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<br />SECURITY AGREEMENT <br /> <br />DEBTOR: Peoples Ditch Company <br />23738 Road 40 <br />Sterling, CO 80751 <br /> <br />FEDERAL TAX NUMBER: 84-1231597 <br /> <br />COUNTY: LOGAN (CODE: 13) <br /> <br />SECURED PARTY: State of Colorado - Colorado Water Conservation Board <br />1313 Sherman Street, Room 721 <br />Denver, CO 80203 <br /> <br />COLLATERAL: Contract Rights (Code: 030) <br /> <br />DEBTOR, for consideration, hereby grants to SECURED PARTY a security interest in the following <br />property and any and all additions, accessions and substitutions thereto or therefor, hereinafter <br />called the COLLATERAL: All revenues derived from assessments on stock and all of DEBTOR'S right to <br />receive said assessment revenues to repay the indebtedness on the amount loaned to debtor by <br />secured party, as described in Pledge of Property provisions in Contract No. C150049 dtaed <br />February 1,2002 (CONTRACT). <br /> <br />To secure payment of the indebtedness evidenced by the Promissory Note between the above named <br />parties herewith, payable to the SECURED PARTY, the loan amount of $43,000 at an interest rate of <br />3.75% per annum for a period of 20 years in accordance with said Promissory Note or until all principal <br />and interest are paid in full. <br /> <br />DEBTOR EXPRESSLY WARRANTS AND COVENANTS: <br /> <br />1. That except for the security interest granted hereby, DEBTOR is, or to the extent that this agreement <br />states that the COLLATERAL is to be acquired after the date hereof, will be, the owner of the <br />COLLATERAL free from any adverse lien, security interest or encumbrances; and that DEBTOR will <br />defend the COLLATERAL against all claims and demands of all persons at anytime claiming the same <br />or any interest therein. <br /> <br />2. That the execution and delivery of this agreement by DEBTOR will not violate any law or agreement <br />governing DEBTOR or to which DEBTOR is a party. <br /> <br />3. That, if DEBTOR is a corporation, its certificate and articles of incorporation and by-laws do not <br />prohibit any term or condition of this agreement. <br /> <br />4. That by its acceptance of the loan money pursuant to the terms of the CONTRACT and by its <br />representations herein, DEBTOR shall be estopped from asserting for any reason that it is not <br />authorized to grant a security interest in the COLLATERAL pursuant to the terms of this agreement. <br /> <br />5. To pay all taxes and assessments of every nature which may be levied or assessed against the <br />COLLATERAL. <br /> <br />6. To not permit or allow any adverse lien, security interest or encumbrance whatsoever upon the <br />COLLATERAL and not to permit the same to be attached or replevined. <br /> <br />7. That the DEBTOR will not use the COLLATERAL in violation of any applicable statutes, regulations, <br />ordinances, articles of incorporation or by-laws. <br /> <br />UNTIL DEFAULT DEBTOR may have possession of the COLLATERAL, provided that DEBTOR <br />keeps the COLLATERAL in an account separate from other revenues of DEBTOR and does not use the <br />COLLATERAL for any purpose not permitted by the CONTRACT. Upon default, SECURED PARTY shall have <br />the immediate right to the possession of the COLLATERAL. <br />Appendix 4 to Loan Contract C150049 <br />