Form 16-24

Security Agreement

[Water Rights]

Notice of confidentiality rights: If you are a natural person, you may remove or strike any or all of the following information from any instrument that transfers an interest in real property before it is filed for record in the public records: your Social Security number or your driver’s license number.

Date:

Debtor:

Debtor’s Mailing Address:

Secured Party:

Secured Party’s Mailing Address:

Classification of Collateral: [include as applicable: [Inventory/Equipment/Goods/Fixtures/General Intangibles]]

Collateral: All of Debtor’s interest in the following property and all supporting obligations and proceeds of such property:

1.Water Rights: [include appropriate description[s] (same as in the deed of trust, form 16-21), which may be found in the subject permit[s], certificate[s] of adjudication, deed[s], easement[s], or other document[s] of conveyance].

2.Permits and Certificates of Adjudication (“Permits/Certificates” whether one or more): [describe, e.g., All Permits and Certificates of Adjudication pertaining to the Water Rights, now existing or hereafter acquired, including those identified below, and all amend­ments, replacements, and modifications thereto].

3.[Include as applicable: [Goods/Equipment/Fixtures/Inventory]]

4.All agreements for the sale of water derived from the Water Rights, whether now existing or hereafter executed, and the proceeds thereof.

5.All agreements for the lease of any portion of the Water Rights, whether now existing or hereafter executed, and all rents and proceeds thereof.

Water Authority: [include as applicable: The Texas Commission on Environmental Quality (TCEQ) [and [any groundwater authority, watermaster, or conservation district, or other agency or governmental bodies or authorities having jurisdiction over the administration of the water rights covered]]].

Obligation

Note

Date:

Original principal amount:

Borrower (Obligor):

Other Debt/Future Advances: The security interest also secures all other present and future debts and liabilities of Debtor and/or Obligor to Secured Party, including future advances.

Other Obligation[s]:

A.Debtor’s Representations Concerning Debtor and Locations:

A.1.[Include if applicable: Description of Land to Which Water Rights Are [or Are to Become] Appurtenant (“Appurtenant Land”): [include legal description of land].]

A.2.[Include if applicable: Debtor’s Intended [Place of Use/Purpose of Use/Point of Diversion] of Water Rights: [specify].]

A.3.[Include if applicable: [Debtor’s place of business/Debtor’s chief executive office] is located at [address, city, state].]

A.4.[Include if the debtor is an individual: Debtor’s residence is located at [address, city, state].]

A.4.[Include if the debtor is a corporation, limited partnership, or limited liability company: Debtor’s state of organization is [Texas/[state]], and Debtor’s name, as shown in its public organic record, as amended, is exactly as set forth above.]

A.5.Debtor’s records concerning the Collateral are located at [address, city, state].

A.6.Debtor has [caused the original of the Permits or Certificates to be delivered to Secured Party/recorded the Permits or Certificates in the real property records of all applica­ble counties].

B.Granting Clause

Debtor grants to Secured Party a security interest in the Collateral and all its proceeds to secure the Obligation and all renewals, modifications, and extensions of the Obligation. Debtor authorizes Secured Party to file financing statements describing the Collateral.

C.Debtor Represents the Following:

C.1.No financing statement covering the Collateral is filed in any public office [include if the secured party has prefiled a financing statement or otherwise has a financing statement on file: except any financing statement in favor of Secured Party].

C.2.Debtor owns the Collateral and has the authority to grant this security interest, free from any setoff, claim, restriction, lien, security interest, or encumbrance except liens for taxes not yet due.

C.3.All information about Debtor’s financial condition is or will be accurate when provided to Secured Party.

C.4.All fees, taxes, and other charges levied or assessed against the Collateral have been properly paid, and none are delinquent or due and owing.

C.5.The Collateral is not the subject of any enforcement action by any Water Authority or other governmental entity.

C.6.The Obligation was not incurred primarily for personal, family, or household purposes.

C.7.The Collateral was not acquired and will not be held primarily for personal, family, or household purposes.

D.Debtor Agrees to—

D.1.Defend the Collateral against all claims adverse to Secured Party’s interest; pay all fees, taxes, and other charges imposed on the Collateral, and provide Secured Party with proper evidence thereof; keep the Collateral free from liens, except for liens in favor of Secured Party or for taxes not yet due; keep the Collateral in Debtor’s possession and owner­ship except as otherwise provided in this agreement; and protect the Collateral against waste, normal usage and normal wear and tear excepted.

D.2.Pay all of Secured Party’s expenses, including reasonable attorney’s fees [include for a loan transaction subject to Texas Finance Code section 342.502: assessed by a court], incurred to (a) obtain, preserve, perfect, defend, and enforce this agreement; (b) retake, hold, prepare for disposition, dispose, collect, or enforce the Collateral; and (c) collect or enforce the Obligation. These expenses will bear interest from the date of advance at the rate stated in the Note for matured, unpaid amounts and are payable on demand at the place where the Obligation is payable. These expenses and interest are part of the Obligation and are secured by this agreement.

D.3.Sign and deliver to Secured Party any documents or instruments that Secured Party considers necessary to obtain, maintain, and perfect this security interest in the Collat­eral.

D.4.Notify Secured Party immediately of any event of default and of any material change (a) in the Collateral; (b) in Debtor’s Mailing Address; (c) in the location of any Collat­eral; (d) in any other representation or warranty in this agreement; (e) in the permit or certifi­cate issued by any Water Authority for the Collateral, or any proposed adjustment, modification, amendment, or other change to the permit or certificate; (f) that may affect this security interest; and (g) of any change in Debtor’s name and any location set forth above.

D.5.Use the Collateral primarily according to the stated classification.

D.6.Maintain accurate records of the Collateral at the address set forth above, fur­nish Secured Party any requested information related to the Collateral, and permit Secured Party to inspect and copy all records relating to the Collateral.

D.7.File with any applicable Water Authority all required reports and provide Secured Party with a true and correct copy of all such reports.

D.8.On Secured Party’s demand, hold payments, including instruments, items, and money received as proceeds of the Collateral, separate and in an express trust for Secured Party and deposit all such payments received as proceeds of the Collateral in a special bank account designated by Secured Party, who alone will have power of withdrawal.

D.9.Inform Secured Party immediately of any claim made in regard to any Collat­eral.

E.Debtor Agrees Not to—

E.1.Sell, transfer, or encumber any of the Collateral except in the ordinary course of Debtor’s business.

E.2.Allow the Collateral to become the subject of any enforcement action by any Water Authority or any other governmental authority.

E.3.Change its name or jurisdiction of organization, merge or consolidate with any person, or convert to a different entity without notifying Secured Party in advance and taking action to continue the perfected status of the security interest in the Collateral.

E.3.Change the state in which Debtor’s place of business (or chief executive office if Debtor has more than one place of business) is located, change its name, or convert to a dif­ferent entity without notifying Secured Party in advance and taking action to continue the per­fected status of the security interest in the Collateral.

E.3.Change Debtor’s name or state of residence without notifying Secured Party in advance and taking action to continue the perfected status of the security interest in the Collat­eral.

E.4.Amend or convert any agreement, permit, or certificate related to the Collateral without the prior written consent of Secured Party.

F.Insurance and Risk of Loss

F.1.Debtor will insure the Collateral in accordance with Secured Party’s reasonable requirements regarding choice of carrier, risks insured against, and amount of coverage. Poli­cies must be written in favor of Debtor, be endorsed to name Secured Party as an additional insured or as otherwise directed in writing by Secured Party, and provide that Secured Party will receive at least ten days’ notice before cancellation. Debtor must provide copies of the policies or evidence of insurance to Secured Party.

F.2.COLLATERAL PROTECTION INSURANCE NOTICE

In accordance with the provisions of section 307.052(a) of the Texas Finance Code, the Secured Party hereby notifies the Debtor as follows:

(A)the Debtor is required to:

(i)keep the collateral insured against damage in the amount the Secured Party specifies;

(ii)purchase the insurance from an insurer that is authorized to do business in the state of Texas or an eligible surplus lines insurer; and

(iii)name the Secured Party as the person to be paid under the policy in the event of a loss;

(B)the Debtor must, if required by the Secured Party, deliver to the Secured Party a copy of the policy and proof of the payment of premiums; and

(C)if the Debtor fails to meet any requirement listed in Paragraph (A) or (B), the Secured Party may obtain collateral protection insurance on behalf of the Debtor at the Debtor’s expense.

F.3.Debtor assumes all risk of loss to the Collateral.

F.4.Debtor appoints Secured Party as attorney-in-fact to collect any returned unearned premiums and proceeds of any insurance on the Collateral and to endorse and deliver to Secured Party any payment from such insurance made payable to Debtor. Debtor’s appointment of Secured Party as Debtor’s agent is coupled with an interest and if Debtor is an individual will survive any disability of Debtor.

G.Default and Remedies

G.1.A default exists if—

a.Debtor, Obligor, or any secondary obligor fails to timely pay or perform any obligation or covenant in any written agreement between Secured Party and any of Debtor, Obligor, or secondary obligor;

b.any warranty, covenant, or representation in this agreement or in any other written agreement between Secured Party and any of Debtor, Obligor, or secondary obligor is materially false when made;

c.a receiver is appointed for Debtor, Obligor, any secondary obligor, or any Collateral;

d.any Collateral is assigned for the benefit of creditors;

e.a bankruptcy or insolvency proceeding is commenced by Debtor, a part­nership in which Debtor is a general partner, Obligor, or any secondary obligor;

f.a bankruptcy or insolvency proceeding is commenced against Debtor, a partnership in which Debtor is a general partner, Obligor, or any secondary obligor, and the proceeding continues without dismissal for sixty days, the party against whom the proceeding is commenced admits the material alle­gations of the petition against it, or an order for relief is entered;

g.any of the following parties is terminated, begins to wind up its affairs, is authorized to terminate or wind up its affairs by its governing body or per­sons, or any event occurs or condition exists that permits the termination or winding up of the affairs of any of the following parties: Debtor; a partner­ship of which Debtor is a general partner; Obligor; or any secondary obli­gor;

h.any Collateral is impaired by loss, theft, damage, levy and execution, issu­ance of an official writ or order of seizure, or destruction, unless it is promptly replaced with collateral of like kind and quality or restored to its former condition; or

i.Debtor receives notice from any applicable Water Authority of the poten­tial of an enforcement action by that Water Authority related to the Collat­eral, Debtor’s use of the Collateral, or a violation of any rule or regulation of the Water Authority and that matter is not cured within thirty days after the notice.

G.2.If a default exists, Secured Party may—

a.demand, collect, convert, redeem, settle, compromise, receipt for, realize on, sue for, and adjust the Collateral either in Secured Party’s or Debtor’s name, as Secured Party desires, or take control of any proceeds of the Col­lateral and apply the proceeds against the Obligation;

b.take possession of any Collateral not already in Secured Party’s posses­sion, without demand or legal process, and for that purpose Debtor grants Secured Party the right to enter any premises where the Collateral may be located;

c.without taking possession, sell, lease, or otherwise dispose of the Collat­eral at any public or private sale in accordance with law;

d.exercise any rights and remedies granted by law or this agreement; and

e.cause the Collateral to be transferred to Secured Party’s name with any appropriate Water Authority. Debtor appoints Secured Party as Debtor’s
attorney-in-fact to file any application, institute any proceedings, and per­form such other acts or actions on behalf of Debtor, and in Debtor’s name, as Secured Party may determine to be necessary to protect or preserve the Collateral and Lender’s interest therein, and to seek the approval of that Water Authority for the necessary changes in ownership, diversion point, place of use, and/or purpose of use of the Collateral. This appointment is coupled with an interest, is irrevocable, and survives Debtor’s disability or foreclosure under this security agreement.

G.3.Foreclosure of this security interest by suit does not limit Secured Party’s reme­dies, including the right to sell the Collateral under the terms of this agreement. Secured Party may exercise all remedies at the same or different times, and no remedy is a defense to any other. Secured Party’s rights and remedies include all those granted by law and those specified in this agreement. The debt is secured by a deed of trust [include if applicable: and [include form 8-3 vendor’s lien language]]. This security agreement does not waive the provisions of the deed of trust [include if applicable: and the vendor’s lien], and the liens and the rights cre­ated are cumulative. Secured Party may elect to foreclose under one or more liens without waiving any of the other lien(s).

G.4.Secured Party’s delay in exercising, partial exercise of, or failure to exercise any of its remedies or rights does not waive Secured Party’s rights to subsequently exercise those remedies or rights. Secured Party’s waiver of any default does not waive any other default by Debtor. Secured Party’s waiver of any right in this agreement or of any default is binding only if it is in writing. Secured Party may remedy any default without waiving it.

G.5.Secured Party has no obligation to clean or otherwise prepare the Collateral for sale.

G.6.Secured Party has no obligation to satisfy the Obligation by attempting to col­lect the Obligation from any other person liable for it. Secured Party may release, modify, or waive any collateral provided by any other person to secure any of the Obligation. If Secured Party attempts to collect the Obligation from any other person liable for it or releases, modi­fies, or waives any collateral provided by any other person, that will not affect Secured Party’s rights against Debtor. Debtor waives any right Debtor may have to require Secured Party to pursue any third person for any of the Obligation.

G.7.If Secured Party must comply with any applicable state or federal law require­ments in connection with a disposition of the Collateral, such compliance will not be consid­ered to adversely affect the commercial reasonableness of a sale of the Collateral.

G.8.Secured Party may sell the Collateral without giving any warranties as to the Collateral. Secured Party may specifically disclaim any warranties of title or the like. This procedure will not be considered to adversely affect the commercial reasonableness of a sale of the Collateral.

G.9.If Secured Party sells any of the Collateral on credit, Debtor will be credited only with payments actually made by the purchaser and received by Secured Party for appli­cation to the indebtedness of the purchaser. If the purchaser fails to pay for the Collateral, Secured Party may resell the Collateral and Debtor will be credited with the proceeds of the sale.

G.10.If Secured Party purchases any of the Collateral being sold, Secured Party may pay for the Collateral by crediting the purchase price against the Obligation.

G.11.Secured Party has no obligation to marshal any assets in favor of Debtor or against or in payment of the Note, any of the Other Obligation[s], or any other obligation owed to Secured Party by Debtor or any other person.

G.12.If the Collateral is sold after default, recitals in the bill of sale or transfer will be prima facie evidence of their truth and all prerequisites to the sale specified by this agreement and by law will be presumed satisfied.

H.General

H.1.Secured Party may at any time—

a.take control of proceeds of insurance on the Collateral and reduce any part of the Obligation accordingly or permit Debtor to use the funds to repair or replace the Collateral and

b.purchase single-interest insurance coverage that will protect only Secured Party if Debtor fails to maintain insurance, and premiums for the insurance will become part of the Obligation.

H.2.Notice is reasonable if it is mailed, postage prepaid, to Debtor at Debtor’s Mail­ing Address at least ten days before any public sale or ten days before the time when the Col­lateral may be otherwise disposed of without further notice to Debtor.

H.3.This security interest will attach to an after-acquired commercial tort claim only to the extent permitted by law.

H.4.This security interest will neither affect nor be affected by any other security for any of the Obligation. Neither extensions of any of the Obligation nor releases of any of the Collateral will affect the priority or validity of this security interest.

H.5.This agreement binds, benefits, and may be enforced by the successors in inter­est of Secured Party and will bind all persons who become bound as debtors to this agreement. Assignment of any part of the Obligation and Secured Party’s delivery of any part of the Col­lateral will fully discharge Secured Party from responsibility for that part of the Collateral. If such an assignment is made, Debtor will render performance under this agreement to the assignee. Debtor waives and will not assert against any assignee any claims, defenses, or setoffs that Debtor could assert against Secured Party except defenses that cannot be waived. All representations, warranties, and obligations are joint and several as to each Debtor.

H.6.This agreement may be amended only by an instrument in writing signed by Secured Party and Debtor.

H.7.The unenforceability of any provision of this agreement will not affect the enforceability or validity of any other provision.

H.8.This agreement will be construed according to Texas law, without regard to choice-of-law rules of any jurisdiction. This agreement is to be performed in [include if appli­cable in a consumer transaction: , and has been signed by Debtor in,] the county of Secured Party’s Mailing Address.

H.9.Interest on the Obligation secured by this agreement will not exceed the maxi­mum amount of nonusurious interest that may be contracted for, taken, reserved, charged, or received under law. Any interest in excess of that maximum amount will be credited on the principal of the Obligation or, if that has been paid, refunded. On any acceleration or required or permitted prepayment, any such excess will be canceled automatically as of the accelera­tion or prepayment or, if already paid, credited on the principal of the Obligation or, if the principal of the Obligation has been paid, refunded. This provision overrides any conflicting provisions in this and all other instruments concerning the Obligation.

H.10.In no event may this agreement secure payment of any debt that may not law­fully be secured by a lien on real estate or create a lien otherwise prohibited by law.

H.11.When the context requires, singular nouns and pronouns include the plural.

H.12.Any term defined in sections 1.101 to 9.709 of the Texas Business and Com­merce Code and not defined in this agreement has the meaning given to the term in the Code.

   
[Name of debtor]