities:

909 Fannin, Plaza Level 1

Houston, Texas 77010

Attn: General Counsel

Phone: (713) 767-5400

Fax: (713) 230-2900

If to Debtor:

Avista Capital, Inc.

1411 East Mission Avenue

Spokane, Washington 99202

Attention: General Counsel

Phone: (509) 495-8687

Facsimile: (509) 495-4316

 

14. Governing Law; Consent to Jurisdiction. THIS SECURITY AGREEMENT SHALL BE
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK,
WITHOUT REFERENCE TO ITS CONFLICT OF LAWS PROVISIONS EXCEPT SECTIONS 5-1401 AND
5-1402 OF THE NEW YORK GENERAL OBLIGATIONS LAW.

 

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Security Agreement

 

15. Term of Agreement. This grant of a security interest under this Security
Agreement shall remain in full force until the later of January 1, 2009 or, in
the event that any of the Coral Entities has made a claim under the
Indemnification Agreement, the date such claim has been resolved and such amount
owing, if any, has been paid. Upon expiration of this Security Agreement, Coral
shall promptly return possession of the Collateral, if it then has possession of
the same, to Debtor and file any applicable termination statements.
Notwithstanding the foregoing, this Security Agreement shall continue
notwithstanding the reorganization or bankruptcy of Debtor, or any other similar
event or proceeding affecting Debtor.

 

16. Miscellaneous. The headings of each section of this Security Agreement are
for convenience only and shall not define or limit the provisions thereof. This
Security Agreement and all rights and obligations hereunder shall be binding
upon Debtor and its successors and assigns and shall insure to the benefit of
the Coral Entities and their successors and assigns. No party may assign its
interest in this Security Agreement without the prior written consent of Coral,
in the case of Debtor, and Debtor, in the case of the Coral Entities. If any
term of this Security Agreement shall be held to be invalid, illegal or
unenforceable, the validity of all of the other terms shall in no way be
affected and this Security Agreement shall be construed and enforceable as if
such invalid, illegal or unenforceable term had not be included herein. This
Security Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.

 

17. Interpretation and Construction. In interpreting and construing this
Security Agreement, the following principles shall be followed:

 

17.1.   examples shall not be construed to limit, expressly or by implication,
the matter they illustrate; 17.2.   the terms “herein,” “hereof,” “hereby,” and
“hereunder,” or other similar terms, refer to this Security Agreement as a whole
and not only to the particular article, section or other subdivision in which
any such terms may be employed; 17.3.   references to sections and other
subdivisions refer to the sections and other subdivisions of this Security
Agreement; 17.4.   the word “includes” and its syntactical variants mean
“includes, but is not limited to” and corresponding syntactical variant
expressions and the term “and/or” shall mean “or”; 17.5.   whenever this
Security Agreement refers to a number of days, such number shall refer to
calendar days unless Business Days are specified; 17.6.   the plural shall be
deemed to include the singular, and vice versa; and 17.7.   each exhibit, annex,
attachment, and schedule to this Security Agreement is a part of this Security
Agreement, but if there is any conflict or inconsistency between the main body
of this Security Agreement and any exhibit, annex, attachment, or schedule, the
provisions of the main body of this Security Agreement shall prevail.

*****

 

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IN WITNESS WHEREOF, intending to be legally bound, Debtor has caused this
Security Agreement to be executed as of the date first written above.

 

Avista Capital, Inc. BY:  

/S/ Malyn L. Malquist

Name:   Malyn L. Malquist Title:   Senior Vice President & Chief Financial
Officer Coral Energy Holding, L.P. BY:  

/S/ Beth A. Bowman

Name:   Beth A. Bowman Title:   Senior Vice President

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APPENDIX A TO SECURITY AGREEMENT

DEFINITIONS

“Business Day” means any day other than a Saturday, Sunday or any day in which
commercial banks in Houston, Texas are required or permitted by law to be closed
and the Friday following the Thanksgiving holiday.

“Code” means the Uniform Commercial Code as currently in effect and as may be
amended from time to time, in the State of New York.

“Collateral” means 13,770,285 of shares of common stock of Advantage (defined
and described in Section 7.2 of this Security Agreement), which represents with
respect to Advantage (a) 49.96% of its common stock and 46.53% of all of its
equity interests, on an as-converted basis, currently outstanding, and
(b) 38.68% of all of its equity interests calculated on an as-converted and
fully diluted basis, in each case as measured by vote and value.

“Coral” has the meaning ascribed to it in the preface.

“Coral Entities” has the meaning ascribed to it in the preface.

“Debtor” has the meaning ascribed to it in the preface.

“Escrow Agreement” means that certain Escrow Agreement of even date herewith
entered into by and among Coral, Debtor and Avista Corporation, as escrow agent
(the “Escrow Agent”), for the purposes of establishing an escrow fund (the
“Escrow Fund”) consisting of the Collateral.

“Event of Default” means:

 

  a. Any default or event of default under the Guaranty;

 

  b. Any representation or warranty made by Debtor herein is false or misleading
in any material respect when made;

 

  c. Debtor’s failure to comply with any of the provisions of this Security
Agreement and such failure remains unremedied for three (3) Business Days after
written notice thereof has been given to Debtor;

 

  d. The transfer or disposition of any of the Collateral, except as expressly
permitted by this Security Agreement;

 

  e. The attachment, execution or levy on any of the Collateral, except as
expressly permitted by this Security Agreement;

 

  f. Debtor voluntarily or involuntarily becomes subject to any proceeding under
any bankruptcy or insolvency statute; or

 

  g. Debtor fails to comply with or becomes subject to any administrative or
judicial proceeding under any federal, state or local (a) asset forfeiture or
similar law which can result in the forfeiture of property; or (b) other law,
where noncompliance may have any significant effect on the Collateral.

“Indemnification Agreement” means that certain Indemnification Agreement of even
date herewith entered into by and among Avista Energy, Inc., Avista Energy
Canada, Ltd., Avista Turbine Power, Inc. and the Coral Entities.

“Lien” means any mortgage, pledge, security interest, encumbrance, lien, claim
or charge of any kind, whether or not filed, recorded or otherwise perfected
under applicable law.

“Obligations” means all of the indebtedness, obligations and liabilities of
Debtor to the Coral Entities arising or accruing under the Guaranty.

“Security Agreement” has the meaning ascribed to it in the preface.