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"--.. SECURITY AGREEMENT DEBTOR: Pine River Canal Company 1137 CR 329 Ignacio, CO 81137 FEDERAL TAX NUMBER: 84-0292515 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 assessrflents on stock and all of DEBTOR'S right to received 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, C150019 (CONTRACT). To secure payment of the indebtedness evidenced by certain Promissory Note of CONTRACT between the above named parties herewith, payable to the SECURED PARTY, the loan amount of $243,700 for a period of 20 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, and 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, except for the loan made on April 18, 1967 to DEBTOR by the U.S. Department of Agriculture Farmers Home Administration Watershed Protection Program (USDA Loan); 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 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 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 Dr allow any adverse lien, security interest or encumbrance whatsoever upon the COLLATERAL and not to permit the same to be attached or replevined, except as provided under the aforementioned USDA Loan. 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 Appendix 6 to Loan Contract C150019