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SECURITY AGREEMENT DEBTOR: MUTUAL MESA LATERAL ENTERPRISE 668 38 Road P.O. Box 356 Palisade, CO 81526-0356 FED TAX 10 # SECURED PARTY: ST ATE OF COLORADO for the use and benefit Natural Resources, Colorado Water Conservation 1313 Sherman Street, Room 721 Denver, CO 80203 of the Department of Board COLLATERAL CLASSIFICATION: CONTRACT RIGHTS & OTHER DEBTOR, for 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: All revenues derived from fees and charges collected from the Orchard Mesa Irrigation District ("aMID ") for services associated with the Mutual Mesa Lateral pursuant to an agreement between DEBTOR and aMID dated October 29, 1996, as described in Pledge of Revenues Provisions in contract #CI53723. To secure payment of the indebtedness evidenced by certain Promissory Note Provisions of Loan Contract #C153723 ("CONTRACT") between the above named parties herewith, payable to the SECURED PARTY, or order, as follows: $871,000 in accordance with the terms specified in the Promissory Note Provisions of said Contract, or until all principal and interest are paid in full. DEBTOR 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. 2. That the execution and delivery of this agreement 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 and 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 pursuant 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. 6. To not permit or allow any adverse lien, security interest or encumbrance whatsoever upon the COLLA TERAL and not to permit the same to be attached or replevined. 7. That the DEBTOR will not use the COLLATERAL in violation of any applicable statutes, regulations, ordinances, articles of incorporation or by-laws. Appendix B to Loan Contract #C153723