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esECURITY AGREEMENT . DEBTOR: Lower Arkansas Water Management Association P. O. Box 1161 Lamar, CO 81052 FEDERAL TAX NUMBER: 84-0637532 COUNTY: PROWERS (CODE: 17) SE~R6D PARTY: STATE OF COLORADO for the use and benefit of the I A !l Q_ /" Dept of Natural Resources, Colorado Water Conservation Board :r~L 0J1; ,1~'tj3 Sherman Street. Room 721 ~~o::A%~ver, CO 80203 ~ ~~~L: A~L WATER RIGHTS AND DITCH SHARES (Code 560) ~ ~r consideration. hereby grants to SECURED PARTY a security interest in the following property and any and all additions, accessions and substitutions thereto or therefor, hereinafter called the COLLATERAL: 196 shares of capital stock of the Highland Irrigation Company, evidenced by Certificate No. 291: > o secure payment of the indebtedness evidenced by the Promissory Note which is a part of Loan Contract #C153768 ("CONTRACT"), between the above named parties herewith, payable to the SECURED PARTY. or f< ~er, as . $2,300,000 payable in 40 annual installments in accordance with the Promissory Note or ~ un. principal and interest are paid in full. ~BTOR EXPRESSLY WARRANTS AND COVENANTS: 1. That except for the security interest granted hereby, DEBTOR is, or to the extent that this agreement states that the COLLATERAL is to be acquired after the date hereof, Will be, the owner of the COLLATERAL free from any adverse lien, security interest or encumbrances; and that DEBTOR will defend the COLLATERAL against all claims and demands of all persons at anytime claiming the same or any interest therein by, through or under DEBTOR. 2. That the execution and delivery of this agreemefiK. by DEBTOR will not violate any law or agreement governing DEBTOR or to which DEBTOR is a party.' 3. That, if DEBTOR is a corporation, its certificate or articles of incorporation and by-laws do not prohibit any term or condition of this agreement. 4. That, by its acceptance of the loan money pursuant to the terms of the CONTRACT and by its representations herein, DEBTOR shall be estopped from asserting for any reason that it is not authorized to grant a security interest in the COLLATERAL purslJant to the terms of this agreement. 5. To pay all taxes and assessments of every nature which may be levied or assessed against the COLLATERAL. . c . 6. To not permit or allow any adverse lien, security interest or encumbrance what\:;oever upon)he COLLATERAL and not to permit the same to be attached or replevined. L 7. That the DEBTOR will not use the COLLATERAL in violation of any applicable statutes, regulations .or ordinances, articles of incorporation or by-laws. DEBTOR SHALL BE IN DEFAULT under this agreement upon the happening of any of the following events or conditions: Appendix 7 toLoan Contract #C153768