LOAN AGREEMENT

          AGREEMENT,  dated  October  ____,  1995,  between  CAP  ROCK  ELECTRIC
COOPERATIVE,  INC. ("Borrower"),  a corporation organized and existing under the
laws  of  the  State  of  Texas  (the  "state")  and  NATIONAL  RURAL  UTILITIES
COOPERATIVE FINANCE  CORPORATION ("CFC") , a corporation  organized and existing
under the laws of the District of Columbia.

                                    RECITALS

          WHEREAS, the Borrower has applied to CFC for a loan for the purpose(s)
set forth in  Schedule  1 hereto  and CFC is  willing to make such a loan to the
Borrower on the terms and conditions stated herein;

          NOW,  THEREFORE,  for and in  consideration  of the  premises  and the
mutual  covenants  hereinafter  contained,  the  parties  hereto  agree and bind
themselves as follows:

                                    ARTICLE I

                                   DEFINITIONS

Capitalized  terms that are not defined  herein  shall have the  meanings as set
forth in the Mortgage.

          "Advance"  or  "Advances"  shall  mean  advances  by CFC  to  Borrower
pursuant to the terms .and conditions of this Agreement.

     "Amortization Basis Date" shall mean three (3) years from the date hereof,

          "Business Day" shall mean any day that CFC is open for business.

          "CFC  Commitment"  shall have the  meaning  as  defined in  schedule 1
hereto.

          "CFC Fixed Rate" shall mean such fixed rate as is then  available  for
loans  similarly  classified  pursuant to CFC's policies and procedures  then in
effect.

          "CFC Fixed Rate Term"  shall mean the  specific  period of time that a
CFC Fixed Rate is in effect.

          "CFC  Variable  Rate"  shall  mean the  rates  established  by CFC for
variable  interest rate long-term  loans  similarly  classified  pursuant to the
long-term loan programs established by CFC from time to time.

          "Conversion  Request"  shall  mean a  request  in form  and  substance
satisfactory to CFC, that requests an interest rate conversion.

          "Depreciation   and   Amortization   Expense"  shall  mean  an  amount
constituting  the  depreciation and amortization of the Borrower as computed for
purposes of Form 7.

          "Distributions" shall have the meaning defined in Section 5.1.

          "Debt service  Coverage Ratio ("DSC")" shall mean the ratio determined
as follows:  for any  calendar  year add (ii  Patronage  Capital  and  Operating
Margins, (ii) Non-Operating Margins-Interest, (iii) Interest Expense, (iv)





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Depreciation and  Amortization  Expense for such year, -and (v) cash received in
respect of generation and transmission and other capital credits, and divide the
sum so obtained by the sum of all  payments )& principal  and  Interest  Expense
during  such  calendar  year;  provided,  however,  that in the  event  that any
Long-Term  Debt has been  refinanced  during such year the payments of Principal
and  Interest  Expense  required to be made .during such year on account of such
Long-Term Debt shall be based (in lieu of actual payments required to be made on
such refinanced  Debt) upon the larger of (1) an  annualization  of the payments
required to be made with respect to the  refinancing  debt during the portion of
such year such  refinancing debt is outstanding or (ii) the payment of Principal
and Interest Expense required to be made during the following year on account of
such refinancing debt.

          "Equities and Margins" shall mean  Borrower's  equities and margins as
computed pursuant to generally accepted accounting principles.

          "Equity"  shall mean the aggregate of Borrower's  Equities and Margins
as computed pursuant to generally accepted accounting principles.

          "Form 7" shall mean the form so identified by CFC, or, if no such form
is applicable to the accounts of the Borrower, such reference shall apply to the
corresponding  information  otherwise  determined in accordance  with  generally
accepted accounting principles.

          "Interest  Expense"  shall mean an amount  constituting  the  interest
expense  with  respect to Total  Long-Term  Debt of the Borrower as computed for
purposes of Form 7. In computing Interest Expense,  there shall be added, to the
extent  not  otherwise  included,  an amount  equal to  33-1/fl of the excess of
Restricted  Rentals paid by the Borrower over 2% of the Borrower's  Equities and
Margins.

     "LCTC" shall mean the Loan Capital Term Certificate as described in section
S.E. hereto.

          "Long-Term  Debt" shall mean any amount  included  in Total  Long-Term
Debt pursuant to generally accepted accounting principles.


          "Maturity Date" shall have the meaning as defined in the Note.

          "Mortgage" shall have the meaning as described in schedule 1 hereto.

          "Mortgaged  Property"  shall  have  the  meaning  as  defined  in  the
Mortgage.

          "Non-Operating    Margins-Interest"   shall   mean   the   amount   of
non-operating margins-interest of Borrower as computed for purposes of Form 7.

          "Note"  shall mean a promissory  note  executed by the Borrower in the
form of Exhibit A hereto.

          "Patronage  Capital or Margins" shall mean the amount of net patronage
capital or margins of the Borrower as computed for purposes of Form 7.

          "Payment Date" shall mean the last day of each of the months  referred
to in Schedule I hereto.

          "Payment Notice" shall mean a notice furnished by CFC to Borrower that
indicates  the precise  amount of each payment of principal and interest and the
total amount of each payment.

          "Termination Date" shall mean a date four years after the date hereof.


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          "Total Assets" shall mean an amount  constituting,  be total assets of
the Borrower as computed for purposes of Form 7.

     "Total Long-Term Debt" shall mean an amount constituting the long-term debt
of the Borrower as computed far purposes of Form 7

          "Total  Utility  Plant" shall mean the amount  constituting  the total
utility plant of the Borrower  computed in accordance  with  generally  accepted
accounting principles


                                   ARTICLE II

                         REPRESENTATIONS AND WARRANTIES

          Section 2. The Borrower represents and warrants that:

     A. Good  Standing.  The Borrower is a  corporation  duly  incorporated  and
validly existing and in good corporate  standing under the laws of the State, is
duly  qualified  in those  states in which it is  required  to be  qualified  to
conduct its  business  and has  corporate  power to enter into and perform  this
Agreement, to borrow hereunder and to give security as provided for herein.

     B.  Authority.  The execution,  delivery and performance by the Borrower of
this Agreement,  the Note (as hereinafter  defined) and the Mortgage (as defined
in  schedule 1 hereto)  and the  performance  of the  transactions  contemplated
thereby have been duly authorized by all necessary corporate action and will not
violate any provision of law or of the Articles of  Incorporation  or By-Laws of
the  Borrower  or result in a breach  of, or  constitute  a default  under,  any
agreement,  indenture or other instrument to which the Borrower is a party or by
which it may be bound.

          C.  Litigation.  There are no suits or  proceedings  pending or to the
knowledge of the Borrower  threatened  against or affecting  the Borrower or its
properties which, if adversely determined,  would have a material adverse effect
upon the financial  condition or the business of the  Borrower.  The Borrower is
not, to its knowledge,  in default with respect to any judgment,  order, rule or
regulation  of any court,  governmental  agency or other  instrumentality  which
would have a material adverse effect on the Borrower.

          D. Financial  Statements.  The balance sheet of the Borrower as at the
date  identified  in Schedule 1 hereto,  and the  statement of operations of the
Borrower for the period  ending on said date,  heretofore  furnished to CFC, are
complete and correct. Said balance sheet fairly presents the financial condition
of the Borrower as at said date and said statement of operations fairly reflects
its operations for the period ending on said date The Borrower has no contingent
obligation or unusual  forward or long-term  commitments  except as specifically
stated in said  balance  sheet or  herein,  There has been no  material  adverse
change in the  financial  condition or  operations of the Borrower from that set
forth in said financial  statements  except changes  disclosed in writing to CFC
prior to the date hereof.

     E. Location of Office.  The principal place of business of the Borrower and
the office where its records concerning accounts and contract rights are kept is
identified in Schedule 1 hereto.

     F. Location of Properties. All property owned by the Borrower is located in
the counties identified in schedule 1 hereto.

     C. No Other  Liens.  As to  property  which is  presently  included  in the
description of Mortgaged  Property (as that term is defined in the Mortgage) the
Borrower has not, without the prior written approval of CFC, signed any security
agreement or filed or permitted to be filed any financing statement


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     with  respect  to assets  owned by it,  other  other  than  agreements  and
financing statements running in favor of CFC., except as disclosed in writing to
CFC prior to the date hereof. I

     H. Required Approvals. No license,  consent or approval of any governmental
agency or  authority  is  required  to enable  the  Borrower  to enter into this
Agreement or to perform any of its  obligations  provided  for herein  except as
disclosed in schedule 1 hereto.

     I. Survival. All representations and warranties made by the Borrower herein
or made in any certificate delivered pursuant hereto shall survive the making of
the Advances and the execution and delivery to CFC of the Note.

                                   ARTICLE III

                                      LOAN

          Section 3.1. Advances.  CFC agrees to make, and the Borrower agrees to
request,  on the terms and conditions of this  Agreement,  Advances from time to
time at the main office of CFC, or at such other place as may be mutually agreed
upon, in an aggregate principal amount not to exceed the CFC Commitment.

          On the  Termination  Date, CFC may stop advancing  funds and limit the
CFC Commitment to the amount  advanced prior to such date. The obligation of the
Borrower to repay the Advances  shall be evidenced by the Note in the  principal
amount  of the  unpaid  principal  amount  of the  Advances  from  time  to time
outstanding.  The  Borrower  shall give CFC written  notice of the date on which
each Advance is to be made.

     Section 3.2. Interest Rate and Payment.  The Note shall be payable and bear
interest as follows:

          A. Payments and Amortization. The Borrower, upon receipt of an invoice
relating to an Advance,  shall  promptly pay interest only on each Payment Date.
Commencing on November 30, 1999 and  continuing on the 30th day of each November
thereafter  until the Note is paid in full,  the Borrower  shall also make equal
annual  payments of  principal in the amount of Five  Hundred  Thousand  Dollars
($500,000,00) each.

If not sooner paid, any amount due on account of the unpaid principal,  interest
accrued thereon and fees, if any, shall be due and payable on the Maturity Date.

Each Payment  Notice shall be sent to the Borrower at least ten (10) days before
the next ensuing Payment Date.

No provision of this Agreement or the Note shall require the payment,  or permit
the  collection,  of  interest  in  excess  of the  highest  rate  permitted  by
applicable law.

          B. Application of Payments. Each payment shall be applied first to any
charges then due on the Note, second to interest accrued on the principal amount
to the due date of such  payment on the Note (or, at the  election of the holder
of the  Note,  to the  date of such  payment  if the same is not paid on its due
date) , and the balance to the reduction of principal against the Note according
to an amortization schedule provided to Borrower from CFC.

     C. Election of Interest  Rate.  Prior to the first Advance on the Note, the
Borrower must select in writing one of the following  interest rates:  (i) a CFC
Fixed Rate; or (ii) the CFC Variable Rate.

Interest shall be computed for the actual number of days elapsed on the basis of
a year of 365 days, until the first day of the complete calendar quarter


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following the Amortization Basis Date. Thereafter, if the loan bears interest at
a CFC Fixed Rate,  interest shall be computed on the basis of a 30-day month and
360-day  year.  If the loan bears  interest at the CFC Variable  Rate,  interest
shall be computed  for the actual  number of days elapsed on the basis of a year
of 365 days.

          (i) Fixed Rate. If the Borrower  elects a CFC Fixed Rate for the Note,
such rate shall be in effect  for a CFC Fixed  Rate  Term.  During the CFC Fixed
Rate Term,  all  Advances  on the Note shall bear  interest  at the rate then in
effect  associated with such CFC Fixed Rate Term, CFC shall provide the Borrower
with at least 60 days prior written notice of the date on which a CFC Fixed Rate
is no longer in effect,  Pursuant to CFC's policies of general  application  for
such  repricing,  the Borrower may choose any of the interest  rate options then
available for similarly classified borrowers repricing from a CFC Fixed Rate, In
the event the  Borrower  does not select an interest  rate in writing when a CFC
Fixed Rate is subject to repricing,  then Advances shall bear interest according
to CFC's then available  interest rate repricing  policies.  CFC agrees that its
long-term  loan  policies  will include a fixed  interest  rate option until the
Maturity Date, provided,  however,  that the Borrower may not select a CFC Fixed
Rate with a CFC Fixed Rate Term that extends beyond the Maturity Date.

          (ii) CFC Variable  Rate. If the Borrower  elects a CFC Variable  Rate,
such CFC Variable  Rate shall apply until the  Maturity  Date of the Note unless
the Borrower elects to convert to a CFC Fixed Rate pursuant to the terms hereof.
In the event Borrower selects a CFC Variable Rate, such rate shall be applicable
to the entire amount advanced or to be advanced on the loan.

          Section 3.3. Conversion of Interest Rates.

          A. CFC Variable Rate to a CFC Fixed Rate. The Borrower may at any time
request to convert from the CFC Variable  Rate to a CFC Fixed Rate by submitting
to CFC a  Conversion  Request.  The rate shall be equal to the rate of  interest
offered by CFC in effect on the date of the  Conversion  Request.  The effective
date of the new interest rate shall be a date  determined by CFC pursuant to its
policies of general  application  following  receipt of the Conversion  Request.
Prior to the time when the CFC Fixed Rate is no longer applicable,  the Borrower
may select the CFC Variable Rate or a CFC Fixed Rate.

          B. CFC Fixed Rate to CFC Variable Rate. The Borrower may at its option
at any time  convert,  at the  discretion  of CFC,  a CFC Fixed  Rate to the CFC
Variable Rate, if the Borrower: (i) submits a Conversion Request requesting that
the CFC  Variable  Rate apply to any  outstanding  loan  balance on the Note and
future Advances pursuant  thereto;  and ii) pays to CFC promptly upon receipt of
an invoice a conversion fee calculated pursuant to CFC's long-term loan policies
as established  from time to :roe for similarly  classified  long-term loans The
effective  date of the CFC  Variable  Rate  shall  be a date  determined  by CFC
pursuant  to its  policies  of  general  application  following  receipt  of the
Conversion Request

          C. A CFC Fixed Rate to Another CFC Fixed Rate.  At the  discretion  of
CFC, the  Borrower may at its option at any time convert any amount  outstanding
on the Note from a CFC Fixed Rate to another CFC Fixed Rate if the  Borrower (i)
submits a  Conversion  Request  requesting  that a CFC Fixed  Rate  apply to any
outstanding  loan balance on the Note and (ii) pays to CFC promptly upon receipt
of an  invoice  any  applicable  conversion  fee  calculated  pursuant  to CFC's
long-term  loan  policies  as  established  from  time  to  time  for  similarly
classified long-term loans, The effective date of the new interest rate shall he
a date  determined  by CFC  pursuant  to its  policies  of  general  application
following receipt of the Conversion Request.


<PAGE>




     Section 3.4. Prepayment.  The Borrower may at any time, on not less than 30
days' written notice to CFC, prepay the Note. in whole or in part, together with
the interest  accrued to the date of prepayment and any prepayment  premium that
CFC may from time to time prescribe.


                                   ARTICLE IV

                              CONDITIONS OF LENDING

          Section 4. The  obligation  of CFC to make any  Advance  hereunder  is
subject to satisfaction of the following conditions:

     A. Legal Matters.  All legal matters  incident to the  consummation  of the
transactions  hereby  contemplated shall be satisfactory to counsel for CFC and,
as to all  matters of local law,  to such local  counsel as counsel  for CFC may
retain.

          B.  Documents.  CFC shall have been  furnished  with executed  copies,
satisfactory to CFC, of this Agreement,  the Note and the Mortgage and certified
copies,  satisfactory to CFC, of all such corporate documents and proceedings of
the Borrower  authorizing  the  transactions  hereby  contemplated as CFC or its
counsel  shall  require.  CFC shall have  received an opinion of counsel for the
Borrower  addressing  such legal matters as CFC or its counsel shall  reasonably
require.

     C. Government Approvals.  The Borrower shall have furnished to CFC true and
correct  copies of all  certificates,  authorizations  and  consents,  including
without  limitation the consents  referred to in Section 2.H. hereof,  necessary
for the execution,  delivery or  performance by the Borrower of this  Agreement,
the Note and the Mortgage.

          D. Representations and Warranties.  The representations and warranties
contained  in  Article  II  shall  (except  as  affected  by  the   transactions
contemplated  by  this  Agreement)  be true on the  date of the  making  of each
Advance  hereunder  with the same  effect as  though  such  representations  and
warranties had been made on such date; no Event of Default  specified in Article
VI and no event  which,  with the lapse of time or the  notice and lapse of time
specified  in  Article  VI would  become  such an Event of  Default,  shall have
occurred and be  continuing  or will have  occurred  after giving  effect to the
Advance on the books of the  Borrower;  there  shall have  occurred  no material
adverse  change in the business or  condition,  financial or  otherwise,  of the
Borrower; and nothing shall have occurred which in the opinion of CFC materially
and adversely affects the Borrower's ability to meet its obligations hereunder

     E.  Mortgage  Filing.  The  Mortgage  shall  have been duly  recorded  as a
mortgage  on real  property  and duly  filed,  recorded or indexed as a security
interest  in  personal  property  wherever  CFC  shall  have  requested,  all in
accordance with applicable law, and the Borrower shall have caused  satisfactory
evidence thereof to be furnished to CFC.

     F. Special  Conditions.  The Borrower shall have complied `with any special
conditions listed in Schedule 1 hereto.

     G.  Requisitions.  The Borrower will requisition all Advances by submitting
its requisition to CFC in form and substance  satisfactory to CFC.  Requisitions
shall be made only for the purpose(s) set forth herein.  The Borrower  agrees to
apply the proceeds of the Advances in accordance with its loan  application with
such modifications as may be mutually agreed.


<PAGE>



                                   ARTICLE IV
                              AFFIRMATIVE COVENANTS

          Section 5. After the date hereof and until payment in full of the Note
and  performance  of all  obligations  of the Borrower  hereunder,  the Borrower
agrees that it will:

          A.      Membership. Remain a member in good standing of CFC.

          B. Financial Ratios; Design of Rates. The Borrower,  subject to events
in the  judgment  of CFC to be beyond  the  control  of the  Borrower,  shall so
operate  and manage its  business as (i) to achieve a DSC of not less than 1.35,
said ratio being  determined by averaging  the two highest  annual ratios during
the most recent  three  calendar  years and (ii) to achieve a ratio of Equity to
Total  Assets of not less than 20~ as of December 31 of each year.  The Borrower
shall  design its rates so that such DSC ratio will be  achieved.  The  Borrower
shall not  decrease  its rates if it has failed to achieve a DSC of 1.35 for the
calendar year prior to such reduction subject only to an order from a regulatory
body properly exercising jurisdiction over the Borrower.

     C.  Annual  Certificates.  Within  ninety (90) days after the close of each
calendar year,  commencing with the year following the year in which the initial
Advance  hereunder  shall  have been made,  deliver  to CFC a written  statement
signed by its General  Manager,  stating that during such year,  and that to the
best  of  said  person's  knowledge,  the  Borrower  has  fulfilled  all  of its
obligations  under this  Agreement,  the Note, and the Mortgage  throughout such
year or, if there has been a default in the fulfillment of any such obligations,
specifying  each such  default  known to said  person  and the nature and status
thereof, In addition,  the Borrower shall deliver to CFC within ninety (90) days
of CFC's  written  request,  which shall be no more  frequently  than once every
year, a certification  regarding the condition of the Mortgaged Property both in
a form and prepared by a professional engineer satisfactory to CFC.

     D. Notice of Change in Place of Business. Notify promptly CFC in writing of
any change in location of its  principal  place of business or the office  where
its records concerning accounts and contract rights are kept.

          E. Loan  Certificate  Purchase.  purchase an LCTC, if required,  in an
amount not to exceed three percent of the face amount of the Note.  The purchase
price of the  LCTC,  if any,  shall  be  calculated  at The time of the  initial
Advance on the loan pursuant to CFC's policies as established  from time to time
for  loans  similarly  classified.  Such  purchase  shall  be paid  for in equal
quarterly  installments  after the date of the initial Advance pursuant to CFC's
policies.  CFC agrees to deliver the LCTC within ninety days  following the date
on which the LCTC has been paid for in full.

          F.  Limitations  on: System  Extensions and Additions;  Operations and
Maintenance Contracts; Power Purchase Contracts;  Power Sales Contracts.  Unless
the  Borrower  shall at the time  have an  Equity  of at least 30 or shall  have
achieved a DSC of at least  1.35 for each of the last two  calendar  years,  the
Borrower will not, without the prior written consent of CFC (a) construct, make,
lease,  purchase or otherwise  acquire any extensions or additions to its system
which provide direct service to any ultimate  consumer  having an anticipated or
contract demand in excess of twenty-five (25) percent of the Borrower's  maximum
system electrical demand recorded during the past twelve months;  (b) enter into
any  contract or  contracts  for the sale to the  ultimate  consumer of electric
power and energy in excess of twenty-five (25) percent of the Borrower's maximum
system  demand for the prior  year;  (c(  subject to the terms of the  Mortgage,
enter  into  any  contract  or  contracts  for  the  use by  others  of all or a
substantial part of its property; and (d) enter into any


<PAGE>






contract or contracts  for the purchase of electric  power or energy which would
alter the source for the prior year of more than 251 of the Borrower's source of
wholesale power or for any transmission interconnection or pooling arrangements.

          G.  Financial  Books;  Financial  Reports;  Right of  Inspection.  The
Borrower will at all times keep, and safely preserve,  proper books, records and
accounts  in which full and true  entries  will be made of all of the  dealings,
business and affairs of the Borrower,  in accordance  with generally  acceptable
accounting  principles.  When  requested by CFC,  the Borrower  will prepare and
furnish  CFC from time to time  hereunder  not  later  than the last day of each
month financial and statistical  reports on its condition and operations for the
previous month.  Such reports shall be in such form and include such information
as may be  specified  by  CFC,  including  without  limitation  an  analysis  of
Borrower's revenues,  expenses and consumer accounts. The Borrower will cause to
be prepared  and  furnished  to CFC from time to time  hereunder,  at least once
during each 12-month  period during the term hereof,  a full and complete report
of its financial  condition and of its  operations as of the end of the calendar
year in form  and  substance  satisfactory  to CFC,  audited  and  certified  by
independent  certified  public  accountants  nationally  recognized or otherwise
satisfactory  to CFC and  accompanied  by a  report  of such  audit  in form and
substance satisfactory to CFC. Such report shall be furnished within 120 days of
the end of the such calendar year. CFC,  through its  representatives,  shall at
all times during reasonable business hours and upon prior notice have access to,
and the right to inspect  and make  copies of,  any or all  books,  records  and
accounts, and any or all invoices, contracts, leases, payrolls, canceled checks,
statements  and other  documents and papers of every kind belonging to or in the
possession of the Borrower or in anyway pertaining to its property or business.

          H.  Limitations  on Mergers  and Sale,  Lease or  Transfer  of capital
Assets;  Application of Proceeds.  Without the prior written consent of CFC, the
Borrower will not consolidate  with, or merge, or sell all or substantially  all
of its business or assets,  to another entity or person.  If no Event of Default
(and no event  which  with  notice or lapse of time and notice  would  become an
Event of Default) shall have occurred and be continuing,  Borrower may,  without
the prior written  consent of CFC, sell,  lease or transfer any capital asset in
exchange for fair market value  consideration  paid to the Borrower if the value
of such capital  asset is less than 5% of Total  Utility Plant and the aggregate
value of capital assets sold,  leased or  transferred in any 12-month  period is
less than 10% of Total Utility Plant.  Subject to the terms of the Mortgage,  if
the Borrower does sell, lease or transfer any capital assets,  then the proceeds
thereof (less ordinary and  reasonable  expenses  incident to such  transaction)
shall  immediately  (i)  be  applied  as a  prepayment  of  the  Note,  to  such
installments  as may be  designated  by CFC at the tome of any such  prepayment;
(ii) on the case of dispositions of equipment, material or scrap, applied to the
purchase of other  property  useful on the  Borrower's  business,  although  not
necessarily of the same kind as the property  disposed of, which shall forthwith
become subject to the lien of the Mortgage;  or (iii) applied to the acquisition
or  construction  of other  property  or in  reimbursement  of the costs of such
property.

          I.  Limitation  on  Dividends,   Patronage   Refunds  and  Other  Cash
Distributions,  Without the prior written consent of CFC, the Borrower will not,
in any calendar year,  declare or pay any dividends,  or pay or determine to pay
any patronage  refunds,  or retire any patronage  capital or make any other cash
distributions  (such dividends,  refunds,  retirements  and-other  distributions
being  hereinafter  collectively  called  "Distributions")  -  to  its  members,
stockholders  or consumers if after giving effect to any such  Distribution  the
total  Equity of the  Borrower  will not equal or exceed 30% of its total assets
and  other  debits;  provided,  however,  the  Borrower  may make  Distributions
(exclusive of any Distributions to the estates of deceased


<PAGE>



patrons)  up to an  amount  not in excess of 25% of the  Patronage  Capital  and
Margins of the Borrower in the preceding year; provided,  further, however, that
in no event will the Borrower make any Distributions if there is unpaid when due
any  installment of principal of (premium,  if any) or interest on its Notes, if
the Borrower is otherwise in default hereunder or if, after giving effect to any
such Distribution, the Borrower's total current and accrued assets would be less
than its total current and accrued liabilities.  For the purpose of this section
a "cash  distribution"  shall be deemed to include any general  cancellation  or
abatement of charges for electric energy or services  furnished by the Borrower,
but not the repayment of a membership  fee upon  termination of a membership and
not the rebate of an  abatement  of costs  incurred by the  Borrower,  such as a
reduction of wholesale power cost previously incurred,

          J.  Limitations  on  Loans,  Investments  and Other  Obligations.  The
Borrower will not, without the prior written consent of CFC,  hereafter make any
loan or  advance  to,  or make  any  investment  in,  or  purchase  or make  any
commitment  to  purchase  any stock,  bonds,  notes or other  securities  of, or
guaranty,  assume or  otherwise  become  obligated or liable with respect to the
obligations of, any other person, firm or corporation,  except (i) securities or
deposits issued,  guaranteed or fully insured as to payment by the United States
Government  or any agency  thereof,  (ii)  capital  term  certificates  or other
securities  of CFC,  (iii)  capital  credits,  (iv) loans,  deposits,  advances,
investments,  securities  and  obligations  which the Borrower has, prior to the
date hereof,  committed itself to make,  purchase or undertake,  as the case may
be, and as to which CFC has provided the Borrower with written approval prior to
the date  hereof,  and (v) such other  loans,  guarantees,  deposits,  advances,
investments  and  obligations as may from time to time to be made,  purchased or
undertaken  by the  Borrower,  provided,  however,  that the  aggregate  cost of
investments,  plus the total  unpaid  principal  amount  of  loans,  guarantees,
deposits, advances and obligations, permitted under this clause (v) shall not in
the  aggregate at any time exceed the greater of 10% of Total  Utility  Plant or
50% of total Equities and Margins.

     K. Special  Affirmative  Covenants.  The Borrower agrees to comply with any
special affirmative covenant(s) identified in Schedule 1 hereto.


                                   ARTICLE VI

                                EVENTS OF DEFAULT

     Section 6. The following shall be Events of Default under this Agreement;

     A.  Representations and Warranties.  Any representation or warranty made by
the Borrower in Article II hereof or any certificate  furnished to CFC hereunder
shall prove to have been incorrect on any material  respect at the time made and
shall at the time in question be untrue or Incorrect in any material respect and
remain uncured;

     B.  Payment.  Default  shall be made in the  payment  of or on  account  of
interest  on or  principal  of the Note  when  and as the same  shall be due and
payable,  whether by acceleration or otherwise,  which shall remain  unsatisfied
far five (5) Business Days;

     C.  Other  Covenants.   Default  by  the  Borrower  in  the  observance  or
performance of any other covenant or agreement contained in this Loan Agreement,
in the Note or the Mortgage,  which shall remain unremedied for 60 calendar days
after written notice thereof shall have been given to the Borrower by CFC;


<PAGE>




     D. Corporate Existence. The Borrower shall forfeit or otherwise be deprived
of its corporate charter, franchises,  permits, easements,  consents or licenses
required to carry on any material portion of its business;

     E.  Other  Obligations.  Default  by the  Borrower  In the  payment  of any
obligation,  whether  direct  or  contingent,  for  borrowed  money  or  in  the
performance or observance of the terms of any instrument  pursuant to which such
obligation was created or securing such obligation;

     F.  Bankruptcy.  A court having  jurisdiction in the premises shall enter a
decree or order for relief in respect of the  Borrower  in an  involuntary  case
under  any  applicable  bankruptcy,  insolvency  or  other  similar  law  now or
hereafter in effect, or appointing a receiver, liquidator,  assignee, custodian,
trustee,  sequestrator  or  similar  official,  or  ordering  the  winding up or
liquidation of its affairs,  and such decree or order shall remain  unstayed and
in effect for a period of ninety (90)  consecutive  days or the  Borrower  shall
commence a voluntary case under any applicable  bankruptcy,  insolvency or other
similar law now or hereafter in effect, or under any such law, or consent to the
appointment or taking possession by a receiver, liquidator,  assignee, custodian
or  trustee,  of a  substantial  part  of its  property,  or  make  any  general
assignment for the benefit of creditors; or

          C. Dissolution or Liquidation. Other than as provided in subsection R.
above,  the  dissolution  or  liquidation  of the  Borrower,  or  failure by the
Borrower  promptly  to  forestall  or  remove  any  execution,   garnishment  or
attachment  of such  consequence  as will  impair its  ability to  continue  its
business  or  fulfill  its  obligations  and  such  execution,   garnishment  or
attachment  shall  not be  vacated  within  30 days.  The term  "dissolution  or
liquidation of the Borrower", as used in this subsection, shall not be construed
to include the  cessation of the corporate  existence of the Borrower  resulting
either  from a merger or  consolidation  of the  Borrower  into or with  another
corporation  following a transfer of all or  substantially  all its assets as an
entirety, under the conditions permitting such actions.

                                   ARTICLE VII

                                    REMEDIES

          Section 7. If any of the Events of Default  listed in Section 6 hereof
shall occur after the date of this  Agreement and shall not have been  remedied,
then  CFC  may  pursue  all  rights  and  remedies  available  to CFC  that  are
contemplated  by  this  Agreement  or the  Mortgage  in  the  manner,  upon  the
conditions,  and with the effect  provided in this  Agreement  or the  Mortgage,
including,  but not  limited  to, a suit for  specific  performance,  injunctive
relief or  damages.  Nothing  herein  shall limit the right of CFC to pursue all
right; and remedies available to a creditor following the occurrence of an Event
of Default listed on Section 5 hereof. Each right, power and remedy of CFC shall
be  cumulative  and  concurrent,  and recourse to one or more rights or remedies
shall not constitute a waiver of any other right, power or remedy.


<PAGE>






                                  ARTICLE VIII
                                  MISCELLANEOUS

          Section 8.1. Notices.  All notices,  requests and other communications
provided for herein  including,  without  limitation,  any  modifications of, or
waivers,  requests or consents  under,  this Agreement shall be given or made in
writing  (including,  without  limitation,  by  telecopy)  and  delivered to the
intended  recipient at the "Address for Notices"  specified below; or, as to any
party, at such other address as shall be designated by such party in a notice to
each other  party.  Except as  otherwise  provided in this  Agreement,  all such
communications  shall be  deemed to have been duly  given  when  transmitted  by
telecopier or  personally  delivered  or, in the case of a mailed  notice,  upon
receipt, in each case given or addressed as provided for herein. The Address for
Notices of the respective parties are as follows:

                                             National Rural Utilities
                                             Cooperative Finance Corporation
                                             Woodland Park
                                             2201 Cooperative Way
                                             Herndon, Virginia 22071
                                             Fax:     (703) 709-5776

     Attention: Governor The Borrower:

                   The address set forth in Schedule 1 hereto

          Section 8.2. Expenses. The Borrower will pay all costs and expenses of
CFC,  including  reasonable  fees of counsel,  incurred in  connection  with the
enforcement of this Agreement,  the Note, the Mortgage and the other instruments
provided  for herein or with the  preparation  for such  enforcement  if CFC has
reasonable grounds to believe that such enforcement may be necessary.

          Section 8.3. Late Payments.  If payment of any amount due hereunder is
not received at CFC's office in Herndon, Virginia, or such other location as CFC
may  designate to the Borrower  within five (5) Business Days after the due date
thereof or such other time period as CFC may prescribe  from time to time in its
policies of general application in connection with any late payment charge (such
unpaid  amount  being  herein  called the  `delinquent  amount",  and the period
beginning  after such due date  until  payment of the  delinquent  amount  being
hereon  called the  "late-payment  period"),  the  Borrower  will pay to CFC, in
 .addition to all other amounts due under the terms of the Note, the Mortgage and
this Agreement, any late-payment charge as may be fixed by CFC from time to time
on the delinquent amount for the late-payment period.

          Section 8.4. Filing Fees. To the extent permitted by law, the Borrower
agrees  to pay all  expenses  of CFC  (including  the fees and  expenses  of its
counsel)  in  connection  with  the  filing  or  recordation  of  all  financing
statements  and  instruments  as may be required by CFC in connection  with this
Agreement,  including,  without limitation,  all documentary stamps, recordation
and  transfer  taxes and other costs and taxes  incident to  recordation  of any
document or instrument in connection herewith.  Borrower agrees to save harmless
and indemnify CFC from and against any liability  resulting  from the failure to
pay any required documentary stamps,  recordation and transfer taxes,  recording
costs, or any other expenses  incurred by CFC in connection with this Agreement.
The  provisions of this  subsection  shall survive the execution and delivery of
this  Agreement and the payment of all other amounts due hereunder or due on the
Note.


<PAGE>







          Section 8.5. Ho Waiver. No failure on the part of CFC to exercise, and
no delay in exercising,  any right  hereunder  shall operate as a waiver thereof
nor shall any single or partial exercise by CFC of any right hereunder  preclude
any other or further exercise thereof or the exercise of any other right.

     SECTION 8.6.  GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE DEEMED TO
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE  WITH, THE LAWS OR THE  COMMONWEALTH
OR VIRGINIA,

          Section  8.7,  Holiday  Payments.  If any  payment  to be  made by the
Borrower  hereunder  shall become due on a day which is not a Business Day, such
payment shall be made on the next succeeding  Business Day and such extension of
time shall be included in computing any interest in respect of such payment.

     Section  8.8.  Rescission  Fee. The Borrower may elect not to borrow all or
any portion of the CFC  Commitment in which event CFC shall release the Borrower
from its obligations  hereunder,  provided the Borrower complies with such terms
and conditions as CFC may impose for such release including, without limitation,
payment of any rescission fee that CFC may from time to time prescribe.

     Section 8.9.  Modifications.  No modification or waiver of any provision of
this  Agreement  or the  Note,  and no  consent  to any  departure  by  Borrower
therefrom,  shall in any event be effective  unless the same shall be in writing
by the party granting such modification, waiver or consent.

     Section  8.10.  Merger and  Integration.  This  Agreement  and the attached
exhibits and matters  incorporated by reference  contain the entire agreement of
the parties  hereto with  respect to the  matters  covered and the  transactions
contemplated  hereby.  Section  8.11.  Headings.  The headings and  sub-headings
contained  in the  titling  of  this  Agreement  are  intended  to be  used  for
convenience only and do not constitute part of this Agreement.

          Section 8.12.  Severability.  If any term, provision or condition,  or
any part  thereof,  of this  Agreement or the  Mortgage  shall for any reason be
found or held invalid or unenforceable  by any  governmental  agency or court of
competent jurisdiction, such invalidity or unenforceability shall not affect the
remainder of such term,  provision or condition nor any other term, provision or
condition,  and this Agreement,  the Note, and the Mortgage shall survive and be
construed as af such invalid or unenforceable  term,  provision or condition had
not been contained therein.

          Section  8.13.  Right of Setoff.  upon the  occurrence  and DURING the
continuance  of any Event of Default,  CFC is hereby  authorized at any time and
from time to time,  without prior notice to the Borrower,  to exercise rights of
setoff or recoupment  and apply any and all amounts held, or hereafter  held, by
CFC or owed to the Borrower or for the credit or account of the Borrower against
any  and  all of the  obligations  of the  Borrower  now or  hereafter  existing
hereunder or under the Note.  CFC agrees to notify the Borrower  promptly  after
any such setoff or recoupment  and the  application  thereof,  provided that the
failure  to give such  notice  shall not  affect the  validity  of such  setoff,
recoupment or application.  The rights of CFC under this section are in addition
to  any  other  rights  and  remedies  (including  other  rights  of  setoff  or
recoupment) which CFC may have. Borrower waives all rights of setoff, deduction,
recoupment or counterclaim.

     Section 8.14. Schedule 1. schedule 1 attached hereto is an integral part of
this Agreement.


<PAGE>










Section 8.15 Prior Loan Documents, It is understood and agreed that with respect
to all long-term loan agreements  previously entered into by and between CFC and
Borrower and all  promissory  notes  thereto  secured  under the Mortgage  (both
hereinafter  being referred to as "PriorLoan  Documents")  the Borrower shall be
required,  after the date hereof,  to meet reporting and financial  covenants as
set forth in this  Agreement  :rather  than  those  set forth in the Prior  Loan
Documents.  In the event of any conflict  between any  reporting  and  financial
covenant set forth in a Prior Loan  Document  and any  reporting  and  financial
covenant in this  Agreement,  the  requirements  as set forth in this  Agreement
shall apply.  Nothing in this section  shall,  however,  eliminate or modify any
special condition, special affirmative covenant or special negative covenant, if
any, unless specifically agreed to in writing by CFC. Furthermore,  the interest
rate  options  available  to  Borrower  as set  forth  in this  Agreement  shall
supersede the interest rate options as set forth in any Prior Loan Documents.


<PAGE>




          IN WITNESS  WHEREOF,  the parties hereto have caused this Agreement to
be duly executed as of the day and year first, above written.


                                            CAP ROCK ELECTRIC COOPERATIVE, INC.
          (SEAL)
                                            By:  /s/ Russell E. Jones
                                            Russell E. Jones
                                            Chairman of the Board

Attest:  /s/ Alfred Schwartz
Secretary

            NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION
(SEAL)

                                            By:  /s/ Not Legible
                                            For Governor

Attest:  /s/ Not Legible
Assistant Secretary-Treasurer



<PAGE>




                                   SCHEDULE 1


1.   The purpose of this loan is to refinance investments by the Borrower in its
     subsidiary,  New West  Resources.  and .loans  extended by the  Borrower or
     guaranteed by the Borrower in connection with New West Resources.

2.        The  Mortgage  shall mean the Second  Restated  Mortgage  and security
          Agreement, dated as of even date with this Loan Agreement, between the
          Borrower  and  CFC,  as it may have  been or  shall  be  supplemented,
          amended, consolidated, or restated from time to time..

3.   The date of the  Borrower's  balance  sheet  referred to in Section 2.D. is
     March 31, 1994.

4.        The principal place of business of the Borrower referred to in Section
          2.E.     is 500 West Wall, Suite 400, Midland, Texas 79701.

5.        All of the  property  of the  Borrower  is located in the  counties of
          Andrews,  Borden, Collin,  Dawson, Ector, Rannin,  Risher,  Glasscock,
          Howard, Hunt, Iricn, Martin, Midland, Mitchell, Nolan, Reagan, Scurry,
          Sterling, Tom Green and Lipton in the State of Texas.

6.       The governmental authority referred to in Section 2.H. is not
          applicable.

7.       The Borrower selects the following Note:
<TABLE>
<S>            <C>                             <C>                                         <C>

 --------------------------------------------------------------------------------------------------------------------
                 Loan                                 Note                                  Note Term Maturity
             Designation                              Amount                            Date
 --------------------------------------------------------------------------------------------------------------------
 --------------------------------------------------------------------------------------------------------------------
                A-9043                                $15,000,000.                       October       , 2005     I
 --------------------------------------------------------------------------------------------------------------------
</TABLE>

8.        The Payment Date months are February, May, August, and November.

     9. Amortization of Advances shall be based upon the method indicated below:

                                                      level principal

                                                      level debt service

                                    XX                other

10.       The special condition(s) referred to in Section 4F. is (are)

          (a)      The  obligation  of CFC to make any  Advance  is  subject  to
                   receipt  by  CFC  of an  annual  financial  statement  of the
                   Borrower  for its fiscal year ending  March 31,  1995,  which
                   financial statement shall be audited by Arthur Anderson & Co.
                   and shall  otherwise be satisfactory in form and substance to
                   CFC.

     11. The special  affirmative  covenant(s)  referred  to in Section  5.K. is
(are) as follows:

          (a)      In addition to the annual payments of principal  described in
                   Section 3.2 )A), within thirty (30) days of receipt by any of
                   the Borrower, New West Resources or other affiliated entities
                   of any cash  payment as a result of any of their  investments
                   in or loans  extended to Araxas Energy  Corporation,  whether
                   such cash is paid for purposes of repaying debt, repurchasing
                   stock,  making dividends or other  distributions,  or for any
                   other reason


<PAGE>




     whatsoever,  the  Borrower  shall  pay to CFC an equal  amount  of cash for
application by CFC to the prepayment of the principal amount of the Note.

          (b)      During the term of the Loan,  the Borrower  shall  deliver to
                   CFC   monthly   operating   statements   for  Araxas   Energy
                   Corporation,  New West Resources and the Borrower  before the
                   twentieth  day  of  the  month  following  the  month  of the
                   statement.

     1.2.  The address of the  Borrower  referred to in Section 8.1. is 500 West
Wall, Suite 400, Midland, Texas 79701.

13.       Notwithstanding anything contained in Section 3.4 to the contrary, any
          prepayment  of the  principal  amount  of the Note  made  pursuant  to
          Affirmative  Covenant  11(a) of this  Schedule I shall be permitted by
          CFC without payment of any prepayment premium.


<PAGE>




                             SECURED PROMISSORY NOTE


     a corporation  ("Borrower"),  for value received  promises to pay,  without
setoff,  deduction,  recoupment or counterclaim,  to the order of NATIONAL RURAL
UTILITIES  COOPERATIVE FINANCE CORPORATION  ("Payee") at the Payee's main office
or such other place as  designated  by the Payee,  in lawful money of the United
States, the sum of the aggregate unpaid principal amount of all Advances made by
the  Payee  pursuant  to the Loan  Agreement,  dated as of even  date  herewith,
between  the  Borrower  and the Payee as may be  amended  from time to time (the
"Loan  Agreement"),  on the dates provided in the Loan Agreement (except that if
not sooner paid,  any balance shall be due and payable on a date years after the
date hereof,  such date being the Maturity Date) , with interest thereon in like
money  from  the  respective  dates  of each  Advance  (as  defined  in the Loan
Agreement) hereunder,  at the rate or rates and payable at the times provided in
said Loan  Agreement  together  with any  other  amount  payable  under the Loan
Agreement.

     This Note is secured  under a Mortgage and Security  Agreement  dated as of
between  the  Borrower  and  the  Payee,  as  it  may  have  been  or  shall  be
supplemented, amended, consolidated or restated from time to time ("Mortgage") .
This  Note is the Note  referred  to in,  and has been  executed  and  delivered
pursuant to, the Loan Agreement.

          The principal hereof and interest accrued thereon and any other amount
due under the Loan  Agreement may be declared to be forthwith due and payable in
the mariner,  upon the conditions,  and with the effect provided in the Mortgage
or the Loan Agreement.

          The  Borrower  waives  demand,  presentment  for  payment,  notice  of
dishonor, protest, notice of protest, and notice of non-payment of this Note.

          IN WITNESS  WHEREOF the  Borrower has caused this Note to be signed in
its  corporate  name and its  corporate  seal to be  hereunto  affixed and to be
attested by its duly authorized officers, all as of the day and year first above
written.

  -------------------------------
                                 (Name of Borrower)
          (SEAL)
                               By:
                               ------------------------------
                                (President)
          Attest: _
          ------------------------------
          (Secretary)

          Loan No.:
          ------------------------------