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SECURITY AGREEMENT DEBTOR: Upper Platte and Beaver Canal Company P,O, Box 581 Brush, CO 80723 COUNTY: MORGAN (CODE: 15) SECURED PARTY: State of Colorado - Colorado Water Conservation Board 1313 Sherman Street, Room 721 Denver, CO 80203 COLLATERAL: Contract Rights (Code: 030) DEBTOR, for consideration, hereby grants to SECURED PARTY a security interest in all revenues derived from assessments on stock and all of DEBTOR'S right to receive said assessment revenues to repay the indebtedness on the amount loaned to Debtor by Secured Party, as described in Pledge of Property provisions in Contract No. C150096 dated June 1, 2002 (CONTRACT), hereinafter called the COLLATERAL, to secure payment of the indebtedness evidenced by the Promissory Note dated June 1, 2002, between the above named parties, payable to the SECURED PARTY, the loan amount of $83,000 for a period of 10 years in accordance with said Promissory Note 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-\erm or condition of this agreemenC 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, Not to permit or allow any adverse lien, security interest or encumbrance whatsoever upon the COLLATERAL 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, UNTIL DEFAULT DEBTOR may have possession of the COLLATERAL, prOVided that DEBTOR keeps the COLLATERAL in an account separate from other revenues of DEBTOR and does not use the COLLATERAL for any purpose not permitted by the CONTRACT, Upon default, SECURED PARTY shall have the immediate right to the possession of the COLLATERAL. DEBTOR SHALL BE IN DEFAULT under this agreement upon the happening of any of Appendix 4 to Loan Contract C150096