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SECURITY AGREEMENT DEBTOR: Pinon Mesa RancheS Community Association 300 Angus Road, CR 310 Ignacio, CO 81137 FEDERAL tAX NUMBER: 84.1330579 COUNTY: LA PLATA (CODE: 20) 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 the following property and any and all additions, accessions and substitutions thereto or therefor, hereinafter called the COLLATERAL: All revenues derived from water charges and assessments levied to repay the indebtedness on the amount loaned to DEBTOR by SECURED PARTY, and all rights of DEBTOR to receive water charges and assessment revenues from its members, as described in pledge of property provisions in Loan Contract#C153774. To secure payment of the indebtedness evidenced by certain Promissory Note between the above named parties herewith, in the amount of $206,000.00 at 3.75% effective interest rate for a tenn of 30 years, payable by DEBTOR to the SECURED PARTY until all principal and interest are paid in full in accordance with said Promissory Note. DEBTOR EXPRESSLY WARRANTS AND COVENANTS: 1. That except for the security interest grant 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. 2. That the execution and delivery of this agreement by DEBTOR will not violate any law or agreement goveming 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 tenn or condition of this agreement. 4. That by its acceptance of the loan money pursuant to the tenns 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 COLLAfERAL pursuant to the tenns 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 pennit or allow any adverse lien, security interest or encumbrance whatsoever upon the COLLATERAL and not to pennit 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. UNLESS IT DEFAULTS DEBTOR may have possession of the COLLATERAL, provided that DE8TOR keeps all revenues derived from membership assessments in the amount of the annual loan payments due under the contract, as amended, in an account separate from other revenues of DEBTOR and does not use said revenues for any purpose not pennitted by the CONTRACT. If DEBTOR defaults, SECURED Appendix E to Contract #C153774