Document:

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                                                                    EXHIBIT 10.2

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                                RESTATED MORTGAGE

                                       AND

                               SECURITY AGREEMENT

                               Made By And Between

                       CAP ROCK ELECTRIC COOPERATIVE, INC.
                                    Mortgagor

                                       and

                            NATIONAL RURAL UTILITIES
                         COOPERATIVE FINANCE CORPORATION
                                    Mortgagee

                         Dated as of September 21, 1988

THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY AND SECURES FUTURE
ADVANCES MADE BY THE MORTGAGEE TO THE MORTGAGOR AND FUTURE OBLIGATIONS OF THE
MORTGAGOR TO THE MORTGAGEE.

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CFC Electric Mortgage for Non-REA Borrowers

CFC Form C48 Mortgage
Class A Member - Distribution, Non-REA Borrower
Rev. 9/91

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                                TABLE OF CONTENTS

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                                                                           Page
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                                ARTICLE I

SECTION 1.01 Definitions                                                     2

SECTION 1.02 Construction                                                    6

                                   ARTICLE II
                                    SECURITY

SECTION 2.01 Granting Clause                                                 6

                                   ARTICLE III
                                ADDITIONAL NOTES

SECTION 3.01 Additional Notes                                                9

                                   ARTICLE IV
                      PARTICULAR COVENANTS OF THE MORTGAGOR

SECTION 4.01 Authority to Execute and Deliver Notes and Mortgages;
                All Action Taken; Enforceable Obligations                    9

SECTION 4.02 Authority to Mortgage Property; No Liens; Exception
                for Permitted Encumbrances; Mortgagor to Defend
             Title and Remove Liens                                         10

SECTION 4.03 No Encumbrances on Property                                    10

SECTION 4.04 Additional Permitted Debt                                      10

SECTION 4.05 Payment of Notes                                               11

SECTION 4.06 Preservation of Corporate Existence and Franchises;
                Compliance with Laws; Limitations on Mergers and
             Transfers of Capital Assets                                    11

SECTION 4.07 Maintenance of Mortgaged Property                              12

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                          TABLE OF CONTENTS, Continued

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SECTION 4.08 Insurance; Restoration of Damaged Mortgaged
                Property                                                    13

SECTION 4.09 Mortgagee Right to Expend Money to Protect
                Mortgaged Property                                          14

SECTION 4.10 Limitations on: System Extensions and Additions;
                Operations and Maintenance Contracts; Power
             Purchase Contracts; Power Sales Contracts                      14

SECTION 4.11 Financial Books; Financial Reports; Mortgagee Right
                of Inspection                                               15

SECTION 4.12 Further Assurances to Confirm Security of
                Mortgage                                                    15

SECTION 4.13 Time Extensions for Payment of Notes                           15

SECTION 4.14 Achievement of Times Interest Earned Ratio and
                Debt Service Coverage; Design of Rates                      16

SECTION 4.15 Limitation on Dividends, Patronage Refunds and Other
                Cash Distributions                                          16

SECTION 4.16 Application of Proceeds from Condemnation                      16

SECTION 4.17 Compliance with Loan Agreements; Notice of Amendments
                to, and Defaults under, Loan Agreements and Certain
                Other Agreements; Terms of Mortgage to Govern               17

SECTION 4.18 Notice of Change in Place of Business                          17

SECTION 4.19 Rights of Way, etc., Necessary in Business                     17

SECTION 4.20 Limitations on Loans, Investments and Other
                Obligations                                                 17

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                          TABLE OF CONTENTS, Continued

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                                    ARTICLE V
                    REMEDIES OF THE MORTGAGEE AND NOTEHOLDERS

SECTION 5.01 Events of Default                                              18

SECTION 5.02 Acceleration of Maturity; Recision and Amendment               18

SECTION 5.03 Remedies of Mortgagee and Noteholders                          19

SECTION 5.04 Application of Proceeds from Remedial Actions                  21

SECTION 5.05 Remedies Cumulative; No Election                               21

SECTION 5.06 Waiver of Appraisement Rights                                  21

SECTION 5.07 Notice of Default                                              21

                                   ARTICLE VI
                  POSSESSION UNTIL DEFAULT - DEFEASANCE CLAUSE

SECTION 6.01 Possession Until Default                                       22

SECTION 6.02 Defeasance                                                     22

                                   ARTICLE VII
                                  MISCELLANEOUS

SECTION 7.01 Property Deemed Real Property                                  22

SECTION 7.02 Mortgage to Bind and Benefit Successors and Assigns            22

SECTION 7.03 Headings                                                       23

SECTION 7.04 Notices                                                        23

SECTION 7.05 Severability                                                   23

SECTION 7.06 Mortgage Deemed Security Agreement                             23

SECTION 7.07 Indemnification by Mortgagor of Mortgagee                      24

APPENDIX A

APPENDIX B
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         THIS RESTATED MORTGAGE AND SECURITY AGREEMENT, dated as of September
21, 1988 (hereinafter sometimes called this "Mortgage") is made by and
between CAP ROCK ELECTRIC COOPERATIVE, INC. (hereinafter called the
"Mortgagor"), a corporation existing under the laws of the State of Texas,
(herein after called the "State") and NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION (hereinafter called "CFC" or the "Mortgagee"), a
corporation existing under the laws of the District of Columbia.

                                    RECITALS

         WHEREAS, the Mortgagor and CFC are parties to that certain
Supplemental Mortgage and Security Agreement dated as of May 15, 1973, as
supplemented (the "Original Mortgage" identified in Appendix "A" of this
Mortgage), originally entered into between the Mortgagor and the United
States of America acting by and through the Administrator of the Rural
Electrification Administration (hereinafter the "REA") and CFC; and

         WHEREAS, the Mortgagor has prepaid all of its outstanding
indebtedness to the REA secured by the Original Mortgage and the REA has
released of record all of its Liens under the Original Mortgage; and

         WHEREAS, pursuant to the terms of the Original Mortgage, CFC has
succeeded to all of the rights and obligations of the REA under the Original
Mortgage; and

         WHEREAS, the parties agree that in order to achieve certain of the
Mortgagor's purposes in prepaying its obligations to the REA including the
ability to have greater flexibility in its operations and financing, this
Restated Mortgage and Security Agreement restates and consolidates the
Original Mortgage while preserving the priority of CFC's Liens under the
Original Mortgage securing the payment of the Mortgagor's outstanding secured
indebtedness to CFC, which indebtedness is described more particularly in
Appendix "A"; and

         WHEREAS, the Mortgagor and CFC are authorized to enter into this
Mortgage;

         NOW, THEREFORE, this Mortgage

                              W I T N E S S E T H:

         That the parties hereto, in consideration of the mutual covenants
contained herein, do agree as follows

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.01. DEFINITIONS In addition to the terms elsewhere defined
in this Mortgage, the terms defined in this Article I shall have the meanings
herein specified and/or under the applicable Uniform Commercial Code, unless
the context clearly requires otherwise. The terms defined herein include the
plural as well as the singular and the singular as well as the plural.

                                       1
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         ACCOUNT NUMBER of the Uniform System of Accounts shall mean such
Account Number included in the Uniform System of Accounts.

         ADDITIONAL NOTES shall mean any Notes issued by the Mortgagor to CFC
or any other lender pursuant to Article III of this Mortgage including any
refunding, rearrangement, renewal, or substitute Notes which may from time to
time be executed and delivered by the Mortgagor pursuant to the terms of
Article III.

         CFC is defined in the recitals to this Mortgage.

         CFC NOTES shall mean the Original CFC Notes and any Additional Notes
issued by the Mortgagor to CFC.

         DEBT SERVICE COVERAGE RATIO ("DSC") shall mean the ratio determined
as follows: for each Calendar Year add (i) Patronage Capital or Margins of
the Mortgagor, (ii) Interest Expense (as computed in accordance with the
principles set forth in the definition of Times Interest Earned Ratio herein)
of the Mortgagor and (iii) Depreciation and Amortization Expense of the
Mortgagor, and divide the total so obtained by an amount equal to the sum of
all payments of principal and interest required to be made on account of
Total Long-Term Debt during such Calendar Year; PROVIDED, HOWEVER, that in
the event that any Long-Term Debt (being any amount included in Total
Long-Term Debt computed as provided above) has been refinanced during such
year the payments of principal and interest 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 (i)
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 required to be made
during the following year on account of such refinancing debt.

         DEPRECIATION AND AMORTIZATION EXPENSE shall mean an amount
constituting the depreciation and amortization of the Mortgagor as computed
for purposes of Line A.12 of Form 7.

         DISTRIBUTIONS shall have the meaning specified in Section 4.16
hereof.

         EQUITIES AND MARGINS shall mean Equities and Margins as such terms
are defined in the Uniform System of Accounts.

         EQUITY shall mean the aggregate of Equities and Margins.

         EVENTS OF DEFAULT shall have the meaning specified in Section 5.01
hereof.

         EXCEPTED PROPERTY shall have the meaning specified in Section 2.01.

         FISCAL YEAR shall mean the fiscal year of the Mortgagor.

         FORM 7 shall mean the 10-86 revision of REA Form 7; or the
corresponding form prescribed at the time by REA, or, if no such form is
applicable to the accounts of the Mortgagor, such reference shall apply to
the corresponding information otherwise determined in a comparable manner.

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         INTEREST EXPENSE shall mean an amount constituting the interest
expense of the Mortgagor as computed for purposes of Line A.15 of REA Form 7.

         LIEN shall mean any statutory or common law consensual or
non-consensual mortgage, pledge, security interest, encumbrance, lien, right
of set off, claim or charge of any kind, including, without limitation, any
conditional sale or other title retention transaction, any lease transaction
in the nature thereof and any secured transaction under the Uniform
Commercial Code of any jurisdiction.

         LOAN AGREEMENTS shall mean any loan agreement executed by and
between the Mortgagor and CFC in connection with the execution and delivery
of any Additional Notes and any loan agreement between the Mortgagor and any
other Noteholder hereunder.

         LONG-TERM DEBT shall mean any amount included in Total Long-Term
Debt pursuant to the Uniform System of Accounts.

         LONG-TERM LEASES shall mean leases having unexpired terms (taking
into account terms of renewal at the option of the lessor, whether or not
such leases have theretofore been renewed) of more than 12 months.

         MAXIMUM DEBT LIMIT, if any, shall mean the amount more particularly
described in Appendix "A" hereto.

         MORTGAGED PROPERTY shall have the meaning specified in Section 2.01
hereof.

         MORTGAGEE shall mean CFC, its successor and assigns and any other
Note-holder.

         NOTE OR NOTES shall mean one or more of the CFC Notes, and any other
Notes which pursuant to Article III may, from time to time, be secured under
this Mortgage.

         NOTEHOLDER OR NOTEHOLDERS shall mean one or more of the holders of
Notes secured by this Mortgage.

         ORIGINAL CFC NOTES shall mean the Notes evidencing outstanding
indebtedness of the Mortgagor to CFC on the date of this Mortgage, listed on
Appendix "A" hereto.

         OUTSTANDING shall mean all Notes heretofore issued as of the date of
determination except Notes the principal and interest on which have been
fully paid and which have been canceled by the Noteholder or Notes the
payment for which has been provided for pursuant to Section 6.02.

         PATRONAGE CAPITAL OR MARGINS shall mean the amount of net patronage
capital or margins of the Mortgagor as computed for purposes of Line A.27 of
Form 7 minus the amount which is the sum of Lines A.24 and A.25 of Form 7
plus the total of cash received from patronage capital retirements.

         PERMITTED DEBT shall have the meaning specified in Section 4.04.

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         PERMITTED ENCUMBRANCES shall mean: (i) any Liens for taxes,
assessments or governmental charges for the current year and taxes,
assessments or governmental charges not due and delinquent; (ii) Liens for
workmen's compensation awards and similar obligations not then delinquent;
(iii) mechanics', laborers', materialmen's and similar Liens not then
delinquent, and any such Liens, whether or not delinquent, whose validity is
at the time being contested in good faith; (iv) Liens and charges incidental
to construction or current operation which have not been filed or asserted or
the payment of which has been adequately secured or which, in the opinion of
counsel to the Mortgagor are insignificant in amount; (v) Liens, securing
obligations not assumed by the Mortgagor and on account of which it does not
pay and does not expect to pay interest, existing upon real estate (or rights
in or relating to real estate) over or in respect of which the Mortgagor has
a right-of-way or other easement for substation, transmission, distribution
or other right-of-way purposes; (vi) any right which the United States of
America or any state or municipality or governmental body or agency may have
by virtue of any franchise, license, contract or statute to purchase, or
designate a purchaser of, or order the sale of, any property of the Mortgagor
upon payment of reasonable compensation therefor, or upon reasonable
compensation or conditions to terminate any franchise, license or other
rights before the expiration date hereof or to regulate the property and
business of the Mortgagor; (vii) attachment of judgment Liens covered by
insurance, or upon appeal and covered by bond; (viii) deposits or pledges to
secure payment of workmen's compensation, unemployment insurance, old age
pensions or other social security; (ix) deposits or pledges to secure
performance of bids, tenders, contracts (other than contracts for the payment
of borrowed money), leases, public or statutory obligations; (x) surety or
appeal bonds, and other deposits or pledges for purposes of like general
nature in the ordinary course of business; (xi) easements or reservations in
respect to any property for the purpose of transmission and distribution
lines and rights-of-way and similar purposes, zoning ordinances, regulations,
reservations, restrictions, covenants, party wall agreements, conditions of
record and other encumbrances (other than to secure the payment of money),
none of which in the opinion of counsel to the Mortgagor is such as to
interfere with the proper operation of the property affected thereby; (xii)
the burdens of any law or governmental organization or permit requiring the
Mortgagor to maintain certain facilities or perform certain acts as a
condition of its occupancy of or interference with any public land or any
river, stream or other waters or relating to environmental matters; (xiii)
any Lien or encumbrance for the discharge of which moneys have been deposited
in trust with a proper depository to apply such moneys to the discharge of
such Lien or encumbrances; (xiv) any exceptions, reservations and other
matters referred to in the description of the Mortgaged Property on the date
hereof and, with respect to any property which the Mortgagor may hereafter
acquire, any terms, conditions, agreements, covenants, exceptions and
reservations expressed or provided in the deeds or other instruments under
which the Mortgagor shall hereafter acquire the same, none of which in the
opinion of counsel to the Mortgagor materially adversely affects or will
affect the property to which the same relates or the operation thereof by the
Mortgagor; (xv) any Lien reserved as security for rent or compliance with
other provisions of the lease in case of any leasehold estate made, or
existing on property acquired, in the ordinary course of business or in
connection with Restricted Rentals permitted by Section 4.04; and (xvi)
purchase money mortgages permitted by Section 4.04.

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         REA is defined in the recitals to this Mortgage.

         RESTRICTED RENTALS shall mean all rentals required to be paid under
finance leases and charged to income, exclusive of any amounts paid under any
such lease (whether or not designated therein as rental or additional rental)
for maintenance or repairs, insurance, taxes, assessments, water rates or
similar charges. For the purpose of this definition the term "finance lease"
shall mean any lease having a rental term (including the term for which such
lease may be renewed or extended at the option of the lessee) in excess of 3
years and covering property having an initial cost in excess of $250,000
other than automobiles, trucks, trailers, other vehicles (including without
limitation aircraft and ships), office, garage and warehouse space and office
equipment (including without limitation computers).

         SECURITY INTEREST shall mean any assignment, transfer, mortgage,
hypothecation or pledge.

         SUBORDINATED INDEBTEDNESS shall mean indebtedness of the Mortgagor,
payment of which shall be subordinated to the prior payment of the Notes by
subordination agreement in form and substance satisfactory to the Mortgagee
which approval will not be unreasonably withheld.

         TIMES INTEREST EARNED RATIO ("TIER") shall mean the ratio determined
as follows: for each Calendar Year: add (i) Patronage Capital or Margins of
the Mortgagor (ii) Interest Expense on Total Long-Term Debt of the Mortgagor
and (iii) taxes paid, if any, based upon income during the year and divide
the total so obtained by Interest Expense of the Mortgagor, PROVIDED,
HOWEVER, that in computing Interest Expense, there shall be added, to the
extent not otherwise included, an amount equal to 33-1/3% of the excess of
Restricted Rentals paid by the Mortgagor over 2% of the Mortgagor's Equities
and Margins.

         TOTAL LONG-TERM DEBT shall mean an amount constituting the long-term
debt of the Mortgagor as computed for purposes of Line C.35 of the Form 7.

         TOTAL UTILITY PLANT shall mean the amount constituting the total
utility plant of the Mortgagor computed in accordance with the Uniform System
of Accounts.

         UNIFORM COMMERCIAL CODE shall mean the Uniform Commercial Code of
any state.

         UNIFORM SYSTEM OF ACCOUNTS shall mean the Uniform System of Accounts
prescribed by the REA for electric borrowers, or if the Mortgagor is not
required to maintain its accounts in accordance with said Uniform System of
Accounts, otherwise determined in a manner in accordance with generally
accepted accounting principles applicable to electric utilities or electric
cooperatives and acceptable to the Mortgagee.

         SECTION 1.02. CONSTRUCTION

                  a. Accounting terms not referred to above are used in this
Mortgage in accordance with the meanings given them in the Uniform System of
Accounts or,

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failing provision therefor in said System, the meanings given them by
generally accepted accounting practices.

         b. Any reference herein to "directors" or "board of directors" shall
be deemed to mean "trustees" or "board of trustees," as the case may be.

         c. Except as set forth in Article V, whenever this Mortgage requires
the consent or approval of the Mortgagee, if there is more than one
Mortgagee, such consent or approval may be given by CFC so long as CFC is
lender of a majority of the unpaid principal balance of the Notes outstanding
and otherwise by each Noteholder which is a lender of at least 10% of the
aggregate unpaid principal balance of the Notes outstanding.

                                   ARTICLE II

                                    SECURITY

         SECTION 2.01. GRANTING CLAUSE. In order to secure the payment of the
principal of and interest on the Notes, and the performance of the covenants
therein and herein contained and to declare the terms and conditions on which
the Notes are secured, and in consideration of the premises, the Mortgagor by
these presents does grant, bargain, sell, convey, assign, transfer, mortgage,
hypothecate, pledge, set over and confirm to the Mortgagee and any the other
Noteholders, all property, rights, privileges and franchises of the Mortgagor
of every kind and description, real, personal or mixed, tangible and
intangible, whether now owned or hereafter acquired by the Mortgagor,
wherever located and grants a security interest therein for the purposes
herein expressed, except any Excepted Property (as hereinafter defined)
hereinafter expressly excepted from the Lien hereof, and including all and
singular the following (hereinafter sometimes called the "Mortgaged
Property"):

                              GRANTING CLAUSE FIRST

         All right, title and interest of the Mortgagor in and to all the
real and personal property, rights, privileges, permits, licenses and
franchises particularly described in Appendix "B," attached hereto and
incorporated herein, are hereby made a part of, and deemed to be described
in, this Granting Clause as fully as if set forth in this Granting Clause at
length.

                             GRANTING CLAUSE SECOND

         All right, title and interest of the Mortgagor in and to all other
property, real, personal or mixed (other than Excepted Property), of every
kind and description and wheresoever situated, now owned or which may be
hereafter acquired by the Mortgagor, it being the intention hereof that all
property, rights, privileges, permits, licenses and franchises now owned by
the Mortgagor or acquired by the Mortgagor after the date hereof (other than
Excepted Property) shall be as fully embraced within and subjected to the
Lien hereof as if such property were specifically described herein.

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                              GRANTING CLAUSE THIRD

         Also any Excepted Property, except for any property described in
paragraph (9) of the description of Excepted Property, that may, from time to
time hereafter, by delivery or by writing of any kind, be subjected to the
Lien hereof by the Mortgagor or by anyone in its behalf; and the Mortgagee
and the other Noteholders are hereby authorized to receive the same at any
time as additional security hereunder. Such subjection to the Lien hereof of
any Excepted Property as additional security may be made subject to any
reservations, limitations or conditions which shall be set forth in a written
instrument executed by the Mortgagor respecting the use and disposition of
such property or the proceeds thereof.

                             GRANTING CLAUSE FOURTH

         Together with (subject to the rights of the Mortgagor set forth in
Section 6.01) all the rents, issues, profits, revenues and other income
(including the proceeds of insurance and condemnation) of the Mortgaged
Property and all the estate, right, title and interest of every nature
whatsoever of the Mortgagor in and to the same and every part thereof.

                                EXCEPTED PROPERTY

         There is, however, expressly excepted and excluded from the Lien and
operation of this Mortgage the following described property of the Mortgagor,
now owned or hereafter acquired (herein sometimes referred to as the
"Excepted Property"):

                  (1) all automobiles, trucks, trailers, tractors or other
         vehicles (including, without limitation, aircraft or ships, if any)
         owned or used by the Mortgagor;

                  (2) all cash on hand or in banks, bills, notes and accounts
         receivable; patents, chooses in action and judgments; shares of stock,
         bonds, notes and other securities (other than those referred to in
         clause (9) below); contract and operating agreements, except those
         accounts receivable, contract rights and agreements, if any,
         specifically described in Appendix "A" to this Mortgage;

                  (3) all goods, wares, materials, merchandise and supplies
         acquired for purpose of sale in the ordinary course of business;

                  (4) fuel, fissionable and other materials and supplies, and
         other personal property which are consumable (other than by ordinary
         wear and tear) in their use in the operation of the business;

                  (5) all office furniture, equipment, supplies and leaseholds
         for office use;

                  (6) all coal, oil, gas, ore, gravel or other minerals on, in
         or under the Mortgaged Property of the Mortgagor;

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                  (7) all electric energy, gas, steam, water and other products
         generated, produced or purchased;

                  (8) any leasehold interests, permits, licenses, franchises and
         other rights which cannot be assigned, mortgaged or granted without the
         consent of other parties;

                  (9) stock, membership or capital term certificates issued by
         any Noteholder; and

                  (10) any other property which has heretofore been released in
         accordance with the terms of this Mortgage or which is not useful to
         the Mortgagor in the business of generating, manufacturing, storing,
         transmitting, distributing, utilizing, purchasing, or disposing of
         electricity for heat, light, power, refrigeration or other uses.

         TO HAVE AND TO HOLD all and singular, the Mortgaged Property unto
the Mortgagee and any other Noteholders from time to time and their
respective assigns forever, to secure equally and ratably the payment of the
principal of and interest on the Notes secured hereby, and to secure the due
performance of the covenants, agreements and provisions herein and contained
in the Loan Agreements.

         SUBJECT, HOWEVER, to the Permitted Encumbrances, upon condition
that, until the occurrence of an Event of Default, the Mortgagor shall be
permitted to possess and use the Mortgaged Property, and to receive and use
the rents, issues, profits, revenues and other income of the Mortgaged
Property.

                                   ARTICLE III

                                ADDITIONAL NOTES

         SECTION 3.01. ADDITIONAL NOTES: Without the prior consent of the
Mortgagee or any other Noteholder, the Mortgagor may issue Additional Notes
to CFC or to another lender or lenders for the purpose of acquiring or
constructing new or replacement assets which Notes will thereupon be secured
equally and ratably with the Original CFC Notes if the following requirements
are satisfied:

                  (1) As evidenced by a certificate of an independent accountant
         delivered to the Noteholders, the Mortgagor shall have achieved, for
         each of the two Calendar Years preceding, or any two consecutive 12
         month periods ending within 180 days preceding the issuance of such
         Notes, a TIER of not less than 1.5 and a DSC of not less than 1.25; and

                  (2) No Event of Default or any event which with the giving of
         notice or lapse of time or both has occurred and is continuing
         hereunder.

         The Mortgagor shall also have the right without the consent of the
Mortgagee or any Noteholder, so long as an Event of Default or any event
which with the giving of notice or lapse of time or both, has not occurred
and is continuing hereunder, to issue Additional Notes for the purpose of
refunding or defeasing any Notes so long as the total amount of outstanding
indebtedness

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evidenced by such Notes is not thereby increased by more than 5%.

                                   ARTICLE IV

                      PARTICULAR COVENANTS OF THE MORTGAGOR

         The Mortgagor covenants with the Mortgagee and any Noteholder from
time to time, as follows:

         SECTION 4.01. AUTHORITY TO EXECUTE AND DELIVER NOTES AND MORTGAGES:
ALL ACTION TAKEN: ENFORCEABLE OBLIGATIONS: The Mortgagor is duly authorized
under its articles of incorporation and bylaws and all applicable laws and by
corporate action to execute and deliver the Notes and any Additional Notes
and this Mortgage; and the Notes and this Mortgage are, and any Additional
Notes when executed and delivered will be, the valid and enforceable
obligations of the Mortgagor in accordance with their respective terms.

         SECTION 4.02. AUTHORITY TO MORTGAGE PROPERTY: NO LIENS: EXCEPTION
FOR PERMITTED ENCUMBRANCES: MORTGAGOR TO DEFEND TITLE AND REMOVE LIENS: The
Mortgagor warrants that it has good right and lawful authority to mortgage
the Mortgaged Property for the purposes herein expressed, and that the
Mortgaged Property is free and clear of any Lien, affecting the title
thereto, except the lien of this Mortgage and Permitted Encumbrances. Except
as to Permitted Encumbrances, the Mortgagor will, so long as any of the Notes
shall be outstanding, maintain and preserve the lien of this Mortgage
superior to all other Liens affecting the Mortgaged Property and will forever
warrant and defend the title to the Mortgaged Property against any and all
claims and demands. Except as to Permitted Encumbrances, the Mortgagor will
promptly pay or discharge any and all obligations for or on account of which
any such Lien or charge might exist or could be created and any and all
lawful taxes, rates, levies, assessments, Liens, claims or other charges
imposed upon or accruing upon any of the Mortgagor's property (whether taxed
to the Mortgagor or to any Noteholder), or the franchises, earnings or
business of the Mortgagor, as and when the same shall become due and payable;
and when called upon so to do the Mortgagor will furnish to the Mortgagee or
to any Noteholder adequate proof of such payment or discharge; PROVIDED,
HOWEVER, that this provision shall not be deemed to require the payment or
discharge of any tax, rate, levy, assessment or other governmental charge
while the Mortgagor is contesting the validity thereof by appropriate
proceedings in good faith and so long as it shall have set aside on its books
adequate reserves with respect thereto.

         SECTION 4.03. NO ENCUMBRANCES ON PROPERTY: Except to secure loans
made by the Mortgagor to the Mortgagee or any other Noteholder, the Mortgagor
will not, without the consent in writing of the Mortgagee, create or incur or
suffer or permit to be created or incurred or to exist any Lien, charge,
assignment, pledge, mortgage on any of the Mortgaged Property prior to or on
a parity with the Lien of this Mortgage except for the Permitted
Encumbrances. Subject to the provisions of Section 4.04, or unless approved
by the Mortgagee, the Mortgagor will purchase all materials, equipment and
replacements to be incorporated in or used in connection with the Mortgaged
Property outright and not subject to any conditional sales agreement, chattel
mortgage, bailment, lease or other agreement reserving to the seller any
right, title or Lien.

                                       9
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         SECTION 4.04. ADDITIONAL PERMITTED DEBT: Except as permitted by
Section 4.20, the Mortgagor shall not incur, assume, guarantee or otherwise
become liable in respect of any debt other than the following (the "Permitted
Debt"):

                  (1) Additional Notes;

                  (2) Purchase money indebtedness in non-electric utility
         property, in an amount not exceeding 10% of Total Utility Plant or 50%
         of Equity, whichever is greater;

                  (3) Subordinated Indebtedness;

                  (4) Restricted Rentals in an amount not to exceed 5% of Equity
         during any 12 consecutive calendar month period;

                  (5) Unsecured current debt and lease obligations incurred in
         the ordinary course of business including accounts payable for goods
         and services; and

                  (6) Debt represented by dividends declared but not paid.

         SECTION 4.05. PAYMENT OF NOTES: The Mortgagor will duly and
punctually pay the principal of and interest on the Notes at the dates and
places and in the manner provided therein, and all other sums becoming due
hereunder.

         SECTION 4.06. PRESERVATION OF CORPORATE EXISTENCE AND FRANCHISES:
COMPLIANCE WITH LAWS: LIMITATIONS ON MERGERS AND TRANSFERS OF CAPITAL ASSETS:

         (a) The Mortgagor will, so long as any of the Notes are outstanding,
take or cause to be taken all such action as from time to time may be
necessary to preserve its corporate existence and to preserve and renew all
franchises, rights of way, easements, permits, and licenses not or hereafter
to be granted or upon it conferred, and will comply with all valid laws,
ordinances, regulations, and requirements applicable to it or its property.

         (b) The Mortgagor will not consolidate with or merge or sell all or
substantially all of the business or assets of the Mortgagor unless such
consolidation, merger or sale of all or substantially all of the assets of
the Mortgagor is either approved by the Mortgagee or the successor
corporation assumes the due and punctual payments of the Notes and the due
and punctual performance of the covenants contained in this Mortgage. In the
event of any consolidation or merger or sale or all or substantially all of
the assets of the Mortgagor, and provided a supplement to this Mortgage is
executed specifying that no Additional Notes may be issued hereunder and that
no further advances may be made on any outstanding Notes, the Lien of this
Mortgage shall not extend to property of the successor entity or any property
thereafter acquired by the successor entity subsequent to such merger except
for property then subject to the Lien of this Mortgage and extensions,
improvements, substitutions and alterations to, upon, or of such property.

         (c) The Mortgagor will not sell, lease or transfer (or make any
agreement therefor) any capital asset, unless the fair market value of such
asset is less than $50,000 and the aggregate value of assets so sold, leased
or transferred in

                                       10
<PAGE>

any 12-month period is less than $200,000 and the proceeds of such sale,
lease or transfer, less ordinary and reasonable expenses incident to such
transaction, are immediately (i) applied as a prepayment of the Notes, to
such installments thereof as may be designated by the Noteholder at the time
of any such prepayment, (ii) in the case of dispositions of equipment,
materials or scrap, applied to the purchase of other property useful in the
Mortgagor's business, not necessarily of the same kind as the property
disposed of, which shall forthwith become subject to the Lien of the
Mortgage, (iii) set aside as a deposit in the construction fund contemplated
by Account Number 132.1 of the Uniform System of Accounts, or (iv) applied to
the acquisition or construction of other property or in reimbursement of the
cost of such property; PROVIDED, HOWEVER, 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, the Mortgagee approves sales,
leases or transfers by the Mortgagor of any capital asset in exchange for
fair market value consideration to the Mortgagor in respect of such sale,
lease or transfer 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.

         SECTION 4.07. MAINTENANCE OF MORTGAGED PROPERTY: (a) So long as the
Mortgagor holds title to the Mortgaged Property, the Mortgagor will at all
times maintain and preserve the Mortgaged Property and each and every part
and parcel thereof in good repair, working order and condition, ordinary wear
and tear and Acts of God excepted, and in compliance with all applicable
laws, regulations and orders, and will from time to time make all needed and
proper repairs, renewals, and replacements, and useful and proper
alterations, additions, betterments and improvements, and will, subject to
contingencies beyond its reasonable control, at all times keep its plant and
properties in continuous operating condition and use all reasonable diligence
to furnish the consumers served by it through the Mortgaged Property, or any
part thereof, with an adequate supply of electric energy and other services
furnished by the Mortgagor. if any substantial part of the Mortgaged Property
is leased by the Mortgagor to any other party, the lease agreement between
the Mortgagor and the lessee shall obligate the lessee to comply with the
provisions of subsections (a) and (b) of this Section in respect of the
leased facilities and to permit the Mortgagor to operate the leased
facilities in the event of any failure by the lessee to so comply.

         (b) The Mortgagor will cause the sum (the "Sum") of the amount used
during each period of three consecutive calendar years during the term of
this Mortgage for maintenance, renewals and replacements of the Mortgaged
Property, to be at least equal to 10% of the result (the "Result") obtained
subtracting the power cost of the Mortgagor for such three-year period from
the gross operating revenues of the Mortgagor for such three-year period. The
Mortgagor will, within five months after the close of the third complete
calendar year, and within five months after the end of each three-year period
following said year, furnish to the Mortgagee a certificate from the general
manager or other officer of the Mortgagor in form and substance satisfactory
to the Mortgagee certifying compliance with this Section.

         (c) The Mortgagor further agrees upon reasonable written request of
the Mortgagee, which request shall be made no more frequently than once every
three years, to supply promptly to the Mortgagee an initial certification
(hereinafter

                                       11
<PAGE>

called the "Initial Certification"), in form satisfactory to the Mortgagee,
prepared by an independent professional engineer, who shall be satisfactory
to the Mortgagee, as to the condition of the Mortgaged Property. If in the
sole judgment of the Mortgagee such Initial Certification discloses the need
for improvements to the condition of the Mortgaged Property or the utility
operations of the Mortgagor, the Mortgagee may send to the Mortgagor a
written report of such improvements and the Mortgagor will upon receipt of
such written report promptly undertake to accomplish such of these
improvements as are required by the Mortgagee. One year after receipt of such
written report, the Mortgagor shall submit a second certification
(hereinafter called the "Second Certification"), in form satisfactory to the
Mortgagee, prepared by an independent professional engineer, who shall be
satisfactory to the Mortgagee, as to the condition of the Mortgaged Property
and the utility operations of the Mortgagor. If in the sole judgment of the
Mortgagee such Second Certification discloses inadequacies in the condition
of the Mortgaged Property or the utility operations of the Mortgagor, the
Mortgagee may send to the Mortgagor written notice of these inadequacies, and
the Mortgagor shall cure such inadequacies, within sixty (60) days of receipt
of such notice.

         SECTION 4.08. INSURANCE: RESTORATION OF DAMAGED MORTGAGED PROPERTY:
The Mortgagor will take out, as the respective risks are incurred, and
maintain the classes and amounts of insurance in conformance with generally
accepted utility industry standards for such classes and amounts of coverages
of utilities of the size and character of the Mortgagor.

         The foregoing insurance coverage shall be obtained by means of bond
and policy forms approved by regulatory authorities, and, with respect to
insurance upon any part of the Mortgaged Property, shall provide that the
insurance shall be payable to the Noteholders as their interest may appear
(by means of the standard mortgagee clause without contribution, if
obtainable). Each policy or other contract for such insurance shall contain
an agreement by the insurer that, notwithstanding any right of cancellation
reserved to such insurer, such policy or contract shall continue in force for
at least 30 days after written notice to the Mortgagee of cancellation.

         In the event of damage to or the destruction or loss of any portion
of the Mortgaged Property which shall be covered by insurance, unless the
Mortgagee shall otherwise agree, the Mortgagor shall replace or restore such
damaged, destroyed or lost portion so that the Mortgaged property shall be in
substantially the same condition as it was in prior to such damage,
destruction or loss and shall apply the proceeds of the insurance or that
purpose. The Mortgagor shall replace the loss or shall commence such
restoration promptly after such damage, destruction or loss shall have
occurred and shall complete such replacement or restoration as expeditiously
as practicable, and shall pay or cause to be paid out of the proceeds of such
insurance all costs and expenses in connection therewith so that such
replacement or restoration shall be so completed that the portion of the
Mortgaged Property so replaced or restored shall be free and clear of all
mechanics' liens and other claims.

         Sums recovered under any policy or fidelity bond by the Mortgagor
for a loss of funds advanced under the Notes or recovered by the Mortgagee
for any loss under such policy or bond shall, unless otherwise directed by
the Mortgagee, be

                                       12
<PAGE>

applied to the prepayment of the Notes PRO RATA according to the unpaid
principal amounts thereof (such prepayments to be applied to such notes and
installments thereof as may be designated by the noteholder at the time of
any such prepayment), or be deposited in the construction fund-trustee
account and used to construct or acquire facilities which will become part of
the Mortgaged Property. At the request of the Mortgagee, the Mortgagor shall
exercise such rights and remedies which it may have under such policy or
fidelity bond and which may be designated by the Mortgagee, and the Mortgagor
hereby irrevocably appoints the Mortgagee as its agent to exercise such
rights and remedies under such policy or bond as the Mortgagee may choose,
and the Mortgagor shall pay all costs and expenses incurred by the Mortgagee
in connection with such exercise.

         SECTION 4.09. MORTGAGEE RIGHT TO EXPEND MONEY TO PROTECT MORTGAGED
PROPERTY: The Mortgagor agrees that the Mortgagee and any other Noteholder
from time to time hereunder may, in its sole discretion, after having given 5
business days prior written notice to Mortgagor, but shall not be obligated
to, advance funds on behalf of Mortgagor, in order to insure Mortgagor
compliance with any covenant, warranty, representation or agreement of
Mortgagor made in or pursuant to this Agreement or any of the Loan
Agreements, to preserve or protect any right or interest of the Mortgagee
in the Mortgaged Property or under or pursuant to this Agreement or any of
the Loan Agreements, including without limitation, the payment of any
insurance premiums or taxes and the satisfaction or discharge of any judgment
or any Lien upon the Mortgaged Property or other property or assets of
Mortgagor; provided, however, that the making of any such advance by the
Mortgagee or any Noteholder shall not constitute a waiver by the Mortgagee or
any Noteholder of any Event of Default with respect to which such advance is
made nor relieve Borrower of any such Event of Default. The Mortgagor shall
pay to the Mortgagee or any such Noteholder upon demand all such advances
made by the Mortgagee or any such Noteholder with interest thereon at a rate
equal to the Mortgagee's rate at such time for short-term loans but in no
event shall such rate be in excess of the maximum rate permitted by
applicable law. All such advances shall be included in the obligations and
secured by the security interest granted hereunder.

         SECTION 4.10. LIMITATIONS ON: SYSTEM EXTENSIONS AND ADDITIONS:
OPERATIONS AND MAINTENANCE CONTRACTS: POWER PURCHASE CONTRACTS: POWER SALES
CONTRACTS: Unless the Mortgagor shall at the time have an Equity of at least
40% or shall have achieved a TIER of at least 1.5 for each of the last two
Calendar Years, the Mortgagor will not, without the approval in writing of
the Mortgagee, unless otherwise required by State regulatory authority, (a)
construct, make, lease, purchase or otherwise acquire any extensions or
additions to its system which provide direct service to an ultimate consumer
having an anticipated or contract demand in excess of twenty-five (25)
percent of the Mortgagor'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 Mortgagor's maximum system demand; (c)
subject to Section 4.07(a) enter into any contract or contracts for the use
by others of all or a substantial part of its property; (d) enter into any
contract or contracts for the purchase of electric power or energy which
would alter the source of more than 25% of the Mortgagor's source of
wholesale power or for any transmission, interconnection or pooling
arrangements.

                                       13
<PAGE>

         SECTION 4.11. FINANCIAL BOOKS: FINANCIAL REPORTS: MORTGAGEE RIGHT OF
INSPECTION: The Mortgagor will at all times keep, and safely preserve, proper
books, records and accounts in which full and true entries will be mad& of
all of the dealings, business and affairs of the Mortgagor, in accordance
with the methods and principles of accounting prescribed in the Uniform
System of Accounts adopted or endorsed by the Mortgagee. The Mortgagor will
prepare and furnish the Mortgagee and the other Noteholders from time to time
hereunder not later than the last day of each month, or at less frequent
intervals when specified by the Mortgagee, 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 the
Mortgagee, including without limitation an analysis of the Mortgagor's
revenues, expenses and consumer accounts. The Mortgagor will cause to be
prepared and furnished to the Mortgagee and the other Noteholders 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 Mortgagor's Calendar Year in form and
substance satisfactory to the Mortgagee, audited and certified by independent
certified public accountants nationally recognized or otherwise satisfactory
to the Mortgagee and accompanied by a report of such audit in form and
substance satisfactory to the Mortgagee. Such report shall be furnished
within 120 days of the end of the Mortgagor's Calendar year. The Mortgagee,
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 Mortgagor
or in anywise pertaining to its property or business.

         SECTION 4.12. FURTHER ASSURANCES TO CONFIRM SECURITY OF MORTGAGE:
Upon request of any Noteholder from time to time hereunder, the Mortgagor
shall promptly execute, acknowledge and deliver, or cause to be executed,
acknowledged and delivered, to such Noteholder from time to time such
supplements hereto and such financing statements and other instruments and
documents as may be requested by such Noteholder to protect and preserve the
Mortgaged Property, perfection of such Noteholder's security interest therein
and/or such Noteholder's rights and remedies hereunder.

         SECTION 4.13. TIME EXTENSIONS FOR PAYMENT OF NOTES: Any Noteholder
may, at any time or times in succession without notice to or the consent of
the Mortgagor and upon such terms as such Noteholder may prescribe, grant to
any person, firm or corporation who shall have become obligated to pay all or
any part of the principal of or interest on any Note held by or indebtedness
owed to such Noteholder or who may be affected by the lien hereby created, an
extension of the time for the payment of such principal or interest, and
after any such extension the Mortgagor will remain liable for the payment of
such Note or indebtedness to the same extent as though it had at the time of
such extension consented thereto in writing.

         SECTION 4.14. ACHIEVEMENT OF TIMES INTEREST EARNED RATIO AND DEBT
SERVICE COVERAGE: DESIGN OF RATES: The Mortgagor, subject to events in the
judgment of the Mortgagee to be beyond the control of the Mortgagor, shall so
operate and manage its business as to achieve a TIER of not less than 1.5,
and a DSC of not

                                       14
<PAGE>

less than 1.25, each of said ratios being determined by averaging the two
highest annual ratios during the most recent three Calendar Years. The
Mortgagor shall design its rates so that such TIER and DSC ratios will be
achieved and shall notify any Noteholder in writing of any change in its
general rate structure within thirty days after such change takes effect. The
Mortgagor shall not decrease its rates if it is failing on an actual
historical basis to meet the ratios set forth in this Section.

         SECTION 4.15. LIMITATION ON DIVIDENDS. PATRONAGE REFUNDS AN& OTHER
CASH DISTRIBUTIONS: The Mortgagor will not, in any Calendar Year, without the
approval in writing of the Mortgagee, 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, retirement 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 Mortgagor will not equal or exceed 40%
of its total assets and other debits; PROVIDED, HOWEVER, that in any event
the Mortgagor may make distributions to estates of deceased patrons to the
extent required or permitted by its articles of incorporation and bylaws,
and, if such distributions to such estates do not exceed 25% of the patronage
capital and margins received by the Mortgagor in the next preceding year,
make such additional distributions in any year as will not cause the total
distributions in such year to exceed 25% of the patronage capital and margins
received in such next preceding year, and PROVIDED, FURTHER, HOWEVER, that in
no event will the Mortgagor make any distributions if there is unpaid when
due any installment of principal of or interest on the Notes, if the
Mortgagor is otherwise in default hereunder or if, after giving effect to any
such distribution, the Mortgagor'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 far electric energy or services
furnished by the Mortgagor, 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 Mortgagor, such as a reduction of wholesale power cost
previously incurred.

         SECTION 4.16. APPLICATION OF PROCEEDS FROM CONDEMNATION: In the
event that the Mortgaged Property or any part thereof, shall be taken under
the power of eminent domain, all proceeds and avails therefrom may be
deposited in the construction fund contemplated by Account 131.2 of the
Uniform System of Accounts and used to finance construction or facilities
secured or to be secured by this Mortgage. Any proceeds not so used shall
forthwith be applied by the Mortgagor; first, to the ratable payment of any
indebtedness secured by this Mortgage other than principal of or interest on
the Notes; second, to the ratable payment of interest which shall have
accrued on the Notes and be unpaid; third, to the ratable payment of or on
account of the unpaid principal of the Notes, to such installments thereof as
may be designated by the respective Noteholders at the time of any such
payment.

         SECTION 4.17. COMPLIANCE WITH LOAN AGREEMENTS: NOTICE OF AMENDMENTS
TO AND DEFAULTS UNDER. LOAN AGREEMENTS AND CERTAIN OTHER AGREEMENTS: TERMS OF
MORTGAGE TO GOVERN: The Mortgagor will observe and perform all of the
covenants, agreements, terms and conditions contained in any Loan Agreement
entered into in

                                       15
<PAGE>

connection with the issuance of any of the Notes, as from time to time
amended. The Mortgagor will send promptly to any Noteholder notice of any
default by the Mortgagor under any Loan Agreement; and a notice of any
amendment to any Loan Agreement. For purposes of this Mortgage, in the event
of any inconsistency between the terms of this Mortgage and the terms of the
Loan Agreement the terms of this Mortgage shall govern.

         SECTION 4.18. NOTICE OF CHANGE IN PLACE OF BUSINESS: The Mortgagor
will promptly notify the Mortgagee in writing of any change in location of
its chief executive offices or the office where its records concerning
accounts and contract rights are kept.

         SECTION 4.19. RIGHTS OF WAY, ETC., NECESSARY IN BUSINESS: The
Mortgagor will use its best efforts to obtain all such rights of way,
easements from landowners and releases from lienors as shall be necessary or
advisable in the conduct of its business, and, if requested by the Mortgagee,
deliver to the Mortgagee evidence satisfactory to them of the obtaining of
such rights of way, easements or releases.

         SECTION 4.20. LIMITATIONS ON LOANS, INVESTMENTS AND OTHER
OBLIGATIONS: The Mortgagor will not, without the written approval of the
Mortgagee, 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 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 the Mortgagee, (iii) capital
credits, (iv) loans, deposits, advances, investments, securities and
obligations which the Mortgagor has, prior to the date hereof, committed
itself to make, purchase or undertake, as the case may be, and as to which
the Mortgagor has given the notice in writing prior to the date hereof, and
(v) such other loans, deposits, advances, investments and obligations as may
from time to time to be made, purchased or undertaken by the Mortgagor;
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 at any time exceed the
greater of 10% of the Total Utility Plant of the Mortgagor or 50% of Total
Margins and Equity.

                                    ARTICLE V

                    REMEDIES OF THE MORTGAGEE AND NOTEHOLDERS

         SECTION 5.01. EVENTS OF DEFAULT: Each of the following shall be an
Event of Default:

                  (a) default shall be made in the payment of any installment of
         or on account of interest on or principal of any note or notes for more
         than thirty (30) days after the same shall be required to be made;

                  (b) default shall be made in the due observance or performance
         of any other of the covenants, conditions or agreements on the part of
         the

                                       16
<PAGE>

         Mortgagor, in any of the notes loan agreements or in this Mortgage
         contained, and such default shall continue for a period of sixty (60)
         days after written notice specifying such default and requiring the
         same to be remedied shall have been given to the Mortgagor by any
         noteholder;

                  (c) the Mortgagor shall file a petition in bankruptcy or be
         adjudicated a bankrupt or insolvent, or shall make an assignment for
         the benefit of its creditors, or shall consent to the appointment of a
         receiver of itself or of its property, or shall institute proceedings
         for its reorganization or proceedings instituted by others for its
         reorganization shall not be dismissed within sixty (60) days after the
         institution thereof;

                  (d) a receiver or liquidator of the Mortgagor or of any
         substantial portion of its property shall be appointed and the order
         appointing such receiver or liquidator shall not be vacated within
         sixty (60) days after the entry thereof;

                  (e) the Mortgagor shall forfeit or otherwise be deprived of
         its corporate charter or franchises, permits, easements, or licenses
         required to carry on any material portion of its business;

                  (f) a final judgment shall be entered against the Mortgagor
         and shall remain unsatisfied or without a stay in respect thereof for a
         period of sixty (60) days; or,

                  (g) any representation or warranty made by the Mortgagor
         herein, in the Loan Agreements or other loan agreement providing for a
         loan secured hereby or in any certificate or financial statement
         delivered hereunder or thereunder shall prove to be false in any
         material respect.

         SECTION 5.02.  ACCELERATION OF MATURITY; RESCISSION AND AMENDMENT:

                  (a) If an Event of Default described in Section 5.01(a) has
         occurred and is continuing, the Holder of any Note upon which such
         default has occurred may declare the principal of all its Notes secured
         hereunder to be due and payable immediately by a notice in writing to
         the Mortgagor and to all other Holders of Notes secured by this
         Mortgage, and upon such declaration, all unpaid principal and accrued
         interest so declared shall become due and payable immediately, anything
         contained herein or in any Note or Notes to the contrary
         notwithstanding. Upon receipt of any notice of acceleration by any
         Noteholder, all other Holders of Notes secured hereunder may declare
         the principal of all of such Notes to be due and payable immediately by
         a notice in writing to the Mortgagor and to all other Holders of Notes
         secured by this Mortgage and upon such declaration, all unpaid
         principal and accrued interest so declared shall become due and payable
         immediately, anything contained herein or in any Note or Notes to the
         contrary notwithstanding.

                  (b) If any other Event of Default shall have occurred and be
         continuing, CFC may declare the principal and accrued interest on all
         Notes secured by this Mortgage due and payable and upon such
         declaration,

                                       17
<PAGE>

         all unpaid principal and interest so declared shall become due and
         payable immediately, anything contained herein or in any Note or Notes
         to the contrary notwithstanding. Should CFC not take action to
         accelerate the Notes within thirty days after an Event of Default, any
         Noteholder shall have the right to declare the principal and accrued
         interest on all Notes secured by this Mortgage due and payable and upon
         such declaration, all unpaid principal and interest so declared shall
         become due and payable immediately, anything contained herein or in any
         Note or Notes to the contrary notwithstanding.

                  (c) If at any time after the unpaid principal of and accrued
         interest on any of the Notes shall have been so declared to be due and
         payable, all payments in respect of principal and interest which shall
         have become due and payable by the terms of such Note or Notes (other
         than amounts due as a result of the acceleration of the Notes) shall be
         paid to the respective Noteholders, and all other defaults hereunder
         and under the Notes shall have been made good and secured to the
         satisfaction of all of the Noteholders, then and in every such case,
         the Noteholder or Noteholders who shall have declared the principal of
         and interest on Notes held by such Noteholder or Noteholders to be due
         and payable may, by written notice to the Mortgagor and delivery of a
         copy thereof to the other Noteholders, annul such declaration or
         declarations and waive such default or defaults and the consequences
         thereof, but no such waiver shall extend to or affect any subsequent
         default or impair any right consequent thereon.

         SECTION 5.03. REMEDIES OF MORTGAGEE AND NOTEHOLDERS: If one or more
of the Events of Default shall occur and be continuing CFC personally or by
attorney, in its or their discretion, may, in so far as not prohibited by law:

                  (a) take immediate possession of the Mortgaged Property,
         collect and receive all credits, outstanding accounts and bills
         receivable of the Mortgagor and all rents, income, revenues and profits
         pertaining to or arising from the Mortgaged Property, or any part
         thereof, whether then past due or accruing thereafter, and issue
         binding receipts therefor; and manage, control and operate the
         Mortgaged Property as fully as the Mortgagor might do if in possession
         thereof, including, without limitation, the making of all repairs or
         replacements deemed necessary or advisable;

                  (b) proceed to protect and enforce the rights of the Mortgagee
         and the rights of the Noteholder or Noteholders under this Mortgage by
         suits or actions in equity or at law in any court or courts of
         competent jurisdiction, whether for specific performance of any
         covenant or any agreement contained herein or in aid of the execution
         of any power herein granted or for the foreclosure hereof or hereunder
         or for the sale of the Mortgaged Property, or any part thereof, or to
         collect the debts hereby secured or for the enforcement of such other
         or additional appropriate legal or equitable remedies as may be deemed
         necessary or advisable to protect and enforce the rights and remedies
         herein granted or conferred, and in the event of the institution of any
         such action or suit the Noteholder or Noteholders instituting such
         action or suit shall have the

                                       18
<PAGE>

         right to have appointed a receiver of the Mortgaged Property and of
         all rents, income, revenues and profits pertaining thereto or arising
         therefrom, whether then past due or accruing after the appointment of
         such receiver, derived, received or had from the time of the
         commencement of such suit or action, and such receiver shall have all
         the usual powers and duties of receivers in like and similar cases, to
         the fullest extent permitted by law, and if application shall be made
         for the appointment of a receiver the Mortgagor hereby expressly
         consents that the court to which such application shall be made may
         make said appointment; and

                  (c) sell or cause to be sold all and singular the Mortgaged
         Property or any part thereof, and all right, title, interest, claim and
         demand of the Mortgagor therein or thereto, at public auction at such
         place in any county in which the property to be sold, or any part
         thereof, is located, at such time and upon such terms as may be
         specified in a notice of sale, which shall state the time when and the
         place where the sale is to be held, shall contain a brief general
         description of the property to be sold, and shall be given by mailing a
         copy thereof to the Mortgagor at least fifteen (15) days prior to the
         date fixed for such sale and by publishing the same once in each week
         for two successive calendar weeks prior to the date of such sale in a
         newspaper of general circulation published in said county or, if no
         such newspaper is published in such county, in a newspaper of general
         circulation in such county, the first such publication to be not less
         than fifteen (15) days nor more than thirty (30) days prior to the date
         fixed for such sale. Any sale to be made under this subparagraph (c) of
         this Section 5.03 may be adjourned from time to time by announcement at
         the time and place appointed for such sale or for such adjourned sale
         or sales, and without further notice or publication the sale may be had
         at the time and place to which the same shall be adjourned; PROVIDED,
         HOWEVER, that in the event another or different notice of sale or
         another or different manner of conducting the same shall be required by
         law the notice of sale shall be given or the sale be conducted, as the
         case may be, in accordance with the applicable provisions of law. The
         expense incurred by such Noteholder or Noteholders (including, but not
         limited to, receiver's fees, counsel fees, cost of advertisement and
         agents' compensation) in the exercise of any of the remedies provided
         in this Mortgage shall be secured by this Mortgage.

Upon the expiration of 60 days after one or more Events of Default, any right
or remedy herein or by law conferred which CFC shall not have proceeded to
exercise or enforce may to the extent permitted by applicable law, be
exercised or enforced by any Noteholder on behalf of all Noteholders.

         SECTION 5.04. APPLICATION OF PROCEEDS FROM REMEDIAL ACTIONS: Any
proceeds or funds arising from the exercise of any rights or the enforcement
of any remedies herein provided after the payment or provision for the
payment of any and all costs and expenses in connection with the exercise of
such rights or the enforcement of such remedies shall be applied first, to
the ratable payment of indebtedness hereby secured other than the principal
of or interest on the notes; second, to the ratable payment of interest which
shall have accrued on the notes and which shall be unpaid; third, to the
ratable payment of or on account of the unpaid principal of the notes; and
the balance, if any, shall be paid to

                                       19
<PAGE>

whosoever shall be entitled thereto.

         SECTION 5.05. REMEDIES CUMULATIVE: NO ELECTION: Every right or
remedy herein conferred upon or reserved to the Mortgagee or to the
Noteholders shall be cumulative and shall be in addition to every other right
and remedy given hereunder or now or hereafter existing at law, or in equity,
or by statute. The pursuit of any right or remedy shall not be construed as
an election.

         SECTION 5.06. WAIVER OF APPRAISEMENT RIGHTS: The Mortgagor, for
itself and all who may claim through or under it, covenants that it will not
at any time insist upon or plead, or in any manner whatever claim, or take
the benefit or advantage of, any appraisement, valuation, stay, extension or
redemption laws now or hereafter in force in any locality where any of the
Mortgaged Property may be situated, in order to prevent, delay or hinder the
enforcement or foreclosure of this Mortgage, or the absolute sale of the
Mortgaged Property, or any part thereof, or the final and absolute putting
into possession thereof, immediately after such sale, of the purchaser or
purchasers thereat, and the Mortgagor, for itself and all who may claim
through or under it, hereby waives the benefit of all such laws unless such
waiver shall be forbidden by law.

         SECTION 5.07. NOTICE OF DEFAULT: The Mortgagor covenants that it
will give immediate written notice to the Mortgagee and to all Noteholders of
the occurrence of an Event of Default or in the event that any right or
remedy described in clauses (a) through (c) of Section 5.02 hereof is
exercised or enforced or any action is taken to exercise or enforce any such
right or remedy.

                                   ARTICLE VI

                   POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE

         SECTION 6.01. POSSESSION UNTIL DEFAULT: Until some one or more of
the Events of Default shall have happened, the Mortgagor shall be suffered
and permitted to retain actual possession of the Mortgaged Property, and to
manage, operate and use the same and any part thereof, with the rights and
franchises appertaining thereto, and to collect, receive, take, use and enjoy
the rents, revenues, issues, earnings, income, products and profits thereof
or therefrom, subject to the provisions of this Mortgage.

         SECTION 6.02. DEFEASANCE: If the Mortgagor shall pay or cause to be
paid the whole amount of the principal of and Interest on the Notes at the
times and in the manner therein provided, and shall also pay or cause to be
paid all other sums payable by the Mortgagor hereunder or under any Loan
Agreement and shall keep and perform, all covenants herein required to be
kept and performed by it, then and in that case, all property, rights and
interest hereby conveyed or assigned or pledged shall revert to the Mortgagor
and the estate, right, title and interest of the Mortgagee and the
Noteholders shall thereupon cease, determine and become void and the
Mortgagee and the Noteholders, in such case, on written demand of the
Mortgagor but at the Mortgagor's cost and expense, shall enter satisfaction
of the Mortgage upon the record. In any event, each Noteholder, upon payment
in full to such Noteholder by the Mortgagor of all principal of and interest
on any Note held by such Noteholder and the payment and discharge by the
Mortgagor of all charges due to such Noteholder hereunder or

                                       20
<PAGE>

under any Loan Agreement, shall execute and deliver to the Mortgagor such
instrument of satisfaction, discharge or release as shall be required by law
in the circumstances.

                                   ARTICLE VII

                                  MISCELLANEOUS

         SECTION 7.01. PROPERTY DEEMED REAL PROPERTY: It is hereby declared
to be the intention of the Mortgagor that any electric generating plant or
plants and facilities and all electric transmission and distribution lines,
or other electric or non-electric systems and facilities, embraced in the
Mortgaged Property, including, without limitation, all rights of way and
easements granted or given to the Mortgagor or obtained by it to use real
property in connection with the construction, operation or maintenance of
such plant, lines, facilities or systems, and all other property physically
attached to any of the foregoing, shall be deemed to be real property.

         SECTION 7.02. MORTGAGE TO BIND AND BENEFIT SUCCESSORS AND ASSIGNS:
All of the covenants, stipulations, promises, undertakings and agreements
herein contained by or on behalf of the Mortgagor shall bind its successors
and assigns, whether so specified or not, and all titles, rights and remedies
hereby granted to or conferred upon the Mortgagee shall pass to and inure to
the benefit of the successors and assigns of the Mortgagee and shall be
deemed to be granted or conferred for the ratable benefit and security of all
who shall from time to time be the Holders of Notes executed and delivered as
herein provided. The Mortgagor hereby agrees to execute such consents,
acknowledgements and other instruments as may be reasonably requested by the
Mortgagee or any Noteholder in connection with the assignment, transfer,
mortgage, hypothecation or pledge of the rights or interests of the Mortgagee
or any Noteholder hereunder or under the notes or in and to any of the
Mortgaged Property.

         SECTION 7.03. HEADINGS: The descriptive headings of the various
articles of this Mortgage were formulated and inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.

         SECTION 7.04. NOTICES: All demands, notices, reports, approvals,
designations, or directions required or permitted to be given hereunder shall
be in writing and shall be deemed to be properly given if sent by registered
or certified mall, postage prepaid, or delivered by hand, addressed to the
proper party or parties at the following address:

                                       21
<PAGE>

As to the Mortgagor:         CAP ROCK ELECTRIC COOPERATIVE, INC.
                             West Highway 80
                             P.O. Box 700
                             Stanton, TX 79782-0700

As to the Mortgagee:         NATIONAL RURAL UTILITIES
                                COOPERATIVE FINANCE CORPORATION
                             Woodland Park
                             2201 Cooperative Way
                             Herndon, Virginia 22071
                             Attention: Loan Officer

and as to any other person, firm, corporation or governmental body or agency
having an interest herein by reason of being the Holder of any Note or
otherwise, at the last address designated by such person, firm, corporation,
governmental body or agency to the Mortgagor and the Mortgagee. Any such
party may from time to time designate to each other a new address to which
demands, notices, reports, approvals, designations or directions may be
addressed, and from and after any such designation the address designated
shall be deemed to be the address of such party in lieu of the address given
above.

         SECTION 7.05. SEVERABILITY: The invalidity of any one or more
phrases, clauses, sentences, paragraphs or provisions of this Mortgage shall
not affect the remaining portions hereof, nor shall any invalidity as to any
Noteholders hereunder affect the rights hereunder of any other Noteholders.

         SECTION 7.06. MORTGAGE DEEMED SECURITY AGREEMENT: To the extent that
any of the property described or referred to in this Mortgage is governed by
the provisions of the Uniform Commercial Code this Mortgage is hereby deemed
a "security agreement" under the Uniform Commercial Code, and a "financing
statement" under the Uniform Commercial Code for said security agreement. The
mailing addresses of the Mortgagor as debtor, and any Noteholder as secured
party are as set forth in Section 7.04 hereof.

         SECTION 7.07. INDEMNIFICATION BY MORTGAGOR OF MORTGAGEE: The
Mortgagor agrees to indemnify and save harmless the Mortgagee and any other
Noteholder against any liability or damages which any of them may incur or
sustain in the exercise and performance of their rightful powers and duties
hereunder. For such reimbursement and indemnity, the Mortgagee no any other
Noteholder shall be secured under this Mortgage in the same manner as the
Notes and all such reimbursements for expense or damage shall be paid to the
Mortgagee or any other Noteholder incurring or suffering the same with
interest at the rate specified in Section 4.10 hereof.

                                       22
<PAGE>

         IN WITNESS WHEREOF, CAP ROCK ELECTRIC COOPERATIVE, INC. as
Mortgagor, has caused this Restated Mortgage and Security Agreement to be
signed in its name and its corporate seal to be hereunto affixed and attested
by its officers thereunto duly authorized, and NATIONAL RURAL UTILITIES
COOPERATIVE FINANCE CORPORATION, as Mortgagee,. has caused this Restated
Mortgage and Security Agreement to be signed in its name and its corporate
seal to be hereunto affixed and attested by its officers thereunto duly
authorized, all as of the day and year first above written.

                                             CAP ROCK ELECTRIC COOPERATIVE, INC.

(SEAL)
                                             By: /s/ Russell E. Jones
                                                --------------------------------
                                                            President

Attest: /s/ Alfred J. Schwartz
       -------------------------------
                 Secretary

Executed by the (Mortgagor
in the presence of:

/s/ Ulen North, Jr.
--------------------------------------

/s/ ILLEGIBLE
--------------------------------------
          Witnesses

                                             NATIONAL RURAL UTILITIES
                                             COOPERATIVE FINANCE CORPORATION
(SEAL)

                                             By: /s/ Lawrence Zaualick
                                                --------------------------------
                                                            Governor

Attest: /s/ ILLEGIBLE
       -------------------------------
             Assistant Secretary

Executed by the Mortgagee
in the presence of:

/s/ Judith A. ??
--------------------------------------

/s/ Kitty S. Mitchell
--------------------------------------
              Witnesses

                                       23
<PAGE>

STATE OF TEXAS                  )
                                ) SS
COUNTY OF MARTIN                )

         On this 10th day of March, 1992, before me appeared Russell E. Jones
and Alfred J. Schwartz personally known, who, being by me sworn did say that
they are the President and Secretary, respectively, of  Cap Rock Electric
Cooperative, Inc., a corporation, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed in behalf of said corporation by authority
of its Board of Directors, and said Russell E. Jones and Alfred J. Schwartz
acknowledged said instrument to be the free act and deed said corporation.

         IN WITNESS whereof, I have hereunto set my hand and official seal the
day and year last above written.

                                           /s/ Sharon A. Hoelscher
                                       ---------------------------------
(Notarial Seal)                                 Notary Public

My commission expires: 7-11-95

COMMONWEALTH OF VIRGINIA   ) SS

         BEFORE ME, a Notary Public, in and for the Commonwealth of Virginia,
appeared in person the within named Lawrence Zaualick. Signing for the
Governor of the National Rural Utilities Cooperative Finance Corporation, to
me personally known, and known to be the identical person who subscribed the
name of said corporation to the foregoing instrument, being by me duly sworn,
and who stated that he is duly authorized by the Board of Directors to
execute the foregoing instrument for and in the name and behalf of said
corporation, and further stated and acknowledged that he has executed the
foregoing instrument as the free and voluntary act and deed of said
corporation for the consideration, uses and purposes therein mentioned and
set forth.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal
this 5th day of December, 1991.

                                              /s/ Melissa A. Knapp
                                       ---------------------------------
(Notarial Seal)                                   Notary Public

My commission expires:

                                       Melissa A. Knapp
                                       Notary Public
                                         Commonwealth of Virginia
                                       My Commission Expires
                                         ILLEGIBLE 31, 1994

<PAGE>

                                   APPENDIX A
INSTRUMENTS RECITAL

"Prior CFC Loan Agreements" dated as of 5/15/73, 7/8/74, 11/13/86, 4/24/78,
11/13/86, 8/23/85, 9/25/87, 4/19/89, 4/19/89, 4/19/89, 4/19/89, 3/22/90,
3/22/90, 3/22/90, 3/22/90, 3/22/90, 5/17/90

"Current CFC Amending Loan Agreement" dated as of even date herewith.

"Outstanding CFC Notes"

<TABLE>
<CAPTION>
Loan
DESIGNATION                NOTE DATE                          NOTE AMOUNT               MATURITY DATE
-----------                ---------                          -----------               -------------
<S>                        <C>                                <C>                       <C>
9001                       May 15, 1973                       $109,000                  May 15, 2008
9002                       October 21, 1974                   $158,000                  October 21,2009
9004                       August 20, 1987                    $565,000                  August 14, 2010
9008                       July 27, 1978                      $2,330,000                July 27, 2013
9012                       August 20, 1987                    $3,692,000                March 18, 2017
9013                       September 24, 1985                 $4,186,316                September 24, 2020
9014                       April 19, 1989                     $5,161,290                September 25, 2022
9015                       April 19, 1989                     $4,000,000                September 25, 2022
9016                       April 19, 1989                     $4,000,000                September 25, 2022
9017                       April 19, 1989                     $4,000,000                September 25, 2022
9018                       March 22, 1990                     $4,301,075                March 22, 2025
9019                       March 22, 1990                     $2,365,591                March 22, 2025
9020                       March 22, 1990                     $4,301,075                March 22, 2025
9021                       March 22, 1990                     $3,763,441                March 22, 2025
9022                       March 22, 1990                     $3,225,806                March 22, 2025
9023                       May 17, 1990                       $1,612,903                March 22, 2025
</TABLE>

<TABLE>
<CAPTION>
INSTRUMENT                                                    DATE
----------                                                    ----
<S>                                                           <C>
Supplemental Mortgage and Security Agreement                  May 15, 1973

Supplement to the Supplemental Mortgage
and Security Agreement                                        March 18, 1982
</TABLE>

"Maximum Debt Limit" shall be Fifty Million Dollars ($50,000,000).

<PAGE>

                                   APPENDIX B

                                PROPERTY SCHEDULE

(a)      the Existing Electric Facilities are located in the following counties:
         Andrews, Dawson, Borden, Ector, Midland, Martin, Howard, Upton,
         Glasscock, Reagan, Sterling, Tom Green and Irion, all in Texas.

(b)      The property referred to in the Granting Clause includes the following:

         1.       Two tracts of land described in a deed, dated April 12, 1972,
                  by Cap Rock Refrigeration Cooperative, Inc., as grantor, to
                  Cap Rock Electric Cooperative, Inc., as grantee, and recorded
                  in the office of the County Clerk of Martin County, Texas, in
                  Volume 143 on page 446.

         2.       One tract of land described in a deed, dated April 22, 1960,
                  by Cap Rock Refrigeration Cooperative, Inc., as grantor, to
                  Cap Rock Electric Cooperative, no., as grantee, and recorded
                  in the office of the County Clerk or Martin County, Texas, in
                  Volume 82 on page 73.

         3.       One tract of land described in a deed, dated June 5, 1956 City
                  of Stanton, Texas, as grantor, to Cap Rock Electric
                  Cooperative, Inc., as grantee, and recorded in the office the
                  County Clerk of Martin County, Texas in Volume 74 on page 169.

         4.       Two tracts of land described in a deed dated January 27, 1944,
                  by W.A. Raderli, as grantor, to Cap Rock Electric Cooperative,
                  Inc., as grantee and recorded in the office of the County
                  Clerk of Martin County, Texas in Volume 50 on pages 94 and 95.

         5.       One tract of land described in a deed dated October 3, 1953,
                  by Inez W. Luce and Ova B. Webb, as grantors, to Cap Rock
                  Electric Cooperative, Inc., as grantee, and recorded in the
                  office of the County Clerk of Martin County, Texas, in Volume
                  75 on page 399.

<PAGE>

         6.       One tract off land described in a deed dated August 1, 1974,
                  by City of Stanton, Texas, as grantor, to Cap Rock Electric
                  Cooperative, Inc., as grantee, and recorded in the office of
                  the County Clerk of Martin County, Texas in Volume 156 on page
                  453.

         7.       One tract off land described in a deed dated January 13, 1975,
                  by R.C. Stewart, and wife, Hazel Stewart, as grantors, to Cap
                  Rock Electric Cooperative, Inc., as grantee, and recorded in
                  the office of the County Clerk of Martin County, Texas, in
                  Volume 159 on page 494.

         8.       One tract of land described in a deed dated March 24, 1975, by
                  Ervin A. Baumann, and wife, Norma L. Baumann, as grantors, to
                  Cap Rock Electric Cooperative, Inc., as grantee, and recorded
                  in the office of the County Clerk of Midland County, Texas, in
                  Volume 591 on page 689.

         9.       One tract of land described in a deed dated May 7, 1975, by
                  Lawrence E. Schwertner, and wife, Arla Mae Schwertner, as
                  grantors, to Cap Rock Electric Cooperative, Inc., as grantee,
                  and recorded in the office of the County Clerk of Reagan
                  County, Texas, in Volume 59 on page 143.

         10.      One tract of land described in a deed dated April 17, 1978, by
                  Fred J. Hoelscher and wife, Ella Joy Hoelscher, as grantors to
                  Cap Rock Electric Cooperative, Inc., as grantee, and recorded
                  in the office of the County Clerk of Glasscock County, Texas,
                  in Volume 166, page 582.

         11.      One tract of land described in a deed dated May 8, 1978, by
                  Cecil Wilkerson, et. al., as grantors to Cap Rock Electric
                  Cooperative, Inc., as grantee, and recorded in the office of
                  the County Clerk of Glasscock County, Texas in Volume 167,
                  page 628.

         12.      One tract of land described in a deed dated May 9, 1978, by
                  Ray E. Barrett, Jr. and wife, Patricia T. Barrett, as
                  grantors, to Cap Rock Electric Cooperative, Inc., as grantee,
                  and recorded in the office of the County Clerk of Upton
                  County, Texas n Volume 452, page 30.

<PAGE>

         13.      One tract of land described in a deed dated June 20, 1978, by
                  E.E. Crittenden and wife, Lottie L. Crittenden, as grantors,
                  to Cap Rock Electric Cooperative, Inc., as grantee, and
                  recorded in the office the County Clerk of Borden County,
                  Texas,

         14.      One tract of land described in a deed dated December 19, 1980,
                  by James D. Jones and wife, Sharon Jones, as grantors, to Cap
                  Rock Electric Cooperative, Inc., as grantee, and recorded in
                  the office of the County Clerk of Martin County, Texas, Volume
                  202, page 694.

         15.      One tract of land described in a deed dated February 15, 1980,
                  by Ruth Edward Riser, as grantor, to Cap Rock Electric
                  Cooperative, Inc., as grantee, and recorded in the office of
                  County Clerk of Martin County, Texas, in Volume 192, page 764.

         16.      One tract of land described in a deed dated June 4, 1981, by
                  R.C. Stewart, as grantor, to Cap Rock Electric Cooperative,
                  Inc., as grantee, and recorded in the office of the County
                  Clerk of Martin County, Texas in Volume 208, page 727.

         17.      One tract of land described in a deed dated January 8, 1982,
                  by W.D. Stroud and wife, Geraldine Stroud, as grantors, to Cap
                  Rock Electric Cooperative, Inc., as grantee, and recorded in
                  the office of the County Clerk of Martin County, Texas, in
                  Volume 215, page 659.

         18.      One tract of land described in a deed dated March 7, 1984, by
                  Tri-City Beverages, as grantor, to Cap Rock Electric
                  Cooperative, Inc., as grantee, and recorded in the office of
                  the County Clerk of Martin County, Texas in Volume 238, Page
                  396.

         Together with all plants, works, structures, erections, reservoirs,
dams, buildings, fixtures and improvements now or hereafter located on any of
the properties conveyed by any and all aforesaid deeds mentioned above and
all tenements, hereditaments and appurtenances now or hereafter thereunto
belonging or in anywise appertaining.

The description of each of the properties conveyed by and through the
provisions of the aforesaid deeds is by reference made a part hereof as
though fully set forth at length therein.

<PAGE>

         All properties formerly owned by Lone Wolf Electric Cooperative,
Inc. and transferred and assigned to Cap Rock Electric Cooperative, Inc.,
pursuant to the terms of the merge completed January 10, 1991, located in the
following counties of Texas:

         Howard, Borden, Scurry, Fisher, Nolan, and Mitchell;

and all properties owned by Cap Rock Electric Cooperative, Inc located in the
following counties of Texas:

         Martin, Midland, Glasscock, Reagan, Upton, Sterling, Tom Green, Irion,
         Ector, Dawson, Andrews, Scurry, Fisher, Nolan and Ardrews.

         TRACT I: Being the West one hundred seventy-three feet (W 173') of Lots
         Seven (7), Eight (8), Nine (9), Ten (10. eleven (11), and Twelve (12),
         in Block Thirty-four (34), of the Dunn, Snyder and Mooar Addition of
         the town of Colorado City, Mitchell County, Texas, SAVE AND EXCEPT that
         part of Lots 11 and 12 deeded to the State of Texas for highway
         purposes and recorded in Volume 2, Page 231, Deed Records of Mitchell
         County, Texas, said Lots 7, 8, 9, 10 and the remainder of Lots 11 and
         12, containing 2.096 acres of land and being more particularly
         described as follows:

         BEGINNING at an iron pin set for the Southwest corner of Lot 7 at the
         intersection of Terrell Street and College Avenue;

         THENCE along the East boundary line of said Terrell Street and the West
         boundary line of Lots 7 through 12, N. 12 deg. 11' W. 558.65 feet to a
         point from whence an iron pin bears N. 12 deg. 11' E. 1.25 feet;

         THENCE along the South ROW of State Highway 208 with a curve to the
         right with a radius of 587.28 feet a chord of S. 79 deg. 30' E. 187.5
         feet to a point from whence an iron pin bears S. 12 deg. 11' E. 1.25
         feet;

         THENCE S. 12 deg 11' E. 486.34 feet to an iron pin set on the North
         boundary line of College Avenue;

         THENCE S. 77 deg. 49' along the North line of said College Avenue 173.0
         feet to the PLACE OF BEGINNING and containing 2.096 acres of land, more
         or less.

         TRACT II: That certain 5.7 acres of land, more or less, out of Section
         No. 46, in Block No. 26, T. & P. Ry. Co. Survey, Cert. 2/1375, in
         Mitchell County, Texas, conveyed by that certain Deed dated July 14,
         1947, from E. H. Smith, et ux,

<PAGE>

         to Western Cottonoil Co., recorded in Vol. 123, Page 353 Deed Records,
         Mitchell County, Texas, to which Deed, and it record, reference is
         hereby made for all purposes, and said 5.7 acres of land is more fully
         described as follows:

         BEGINNING at the Northwest corner of said Section No. 46;

         THENCE South 13 deg. East along the Southwesterly line of said Section
         No. 46 and along the Northeasterly right-of-way line of the Colorado
         City Robert Lee Highway 208, a distance of 812 feet, to the PLACE OF
         BEGINNING of the tract conveyed hereby:

         THENCE North 77 deg.  East a distance of 520 feet to a stake for
         corner;

         THENCE South 13 deg.  East a distance of 486 feet to a stake for
         corner;

         THENCE South 77 deg. West a distance of 500 feet to the Northeasterly
         line of the right-of-way of said Colorado City Robert Lee Highway No.
         208, for corner;

         THENCE in a Northwesterly direction along the Northeasterly line of the
         right-of-way of said Colorado City Robert Lee Highway No. 208, a
         distance of 487 feet to the PLACE OF BEGINNING.

         TRACT III: being that part of Block No. Thirty-four (34), of the Dunn,
         Snyder and Mooar Addition to the Town of Colorado City, Mitchell
         County, Texas, described as follows:

         BEGINNING at the intersection of the West line of State Highway No.
         208, being the Colorado City-Robert Lee Highway, and the South line of
         said Block No. 34, being also the North line of College Avenue, for the
         Southeast corner of the tract hereby conveyed;

         THENCE West along the South line of said Block No. 34 and the North
         line of College Avenue, a distance of 270 feet to a point in said South
         line of Block No. 34, for the Southwest corner of this tract;

         THENCE North on a line parallel with the West boundary line of said
         Block No. 34, to a point in the South line of said Highway No. 208 ,
         for the Northwest corner of this tract;

         THENCE following the said line of said Highway No 208 in a curved
         southerly direction to the PLACE OF BEGINNING, the tract hereby
         conveyed being all of that part of said Block No. 34, lying South and
         West of said Highway No. 208 and lying East of the tract of land
         heretofore conveyed to R. H. Houghston by Deed recorded in Vol 115,
         Page 54, of the Deed Records of Mitchell County, Texas

<PAGE>

         being the same property convey&d by Warranty Deed dated January 10,
         1991, executed by Lone Wolf Electric Cooperative, Inc. Grantor to Cap
         Rock Electric Cooperative, Inc. as Grantee, said deed being recorded in
         Vol. 494 at page 41 of the Official Public Records of Mitchell County,
         Texas; and specifically including a easements, rights of way, and other
         real property interest whether of record or not, located in the
         counties of Howar Borden, Scurry, Fisher, Nolan, and Mitchell, State of
         Texas;

                  Together with all plants, works, structures, erections,
         reservoirs, dams, buildings, fixtures and improvements now or hereafter
         located on any of the properties conveyed by any and all aforesaid
         deeds mentioned above or properties described above and all tenements,
         hereditaments and appurtenances now or hereafter thereunto belonging or
         in anywise appertaining.<PAGE>

        ================================================================

                            SECOND RESTATED MORTGAGE

                                       AND

                               SECURITY AGREEMENT

                               Made By And Between

                       CAP ROCK ELECTRIC COOPERATIVE, INC.

                                    Mortgagor

                                       and

                            NATIONAL RURAL UTILITIES
                         COOPERATIVE FINANCE CORPORATION

                                    Mortgagee

                                   Dated as of

                                October 24, 1995

             THIS INSTRUMENT GRANTS A SECURITY INTEREST BY A UTILITY

                                       ***

               THIS INSTRUMENT CONTAINS FUTURE ADVANCE PROVISIONS

                                       ***

           THIS INSTRUMENT CONTAINS AFTER-ACQUIRED PROPERTY PROVISIONS

        ================================================================

CFC Form C48 (Class A)
Electric Mortgage for Non-RUS Borrowers
Rev. 1/20/95
TX 107-A-9043 (RBA)

<PAGE>

                                TABLE OF CONTENTS

<TABLE>
<CAPTION>
                                                                                      PAGE
<S>                                                                                   <C>
                                    ARTICLE I

Section 1.01        Definitions                                                         1
Section 1.02        Construction                                                        5

                                   ARTICLE II

                                    SECURITY

Section 2.01        Granting Clause                                                     6

                                   ARTICLE III

                                ADDITIONAL NOTES

Section 3.01        Additional Notes                                                    8

                                   ARTICLE IV

                      PARTICULAR COVENANTS OF THE MORTGAGOR

Section 4.01        Authority to Execute and Deliver Notes and
                    Mortgages; All Action Taken; Enforceable
                    Obligations                                                         9

Section 4.02        Authority to Mortgage Property; No Liens; Exception
                    for Permitted Encumbrances; Mortgagor to Defend
                    Title and Remove Liens                                              9

Section 4.03        No Encumbrances on Property                                         9

Section 4.04        Additional Permitted Debt                                           9

Section 4.05        Payment of Notes                                                   10

Section 4.06        Preservation of Corporate Existence and
                    Franchises                                                         10

Section 4.07        Maintenance of Mortgaged Property                                  10

<PAGE>

                           TABLE OF CONTENTS; Continued

<CAPTION>
                                                                                      PAGE
<S>                                                                                   <C>

Section 4.08        Insurance; Restoration of Damaged Mortgaged
                    property                                                           11

Section 4.09        Mortgagee Right to Expend Money to Protect
                    Mortgaged Property                                                 12

Section 4.10        Further Assurances                                                 12

Section 4.11        Application of Proceeds from Condemnation                          12

Section 4.12        Compliance with Loan Agreements; Notice of
                    Amendments to, and Defaults under Loan
                    Agreements                                                         12

Section 4.13        Rights of Way, etc                                                 13

                                    ARTICLE V

                            REMEDIES OF THE MORTGAGEE

Section 5.01        Events of Default                                                  13

Section 5.02        Acceleration of Maturity; Recision and
                    Amendment                                                          14

Section 5.03        Remedies of Mortgagee                                              15

Section 5.04        Application of Proceeds from Remedial
                    Actions                                                            16

Section 5.05        Remedies Cumulative; No Election                                   16

Section 5.06        Waiver of Appraisement Rights                                      16

Section 5.07        Notice of Default                                                  16

                                     -ii-
<PAGE>

                           TABLE OF CONTENTS; Continued

<CAPTION>
                                                                                      PAGE
<S>                                                                                   <C>

                                   ARTICLE VI

                  POSSESSION UNTIL DEFAULT - DEFEASANCE CLAUSE

Section 6.01        Possession Until Default                                           17

Section 6.02        Defeasance                                                         17

                                   ARTICLE VII

                                  MISCELLANEOUS

Section 7.01        Property Deemed Real Property                                      17

Section 7.02        Mortgage to Bind and Benefit Successors and
                    Assigns                                                            17

Section 7.03        Headings                                                           18

Section 7.04        Notices                                                            18

Section 7.05        Severability                                                       18

Section 7.06        Mortgage Deemed Security Agreement                                 18

Section 7.07        Indemnification by Mortgagor of Mortgagee                          19

APPENDIX   A

APPENDIX   B

APPENDIX   C
</TABLE>

                                      -iii-
<PAGE>

         SECOND RESTATED MORTGAGE AND SECURITY AGREEMENT, dated as of
         October 24, 1995 (hereinafter called this "Mortgage") is made by and
         between CAP ROCK ELECTRIC COOPERATIVE, INC. (hereinafter called the
         ("Mortgagor"), a corporation existing under the laws of the State of
         Texas, (the "State") and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE
         CORPORATION (hereinafter called "CFC" or the "Mortgagee"), a
         corporation existing under the laws of the District of Columbia.

                                    RECITALS

         WHEREAS, the Mortgagor and CFC are parties to that certain Restated
Mortgage and Security Agreement dated as of March 30, 1993, as supplemented,
amended or restated (the "Original Mortgage" identified in Appendix "A" of
this Mortgage) originally entered into between the Mortgagor and CFC; and

         WHEREAS, this Mortgage restates and consolidates the Original
Mortgage while preserving the priority of CFC's Lien under the Original
Mortgage and secures the payment of Mortgagor's outstanding and current
secured indebtedness to CFC, which indebtedness is described more
particularly by listing the Original Notes in Appendix "A" hereto; and

         WHEREAS, the Mortgagor and CFC are authorized to enter into this
Mortgage;

         NOW, THEREFORE, the parties hereto, in consideration of the mutual
covenants contained herein, do agree as follows:

                                    ARTICLE I

                                   DEFINITIONS

         Section 1.01. Definitions. In addition to the terms defined
elsewhere in this Mortgage, the terms defined in this Article I shall have
the meanings specified herein and/or under the applicable Uniform Commercial
Code, unless the context clearly requires otherwise. The terms defined herein
include the plural as well as the singular and the singular as well as the
plural.

ADDITIONAL NOTES shall mean any Notes issued by the Mortgagor to CFC or any
other lender pursuant to Article III of this Mortgage including any
refunding, renewal, or substitute Notes which may from time to time be
executed and delivered by the Mortgagor pursuant to the terms of Article III.

BUSINESS DAY shall mean any day that CFC is open for business.

CFC is defined in the recitals to this Mortgage and shall include its
successors and assigns.

CFC Notes shall mean the Original CFC Notes and any Additional Notes issued
by the Mortgagor to CFC.

DEBT SERVICE COVERAGE RATIO ("DSC") shall mean the ratio determined as
follows: for any calendar year add (i) Patronage Capital and Operating
Margins, (ii) Non-Operating Margins-Interest, (iii) Interest Expense, (iv)
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 of 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

                                       1
<PAGE>

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 (i) 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.

DEPRECIATION AND AMORTIZATION EXPENSE shall mean an amount constituting the
depreciation and amortization of the Mortgagor as computed for purposes of
Form 7.

EQUITIES AND MARGINS shall mean Mortgagor's equities and margins as such
terms are defined by generally accepted accounting principles.

EQUITY shall mean the aggregate of Mortgagor's Equities and Margins as
computed pursuant to generally accepted accounting principles.

EVENT OF DEFAULT shall have the meaning specified in Section 5.01 hereof.

EXCEPTED PROPERTY shall mean the properties, if any, identified on Appendix C
hereto.

FISCAL YEAR shall mean the fiscal year of the Mortgagor.

FORM 7 shall mean the form so identified by CFC or, if no such form is
applicable to the accounts of the Mortgagor, 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 Mortgagor 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 33-1/3% of the excess of
Restricted Rentals paid by the Mortgagor over 2% of the Mortgagor's Equities
and Margins.

LIEN shall mean any statutory or common law consensual or non- consensual
mortgage, pledge, security interest, encumbrance, lien, right of set off,
claim or charge of any kind, including, without limitation, any conditional
sale or other title retention transaction, any lease transaction in the
nature thereof and any secured transaction under the Uniform Commercial Code.
Loan Agreements shall mean any loan agreement executed by and between the
Mortgagor and CFC in connection with the execution and delivery of any Notes
secured hereby and any loan agreement between the Mortgagor and another
mortgagee in connection with the execution and delivery of any Notes secured
hereby.

LONG-TERM DEBT shall mean any amount included in Tonal Long-Term Debt
pursuant to generally accepted accounting principles.

LONG-TERM LEASES shall mean leases having unexpired terms (taking into
account terms of renewal at the option of the lessor, whether or not such
leases have previously been renewed) of more than 12 months.

MAXIMUM DEBT LIMIT, if any, shall mean the amount more particularly described
in Appendix "A" hereto.

MORTGAGED PROPERTY shall have the meaning specified in Section 2.01 hereof.

MORTGAGEE shall mean CFC, its successor and assigns.

                                       2
<PAGE>

NON-OPERATING MARGINS-INTEREST shall mean the amount of non- operating
margins-interest of Mortgagor as computed for purposes of Form 7.

NOTE OR NOTES shall mean one or more of the CFC Notes, and any other Notes
which pursuant to Article III may, from time to time, be secured under this
Mortgage.

ORIGINAL CFC NOTES shall mean the Notes evidencing outstanding and current
indebtedness of the Mortgagor to CFC as of the date of this Mortgage, listed
on Appendix "A" hereto.

OUTSTANDING shall mean all Notes heretofore issued as of the date of
determination except Notes the principal and interest on which have been
fully paid and which have been canceled by the Mortgagee or Notes the payment
for which has been provided for pursuant to Section 6.02.

PATRONAGE CAPITAL AND OPERATING MARGINS shall mean the net amount of
operating revenue and patronage capital less the total cost of electric
service of the Mortgagor as computed for purposes of Form 7.

PERMITTED DEBT shall have the meaning specified in Section 4.04.

PERMITTED ENCUMBRANCES shall mean:

         (i) any Liens for taxes, assessments or governmental charges
         for the current year and taxes, assessments or governmental
         charges not due and delinquent;

         (ii) Liens for workmen's compensation awards and similar
         obligations not then delinquent;

         (iii) mechanics', laborers', materialmen's and similar Liens not then
         delinquent, and any such Liens, whether or not delinquent, whose
         validity is at the time being contested in good faith;

         (iv) Liens and charges incidental to construction or current operation
         which have not been filed or asserted or the payment of which has been
         adequately secured or which, in the opinion of counsel to the Mortgagor
         are insignificant in amount;

         (v) Liens, securing obligations not assumed by the Mortgagor and on
         account of which it does not pay and does not expect to pay interest,
         existing upon real estate (or rights in or relating to real estate)
         over or in respect of which the Mortgagor has a right-of-way or-other
         easement for substation, transmission, distribution or other
         right-of-way purposes;

         (vi) any right which the United States of America or any state or
         municipality or governmental body or agency may have by virtue of any
         franchise, license, contract or statute to purchase, or designate a
         purchaser of, or order the sale of, any property of the Mortgagor upon
         payment of reasonable compensation there for, or upon reasonable
         compensation or conditions to terminate any franchise, license or other
         rights before the expiration date hereof or to regulate the property
         and business of the Mortgagor;

         (vii) attachment of judgment Liens covered by insurance, or
         upon appeal and covered by bond;

                                       3
<PAGE>

         (viii) deposits or pledges to secure payment of workmen's
         compensation, unemployment insurance, old age pensions or
         other social security;

         (ix) deposits or pledges to secure performance of bids, tenders,
         contracts (other than contracts for the payment of borrowed
         money),leases, public or statutory obligations;

         (x) surety or appeal bonds, and other deposits or pledges for
         purposes of like general nature in the ordinary course of
         business;

         (xi) easements or reservations in respect to any property for the
         purpose of transmission and distribution lines and rights- of-way and
         similar purposes, zoning ordinances, regulations, reservations,
         restrictions, covenants, party wall agreements, conditions of record
         and other encumbrances (other than to secure the payment of money),
         none of which in the opinion of counsel to the Mortgagor is such as to
         interfere with the proper operation of the property affected thereby;

         (xii) the burdens of any law or governmental organization or permit
         requiring the Mortgagor to maintain certain facilities or perform
         certain acts as a condition of its occupancy of or interference with
         any public land or any river, stream or other waters or relating to
         environmental matters;

         (xiii) any Lien or encumbrance for the discharge of which moneys have
         been deposited in trust with a proper depository to apply such moneys
         to the discharge of such Lien or encumbrances;

         (xiv) any Lien reserved as security for rent or compliance with other
         provisions of the lease in case of any leasehold estate made, or
         existing on property acquired, in the ordinary course of business or in
         connection with Restricted Rentals permitted by Section 4.04; and

         (xv) purchase money indebtedness permitted by Section 4.04.

PRINCIPAL shall mean the amount of principal billed on account of Total
Long-Term Debt of Borrower as computed for purposes of Form 7.

RESTRICTED RENTALS shall mean all rentals required to be paid under finance
leases and charged to income, exclusive of any amounts paid under any such
lease (whether or not designated therein as rental or additional rental) for
maintenance or repairs, insurance, taxes, assessments, water rates or similar
charges. For the purpose of this definition the term "finance lease" shall
mean any lease having a rental term (including the term for which such lease
may be renewed or extended at the option of the lessee) in excess of 3 years
and covering property having an initial cost in excess of $250,000 other than
automobiles, trucks, trailers, other vehicles (including without limitation
aircraft and ships) , office, garage and warehouse space and office equipment
(including without limitation computers).

SECURITY INTEREST shall mean any assignment, transfer, mortgage,
hypothecation or pledge.

SUBORDINATED INDEBTEDNESS shall mean indebtedness of the Mortgagor, payment
of which shall be subordinated to the prior payment of the Notes by
subordination agreement in form and substance satisfactory to the Mortgagee
which approval will not be unreasonably withheld.

TOTAL ASSETS shall mean an amount constituting the total assets of the
Mortgagor as computed for purposes of Form 7.

                                       4
<PAGE>

TOTAL LONG-TERM DEBT shall mean an amount constituting the long- term debt of
the Mortgagor as computed for purposes of Form 7.

TOTAL UTILITY PLANT shall mean the amount constituting the total utility
plant of the Mortgagor computed in accordance with generally accepted
accounting principles. Uniform Commercial Code shall mean the Uniform
Commercial Code of any state in which any of the Mortgaged Property is
located.

         SECTION 1.02. CONSTRUCTION

         a.  Accounting terms not referred to above are used in this Mortgage
in accordance with generally accepted accounting principles.

         b. Except as set forth in Article V, whenever this Mortgage requires
the consent or approval of the Mortgagee, if there is more than one
mortgagee, such consent or approval shall be given by CFC so long as CFC, or
its assignee, is the noteholder of a majority of the aggregate unpaid
principal balance of the Notes Outstanding and otherwise by each other
noteholder having at least 10% of the aggregate unpaid principal balance of
the Notes outstanding.

                                   ARTICLE II

                                    SECURITY

         SECTION 2.01. GRANTING CLAUSE. In order to secure the payment of the
principal of (and premium, if any) and interest on the Notes, according to
their terms, and further to secure the due performance of the covenants,
agreements and provisions contained in this Mortgage and the Loan Agreements,
and to declare the terms and conditions upon which the Notes are to be
secured, the Mortgagor, in consideration of the premises, does hereby grant,
bargain, sell, alienate, convey, assign, transfer, mortgage, hypothecate,
pledge, set over and confirm unto the Mortgagee, and their respective
assigns, all property, rights, privileges and franchises of the Mortgagor of
every kind and description, real, personal or mixed, tangible or intangible,
whether now owned or hereafter acquired by the Mortgagor, wherever located,
and grants a security interest therein for the purposes herein expressed,
except any Excepted Property, and including all and singular the following
described property (all of which is hereinafter called the "Mortgaged
Property")

                                        I

         All right title and interest of the Mortgagor in and to the electric
generating plants and facilities and electric transmission and distribution
lines and facilities now owned by the Mortgagor and located in the counties
listed in Appendix B hereto, or hereafter constructed or acquired by the
Mortgagor, wherever located, and in and to all extensions and improvements
thereof and additions thereto, including any and all other property of every
nature and description, used or acquired for use by the Mortgagor in
connection therewith, and including, without limitation, the property
described in the property schedule listed on, or attached to, Appendix B
hereto;

                                       5
<PAGE>

                                       II

         All right, title and interest of the Mortgagor in, to and under any
and all grants, privileges, rights of way And easements now owned, held,
leased, enjoyed or exercised, or which may hereafter be owned, held, leased,
acquired, enjoyed or exercised, by the Mortgagor for the purposes of, or in
connection with, the construction or operation by or on behalf of the
Mortgagor of electric transmission or distribution lines or systems, whether
underground or overhead or otherwise, or of any electric generating plant,
wherever located;

                                       III

         All right, title and interest of the Mortgagor in, to and under any
and all licenses, ordinances, privileges and permits heretofore granted,
issued or executed, or which may hereafter be granted, issued or executed, to
it or to its assignors by the United States of America, or by any state, or
by any county, township, municipality, village or other political subdivision
thereof, or by any agency, board, commission or department of any of the
foregoing, authorizing the construction, acquisition, or operation of
electric transmission or distribution lines, or systems, or any electric
generating plant or plants, insofar as the same may by law be assigned,
granted, bargained, sold, conveyed, transferred, mortgaged or pledged;

                                       IV

         All right, title and interest of the Mortgagor in, to and under any
and all contracts heretofore or hereafter executed by and between the
Mortgagor and any person, firm, corporation or governmental body or agency
providing for the purchase, sale, exchange or transmission of electric power
or energy by the Mortgagor together with any and all other accounts, contract
rights and general intangibles (as such terms are defined in the applicable
Uniform Commercial Code) heretofore or hereafter acquired by the Mortgagor,
including, without limitation, the accounts, contract rights and general
intangibles described in Appendix B hereto;

                                        V

     Also, all right, title and interest of the Mortgagor in and to all other
property, real or personal, tangible or intangible, of every kind, nature and
description, and wheresoever situated, now owned or hereafter acquired by the
Mortgagor, it being the intention hereof that all such property now owned but
not specifically described herein or acquired or held by the Mortgagor after
the date hereof shall be as fully embraced within and subjected to the lien
hereof as if the same were now owned by the Mortgagor and were specifically
described herein to the extent only, however, that the subjection of such
property to the lien hereof shall not be contrary to law;

         Together with all rents, income, revenues, profits, cash, proceeds
and benefits at any time derived, received or had from any and all of the
above-described property or business operations of the Mortgagor, to the
fullest extent permitted by law.

         PROVIDED, HOWEVER, that no automobiles, trucks, trailers, tractors
or other vehicles (including, without limitation, aircraft or ships, if any)
owned or used by the Mortgagor-shall be included in the Mortgaged Property.

         TO HAVE AND TO HOLD all and singular the Mortgaged Property unto the
Mortgagee and their respective assigns forever, to secure equally and ratably
the payment of the principal of (premium, if any) and interest on the Notes,
according to their terms, without preference, priority or distinction as to
interest or principal (except as otherwise specifically provided herein) or
as

                                       6
<PAGE>

to lien or otherwise of any Note over any other Note by reason of the
priority in time of the execution, delivery or maturity thereof or of the
assignment or negotiation thereof, or otherwise, and to secure the due
performance of the covenants, agreements and provisions herein and in the
Loan Agreements contained, and for the uses and purposes and upon the terms,
conditions, provisos and agreements hereinafter expressed and declared.

                                   ARTICLE III

                                ADDITIONAL NOTES

         SECTION 3.01. ADDITIONAL NOTES. Without the prior consent of the
Mortgagee, the Mortgagor may issue Additional Notes to CFC or to another
lender which Notes will thereupon be secured equally and ratably with the
Notes if the following requirements are satisfied:

         (1) As evidenced by a certificate of an independent accountant
         delivered to the Mortgagee, the Mortgagor shall have achieved (x) for
         each of the two calendar years preceding, or any two consecutive 12
         month periods ending within 180 days preceding the issuance of such
         Notes, a DSC of not less than 1.35 and (y) Equity of not less than 20%
         of Total Assets after taking into consideration such new indebtedness
         and the assets created by such indebtedness;

         (2) No Event of Default or any event which with the giving of notice or
         lapse of time or both would become an Event of Default has occurred and
         is continuing hereunder; and

         (3) At least 95% of the proceeds of the borrowings represented by such
         Additional Notes are for the purpose of acquiring or constructing new
         or replacement electric utility or general plant.

The Mortgagor shall also have the right without the consent of the Mortgagee,
so long as an Event of Default or any event which with the giving of notice
or lapse of time or both would become an Event of Default, has not occurred
and is continuing hereunder, to issue Additional Notes for the purpose of
refunding or refinancing any Notes so long as the total amount of outstanding
indebtedness evidenced by any such Additional Note is not greater than 105
percent of the Note being refunded or refinanced.

                                   ARTICLE IV

                      PARTICULAR COVENANTS OF THE MORTGAGOR

         The Mortgagor covenants with the Mortgagee from time to time, as
follows:

         SECTION 4.01. AUTHORITY TO EXECUTE AND DELIVER NOTES AND MORTGAGES;
ALL ACTION TAKEN; ENFORCEABLE OBLIGATIONS. The Mortgagor is authorized under
its articles of incorporation and bylaws and all applicable laws and by
corporate action to execute and deliver the Notes and any Additional Notes
and this Mortgage; and the Notes and this Mortgage are, and any Additional
Notes when executed and delivered will be, the valid and enforceable
obligations of the Mortgagor in accordance with their respective terms.

         SECTION 4.02. AUTHORITY TO MORTGAGE PROPERTY; NO LIENS; EXCEPTION
FOR PERMITTED ENCUMBRANCES; MORTGAGOR TO DEFEND TITLE AND REMOVE LIENS. The
Mortgagor warrants that it has good right and lawful authority to mortgage
the

                                       7
<PAGE>

Mortgaged Property for the purposes herein expressed, and that the Mortgaged
Property is free and clear of any Lien, affecting the title thereto, except
the lien of this Mortgage and Permitted Encumbrances. Except as to Permitted
Encumbrances, the Mortgagor will, so long As any of the Notes shall be
Outstanding, maintain and preserve the lien of this Mortgage superior to all
other Liens affecting the Mortgaged Property and will forever warrant and
defend the title to the Mortgaged Property against any and all claims and
demands. Except as to Permitted Encumbrances, the Mortgagor will promptly pay
or discharge any and all obligations for or on account of which any such Lien
or charge might exist or could be created and any and all lawful taxes,
rates, levies, assessments, Liens, claims or other charges imposed upon or
accruing upon any of the Mortgagor's property (whether taxed to the Mortgagor
or to the Mortgagee), or the franchises, earnings or business of the
Mortgagor, as and when the same shall become due and payable; and when called
upon so to do the Mortgagor will furnish to the Mortgagee adequate proof of
such payment or discharge; PROVIDED, HOWEVER, that this provision shall not
be deemed to require the payment or discharge of any tax, rate, levy,
assessment or other governmental charge while the Mortgagor is contesting the
validity thereof by appropriate proceedings in good faith and so long as it
shall have set aside on its books adequate reserves with respect thereto.

         SECTION 4.03. NO ENCUMBRANCES ON PROPERTY. Except to secure loans
made to the Mortgagor by the Mortgagee, the Mortgagor will not, without the
prior written consent of the Mortgagee, create or incur or suffer or permit
to be created or incurred or to exist any Lien, charge, assignment, pledge,
mortgage on any of the Mortgaged Property prior to or on a parity with the
Lien of this Mortgage except for the Permitted Encumbrances. Subject to the
provisions of Section 4.04, or unless approved by the Mortgagee, the
Mortgagor will purchase all materials, equipment and replacements to be
incorporated in or used in connection with the Mortgaged Property outright
and not subject to any conditional sales agreement, chattel mortgage,
bailment, lease or other agreement reserving to the seller any right, title
or Lien.

         SECTION 4.04.  ADDITIONAL PERMITTED DEBT.  Except as permitted by
Section 3.01 and the Loan Agreements, the Mortgagor shall not incur, assume,
guarantee or otherwise become liable in respect of any debt (including
Subordinated Indebtedness) other than the following: ("Permitted Debt")

                  (1)      Purchase money indebtedness in non-electric utility
                           property, in an amount not exceeding 10% of Total
                           Utility Plant or 50% of Equity, whichever is greater;

                  (2)      Restricted Rentals in an amount not to exceed 5% of
                           Equity -during any 12 consecutive calendar month
                           period;

                  (3)      Unsecured current debt and lease obligations
                           incurred in the ordinary course of business
                           including accounts payable for goods and services;
                           and

                  (4)      Unsecured indebtedness.

         SECTION 4.05. PAYMENT OF NOTES. The Mortgagor will duly and
punctually pay the principal of (premium, if any) and interest on the Notes
at the dates and places and in the manner provided therein, and all other
sums becoming due hereunder.

         SECTION 4.06. PRESERVATION OF CORPORATE EXISTENCE AND FRANCHISES.
The Mortgagor will, so long as any of the Notes are outstanding, take or
cause to be taken all such action as from time to time may be necessary to
preserve its corporate existence and to preserve and renew all franchises,
rights of way, easements, permits, and licenses now or hereafter to be
granted or upon it

                                       8
<PAGE>

conferred, and will comply with all valid laws, ordinances, regulations, and
requirements applicable to it or its property.

         SECTION 4.07.  MAINTENANCE OF MORTGAGED PROPERTY.  So long as the
Mortgagor holds title to the Mortgaged Property, the Mortgagor will at all
times maintain and preserve the Mortgaged Property and each and every part
and parcel thereof in good repair, working order and condition, ordinary wear
and tear and acts of God excepted, and in compliance with all applicable
laws, regulations and orders, and will from time to time make all needed and
proper repairs, renewals, and replacements, and useful and proper
alterations, additions, betterments and improvements, and will, subject to
contingencies beyond its reasonable control, at all times keep its plant and
properties in continuous operating condition and use all reasonable diligence
to furnish the consumers served by it through the Mortgaged Property, or any
part thereof, with an adequate supply of electric energy and other services
furnished by the Mortgagor. If any substantial part of the Mortgaged Property
is leased by the Mortgagor to any other party, the lease agreement between
the Mortgagor and the lessee shall obligate the lessee to comply with the
provisions of this Section in respect of the leased facilities and permit the
Mortgagor-to operate the leased facilities in the event of any failure by the
lessee to so comply.

         SECTION 4.08. INSURANCE; RESTORATION OF DAMAGED MORTGAGED PROPERTY.
The Mortgagor will take out, as the respective risks are incurred, and
maintain the classes and amounts of insurance in conformance with generally
accepted utility industry standards for such classes and amounts of coverages
of utilities of the size and character of the Mortgagor.

         The foregoing insurance coverage shall be obtained by means of bond
and policy forms approved by regulatory authorities, and, with respect to
insurance upon any part of the Mortgaged Property, shall provide that the
insurance shall be payable to the Mortgagee as their interest may appear by
means of the standard mortgagee clause without contribution. Each policy or
other contract for such insurance shall contain an agreement by the insurer
that, notwithstanding any right of cancellation reserved to such insurer,
such policy or contract shall continue in force for at least thirty (30) days
after written notice to the Mortgagee of cancellation.

         In the event of damage to or the destruction or loss of any portion
of the Mortgaged Property which shall be covered by insurance, unless the
Mortgagee shall otherwise agree, the Mortgagor shall replace or restore such
damaged, destroyed or lost portion so that the Mortgaged Property shall be in
substantially the same condition as it was in prior to such damage,
destruction or loss, and shall apply the proceeds of the insurance for that
purpose. The Mortgagor shall replace the lost portion of the Mortgaged
Property or shall commence such restoration promptly after such damage,
destruction or loss shall have occurred and shall complete such replacement
or restoration as expeditiously as practicable, and shall pay or cause to be
paid out of the proceeds of such insurance all costs and expenses in
connection therewith so that such replacement or restoration shall be so
completed that the portion of the Mortgaged Property so replaced or restored
shall be free and clear of all mechanics' liens and other claims.

         Sums recovered under any policy or fidelity bond by the Mortgagor
for a loss of funds advanced under the Notes or recovered by the Mortgagee
for any loss under such policy or bond shall, unless otherwise directed by
the Mortgagee, be applied to the prepayment of the Notes PRO RATA according
to the unpaid principal amounts thereof (such prepayments to be applied to
such notes and installments thereof as may be designated by the Mortgagee at
the time of any such prepayment), or be used to construct or acquire
facilities which will become part of the Mortgaged Property. At the request
of the Mortgagee, the Mortgagor shall exercise such rights and remedies which
it may have under such

                                       9
<PAGE>

policy or fidelity bond and which may be designated by the Mortgagee, and the
Mortgagor hereby irrevocably appoints the Mortgagee as its agent to exercise
such rights and remedies under such policy or bond as the Mortgagee may
choose, and the Mortgagor shall pay all costs and expenses incurred by the
Mortgagee in connection with such exercise.

         SECTION 4.09. MORTGAGEE RIGHT TO EXPEND MONEY TO PROTECT MORTGAGED
PROPERTY. The Mortgagor agrees that the Mortgagee from time to time hereunder
may, in its sole discretion, after having given five (5) Business Days prior
written notice to Mortgagor, but shall not be obligated to, advance funds on
behalf of Mortgagor, in order to insure Mortgagor compliance with any
covenant, warranty, representation or agreement of Mortgagor made in or
pursuant to this Mortgage or any of the Loan Agreements, to preserve or
protect any right or interest of the Mortgagee in the Mortgaged Property or
under or pursuant to this Mortgage or any of the Loan Agreements, including
without limitation, the payment of any insurance premiums or taxes and the
satisfaction or discharge of any judgment or any Lien upon the Mortgaged
Property or other property or assets of Mortgagor; PROVIDED, HOWEVER, that
the making of any such advance by the Mortgagee shall not constitute a waiver
by the Mortgagee of any Event of Default with respect to which such advance
is made nor relieve the Mortgagor of any such Event of Default. The Mortgagor
shall pay to the Mortgagee upon demand all such advances made by the
Mortgagee with interest thereon at a rate equal to the Mortgagee's rate at
such time for short-term loans but in no event shall such rate be in excess
of the maximum rate permitted by applicable law. All such advances shall be
included in the obligations and secured by the security interest granted
hereunder.

         SECTION 4.10. FURTHER ASSURANCES. Upon the request of any Mortgagee
hereunder, the Mortgagor shall promptly execute, acknowledge or deliver, or
cause to be executed, acknowledged or delivered to such Mortgagee supplements
here to and/or financing statements and other instruments and documents as
may be requested by such Mortgagee to protect and preserve the Mortgaged
Property, perfection of such Mortgagee's security interest therein and/or
such Mortgagee's rights and remedies hereunder.

         SECTION 4.11.  APPLICATION OF PROCEEDS FROM CONDEMNATION.  In the
event that the Mortgaged Property or any part thereof, shall be taken under
the power of eminent domain, all proceeds and avails there from may be used
to finance construction of facilities secured or to be secured by this
Mortgage. Any proceeds not so used shall forthwith be applied by the
Mortgagor: first, to the ratable payment of any indebtedness secured by this
Mortgage other than principal of or interest on the Notes; second, to the
ratable payment of interest which shall have accrued on the Notes and be
unpaid; third, to the ratable payment of or on account of the unpaid
principal of the Notes, to such installments thereof as may be designated by
the respective Mortgagee at the time of any such payment.

         SECTION 4.12. COMPLIANCE WITH LOAN AGREEMENTS; NOTICE OF AMENDMENTS
TO AND DEFAULTS UNDER LOAN AGREEMENTS. The Mortgagor will observe and perform
all of the covenants, agreements, terms and conditions contained in any Loan
Agreement entered into in connection with the issuance of any of the Notes,
as from time to time amended. The Mortgagor will send promptly to each
mortgagee notice of any default by the Mortgagor under any Loan Agreement and
notice of any amendment to any Loan Agreement.

         SECTION 4.13. RIGHTS OF WAY, ETC. The Mortgagor will use its best
efforts to obtain all such rights of way, easements from landowners and
releases from lien holders as shall be necessary or advisable in the conduct
of its business, and, if requested by the Mortgagee, deliver to the Mortgagee
evidence satisfactory to it of the obtaining of such rights of way, easements
or releases.

                                       10
<PAGE>

                                    ARTICLE V

                            REMEDIES OF THE MORTGAGEE

         SECTION 5.01.  EVENTS OF DEFAULT: Each of the following shall
be an Event of Default:

                  (a) default shall be made in the payment of any installment of
         or on account of interest on or principal of (or premium, if any
         associated with) any Note or Notes for more than five (5) Business Days
         after the same shall be required to be made;

                  (b) default shall be made in the due observance or performance
         of any other of the covenants, conditions or agreements on the part of
         the Mortgagor, in any of the Notes, Loan Agreements or in this
         Mortgage, and such default shall continue for a period of sixty (60)
         days after written notice specifying such default and requiring the
         same to be remedied shall have been given to the Mortgagor by the
         Mortgagee;

                  (c) the Mortgagor shall file a petition in bankruptcy or be
         adjudicated a bankrupt or insolvent, or shall make an assignment for
         the benefit of its creditors, or shall consent to the appointment of a
         receiver of itself or of its property, or shall institute proceedings
         for its reorganization or proceedings instituted by others for its
         reorganization shall not be dismissed within sixty (60) days after the
         institution thereof;

                  (d) a receiver or liquidator of the Mortgagor or of any
         substantial portion of its property shall be appointed and the order
         appointing such receiver or liquidator shall not be vacated within
         sixty (60) days after the entry thereof;

                  (e)      the Mortgagor shall forfeit or otherwise be deprived
         of its corporate charter or franchises, permits, easements, or
         licenses required to carry on any material portion of its
         business;

                  (f) a final judgment shall be entered against the Mortgagor
         and shall remain unsatisfied or without a stay in respect thereof for a
         period of sixty (60) days; or,

                  (g) any representation or warranty made by the Mortgagor
         herein, in the Loan Agreements or in any certificate or financial
         statement delivered hereunder or thereunder shall prove to be false or
         misleading in any material respect.

         SECTION 5.02.  ACCELERATION OF MATURITY; RESCISSION AND
AMENDMENT.

                  (a) If an Event of Default described in Section 5.01(a) has
         occurred and is continuing, any mortgagee upon which such default has
         occurred may declare the principal of, and any other amounts due on
         account of, all its Notes secured hereunder to be due and payable
         immediately by a notice in writing to the Mortgagor and to all other
         mortgagees (failure to provide said notice to all other mortgagees
         shall not effect the validity of any acceleration of the Note or Notes
         by such mortgagee), and upon such declaration, all unpaid
         principal (premium, if any) and accrued interest so declared shall
         become due and payable immediately, anything contained herein or in
         any Note or Notes to the contrary notwithstanding. Upon receipt of
         actual knowledge of or any notice of acceleration by any mortgagee,
         any other mortgagee may declare the principal of all of its Notes to
         be due and payable immediately by a notice in writing to the Mortgagor
         and upon such declaration, all unpaid

                                       11
<PAGE>

         principal (premium, if any) and accrued interest so declared shall
         become due and payable immediately, anything contained herein or in
         any Note or Notes to the contrary notwithstanding.

                  (b) If any other Event of Default shall have occurred and be
         continuing, the Mortgagee may declare the principal (premium, if any)
         and accrued interest on all Notes secured by this Mortgage due and
         payable and upon such declaration, all unpaid principal (premium, if
         any) and interest so declared shall become due and payable immediately,
         anything contained herein or in any Note or Notes to the contrary
         notwithstanding. Should the Mortgagee not take action to accelerate the
         Notes within thirty (30) days after an Event of Default, any mortgagee
         shall have the right to declare the principal (premium, if any) and
         accrued interest on all Notes secured by this Mortgage due and payable
         and upon such declaration, all unpaid principal (premium, if any) and
         interest so declared shall become due and payable immediately, anything
         contained herein or in any Note or Notes to the contrary
         notwithstanding.

                  (c) If at any time after the unpaid principal of (premium, if
         any) and accrued interest on any of the Notes shall have been so
         declared to be due and payable, all payments in respect of principal
         and interest which shall have become due and payable by the terms of
         such Note or Notes (other than amounts due as a result of the
         acceleration of the Notes) shall be paid to the respective mortgagee,
         and all other defaults hereunder and under the Notes shall have been
         made good and secured to the satisfaction of each of the mortgagees,
         then and in every such case, a mortgagee who shall have declared the
         principal of (premium, if any) and interest on Notes held by such
         mortgagee to be due and payable may, by written notice to the
         Mortgagor, annul such declaration and waive such default and the
         consequences thereof, but no such waiver shall extend to or affect any
         subsequent default or impair any right consequent thereon.

         SECTION 5.03.  REMEDIES OF MORTGAGEE.  if one or more of the Events
of Default shall occur and be continuing, the Mortgagee personally or by
attorney, in its or their discretion, may, on behalf of all of the
noteholders, in so far as not prohibited by law:

                  (a) take immediate possession of the Mortgaged Property,
         collect and receive all credits, outstanding accounts and bills
         receivable of the Mortgagor and all rents, income, revenues and profits
         pertaining to or arising from the Mortgaged Property, or any part
         thereof, whether then past due or accruing thereafter, and issue
         binding receipts therefor; and manage, control and operate the
         Mortgaged Property as fully as the Mortgagor might do if in possession
         thereof, including, without limitation, the making of all repairs or
         replacements deemed necessary or advisable;

                  (b) proceed to protect and enforce the rights of the Mortgagee
         and the rights of each mortgagee by suits or actions in equity or at
         law in any court or courts of competent jurisdiction, whether for
         specific performance of any covenant or any agreement contained herein
         or in aid of the execution of any power herein granted or for the
         foreclosure hereof or hereunder or for the sale of the Mortgaged
         Property, or any part thereof, or to collect the debts hereby secured
         or for the enforcement of such other or additional appropriate legal or
         equitable remedies as may be deemed necessary or advisable
         to protect and enforce the rights and remedies herein granted or
         conferred, and in the event of the institution of any such action or
         suit the mortgagee instituting such action or suit shall have the right
         to have appointed a receiver of the Mortgaged Property and of all
         rents, income, revenues and profits

                                       12
<PAGE>

         pertaining thereto or arising therefrom, whether then past due or
         accruing after the appointment of such receiver, derived, received or
         had from the time of the commencement of such suit or action, and such
         receiver shall have all the usual powers and duties of receivers in
         like and similar cases, to the fullest extent permitted by law, and if
         application shall be made for the appointment of a receiver the
         Mortgagor hereby expressly consents that the court to which such
         application shall be made may make said appointment; and

                  (c) sell or cause to be sold all and singular the Mortgaged
         Property or any part thereof, and all right, title, interest, claim and
         demand of the Mortgagor therein or thereto, at public auction at such
         place in any county in which the property to be sold, or any part
         thereof, is located, at such time and upon such terms as may be
         specified in a notice of sale, which shall state the time when and the
         place where the sale is to be held, shall contain a brief general
         description of the property to be sold, and shall be given by mailing a
         copy thereof to the Mortgagor at least fifteen (15) days prior to the
         date fixed for such sale and by publishing the same once in each week
         for two successive calendar weeks prior to the date of such sale in a
         newspaper of general circulation published in said county or, if no
         such newspaper is published in such county, in a newspaper of general
         circulation in such county, the first such publication to be not less
         than fifteen (15) days nor more than thirty (30) days prior to the date
         fixed for such sale. Any sale to be made under this subparagraph (c) of
         this Section 5.03 may be adjourned from time to time by announcement at
         the time and place appointed for such sale or for such adjourned sale
         or sales, and without further notice or publication the sale may be had
         at the time and place to which the same shall be adjourned; PROVIDED,
         HOWEVER, that in the event another or different notice of sale or
         another or different manner of conducting the same shall be required by
         law the notice of sale shall be given or the sale be conducted, as the
         case may be, in accordance with the applicable provisions of law. The
         expense incurred by such mortgagee (including, but not limited to,
         receiver's fees, counsel fees, cost of advertisement and agents'
         compensation) in the exercise of any of the remedies provided in this
         Mortgage shall be secured by this Mortgage.

         SECTION 5.04. APPLICATION OF PROCEEDS FROM REMEDIAL ACTIONS. Any
proceeds or funds arising from the exercise of any rights or the enforcement
of any remedies herein provided after the payment or provision for the
payment of any and all costs and expenses in connection with the exercise of
such rights or the enforcement of such remedies shall be applied first, to
the ratable payment of indebtedness hereby secured other than the principal
of or interest on the Notes; second, to the ratable payment of interest which
shall have accrued on the Notes and which shall be unpaid; third, to the
ratable payment of or on account of the unpaid principal of the Notes; and
the balance, if any, shall be paid to whosoever shall be entitled thereto.

         SECTION 5.05. REMEDIES CUMULATIVE; NO ELECTION. Every right or
remedy herein conferred upon or reserved to the Mortgagee shall be cumulative
and shall be in addition to every other right and remedy given hereunder or
now or hereafter existing at law, or in equity, or by statute. The pursuit of
any right or remedy shall not be construed as an election.

         SECTION 5.06. WAIVER OF APPRAISEMENT RIGHTS. The Mortgagor, for
itself and all who may claim through or under it, covenants that it will not
at any time insist upon or plead, or in any manner whatever claim, or take
the benefit or advantage of, any appraisement, valuation, stay, extension or
redemption laws now or hereafter in force in any locality where any of the
Mortgaged Property may be situated, in order to prevent, delay or hinder the
enforcement or foreclosure of this Mortgage, or the absolute sale of the

                                       13
<PAGE>

Mortgaged Property, or any part thereof, or the final and absolute putting
into possession thereof, immediately after such sale, of the purchaser or
purchasers thereat, and the Mortgagor, for itself and all who may claim
through or under it, hereby waives the benefit of all such laws unless such
waiver shall be forbidden by law.

         SECTION 5.07. NOTICE OF DEFAULT. The Mortgagor covenants that it
will give immediate written notice to the Mortgagee of the occurrence of an
Event of Default or in the event that any right or remedy described in
Sections 5.02 and 5.03 hereof is exercised or enforced or any action i. taken
to exercise or enforce any such right or remedy.

                                   ARTICLE VI

                   POSSESSION UNTIL DEFAULT-DEFEASANCE CLAUSE

         SECTION 6.01. POSSESSION UNTIL DEFAULT. Until some one or more of
the Events of Default shall have happened, the Mortgagor shall be suffered
and permitted to retain actual possession of the Mortgaged Property, and to
manage, operate and use the same and any part thereof, with the rights and
franchises appertaining thereto, and to collect, receive, take, use and enjoy
the rents, revenues, issues, earnings, income, products and profits thereof
or therefrom, subject to the provisions of this Mortgage.

         SECTION 6.02.  DEFEASANCE.  If the Mortgagor shall pay or cause to
be paid the whole amount of the principal of (premium, if any) and interest
on the Notes at the times and in the manner therein provided, and shall also
pay or cause to be paid all other sums payable by the Mortgagor hereunder or
under any applicable Loan Agreement and shall keep and perform, all covenants
herein required to be kept and performed by it, then and in that case, all
property, rights and interest hereby conveyed or assigned or pledged shall
revert to the Mortgagor and the estate, right, title and interest of the
Mortgagee shall thereupon cease, determine and become void and the Mortgagee,
in such case, on written demand of the Mortgagor but at the Mortgagor's cost
and expense, shall enter satisfaction of the Mortgage upon the record. In any
event, each mortgagee, upon payment in full to such mortgagee by the
Mortgagor of all Principal of (premium, if any) and interest on any Note held
by such mortgagee and the payment and discharge by the Mortgagor of all
charges due to such mortgagee hereunder or under any applicable Loan
Agreement, shall execute and deliver to the Mortgagor such instrument of
satisfaction, discharge or release as shall be required by law in the
circumstances.

                                   ARTICLE VII

                                  MISCELLANEOUS

         SECTION 7.01. PROPERTY DEEMED REAL PROPERTY. It is hereby declared
to be the intention of the Mortgagor that any electric generating plant or
plants and facilities and all electric transmission and distribution lines,
or other electric or non- electric systems and facilities, embraced in the
Mortgaged Property, including, without limitation, all rights of way and
easements granted or given to the Mortgagor or obtained by it to use real
property in connection with the construction, operation or maintenance of
such plant, lines, facilities or systems, and all other property physically
attached to any of the foregoing, shall be deemed to be real property.

         SECTION 7.02. MORTGAGE TO BIND AND BENEFIT SUCCESSORS AND ASSIGNS.
All of the covenants, stipulations, promises, undertakings and agreements
herein contained by or on behalf of the Mortgagor shall bind its successors
and assigns, whether so specified or not, and all titles, rights and remedies
hereby granted to or conferred upon the Mortgagee shall pass to and inure to

                                       14
<PAGE>

the benefit of the successors and assigns of the Mortgagee and shall be
deemed to be granted or conferred for the ratable,benefit and security of all
who shall from time to time be a mortgagee. The Mortgagor hereby agrees to
execute such consents, acknowledgements and other instruments as may be
reasonably requested by the Mortgagee in connection with the assignment,
transfer, mortgage, hypothecation or pledge of the rights or interests of the
Mortgagee hereunder or under the Notes or in and to any of the Mortgaged
Property.

         SECTION 7.03. HEADINGS. The descriptive headings of the various
articles of this Mortgage were formulated and inserted for convenience only
and shall not be deemed to affect the meaning or construction of any of the
provisions hereof.

         SECTION 7.04. NOTICES. All demands, notices, reports, approvals,
designations, or directions required or permitted to be given hereunder shall
be in writing and shall be deemed to be properly given if sent by registered
or certified mail, postage prepaid, or delivered by hand, or sent by
facsimile transmission, receipt confirmed, addressed to the proper party or
parties at the following address:

         As to the Mortgagor:            CAP ROCK ELECTRIC COOPERATIVE, INC.
                                         500 West Wall, Suite 400
                                         Midland, Texas 79701

         As to the Mortgagee:            NATIONAL RURAL UTILITIES
                                         COOPERATIVE FINANCE CORPORATION
                                         Woodland Park
                                         2201 Cooperative Way
                                         Herndon, Virginia 22071
                                         Fax:     (703) 709-6776

                                         Attention: Governor

and as to any other person, firm, corporation or governmental body or agency
having an interest herein by reason of being a Mortgagee, at the last address
designated by such person, firm, corporation, governmental body or agency to
the Mortgagor and the Mortgagee. Any such party may from time to time
designate to each other a new address to which demands, notices, reports,
approvals, designations or directions may be addressed, and from and after
any such designation the address designated shall be deemed to be the address
of such party in lieu of the address given above.

         SECTION 7.05. SEVERABILITY. The invalidity of any one or more
phrases, clauses, sentences, paragraphs or provisions of this Mortgage shall
not affect the remaining portions hereof, nor shall any invalidity as to any
mortgagee hereunder affect the rights hereunder of any other mortgagee.

         SECTION 7.06 MORTGAGE DEEMED SECURITY AGREEMENT. To the extent that
any of the property described or referred to in this Mortgage is governed by
the provisions of the Uniform Commercial Code this Mortgage is hereby deemed
a "security agreement" under the Uniform Commercial Code, and a "financing
statement" under the Uniform Commercial Code for said security agreement. The
mailing addresses of the Mortgagor as debtor, and any mortgagee as secured
party are as set forth in Section 7.04 hereof.

         SECTION 7.07. INDEMNIFICATION BY MORTGAGOR OF MORTGAGEE. The
Mortgagor agrees to indemnify and save harmless the Mortgagee against any
liability or damages which any of them may incur or sustain in the exercise
and performance of their rightful powers and duties hereunder. For such
reimbursement and indemnity, the Mortgagee shall be secured under this
Mortgage in the same manner as the Notes and all such reimbursements for
expense or damage shall be paid to the Mortgagee incurring or suffering the
same with interest at the rate specified in Section 4.09 hereof.

                                       15
<PAGE>

         IN WITNESS WHEREOF, CAP ROCK ELECTRIC COOPERATIVE, INC., as
Mortgagor, has caused this Second Restated Mortgage and Security Agreement to
be signed in its name and its corporate seal to be hereunto affixed and
attested-by its officers thereunto duly authorized, and NATIONAL RURAL
UTILITIES COOPERATIVE FINANCE CORPORATION, as Mortgagee, has caused this
Second Restated Mortgage and Security Agreement to be signed in its name and
its corporate seal to be hereunto affixed and attested by its officers
thereunto duly authorized, all 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 J. Schwartz
       ------------------------------

Title:
       ------------------------------

Executed by the Mortgagor
in the presence of

/s/ ILLEGIBLE
-------------------------------------

/s/ ILLEGIBLE
-------------------------------------
       Witnesses

                                               NATIONAL RURAL UTILITIES
                                               COOPERATIVE FINANCE CORPORATION

                                               By: /s/ ILLEGIBLE
                                                  ----------------------------
                                                    for Governor

ATTEST: /s/ ILLEGIBLE
       ------------------------------

Title: Assistant Secretary Treasurer
       ------------------------------

Executed by the Mortgagee
in the presence of:

/s/ Carmen Bennett
-------------------------------------

/s/ Jan J. Hill
-------------------------------------
            Witnesses

                                       16
<PAGE>

                                   APPENDIX A

1.       The Maximum Debt Limit is not applicable.

2.       The Original Mortgage as described in the first WHEREAS clause above is
         Restated Mortgage and Security Agreement dated as of March 30, 1993.

3.       The outstanding secured indebtedness described in the second
         WHEREAS clause above as evidenced by the Original Notes is as
         follows:

<TABLE>
<CAPTION>
======================================================================================================
                                                              Original
Note Designation                   Loan Agreement             Principal Amount          Maturity Date
======================================================================================================
<S>                                <C>                        <C>                       <C>
Cap Rock Electric Cooperative, Inc.
------------------------------------------------------------------------------------------------------
9002                               9/21/88                    158,000                   10/21/2009
------------------------------------------------------------------------------------------------------
9004                               9/21/88                    565,000                   8/14/2010
------------------------------------------------------------------------------------------------------
9008                               9/21/88                    2,330,000                 7/27/2013
------------------------------------------------------------------------------------------------------
9012                               9/21/88                    3,692,000                 3/18/2017
------------------------------------------------------------------------------------------------------
9013                               9/21/88                    4,186,316                 9/24/2020
------------------------------------------------------------------------------------------------------
9014                               4/19/89                    5,161,290                 9/25/2022
------------------------------------------------------------------------------------------------------
9015                               4/19/89                    4,000,000                 9/25/2022
------------------------------------------------------------------------------------------------------
9016                               4/19/89                    4,000,000                 9/25/2022
------------------------------------------------------------------------------------------------------
9017                               4/19/89                    4,000,000                 9/25/2022
------------------------------------------------------------------------------------------------------
9018                               3/22/90                    4,301,075                 3/22/2025
------------------------------------------------------------------------------------------------------
9019                               3/22/90                    2,365,591                 3/22/2025
------------------------------------------------------------------------------------------------------
9020                               3/22/90                    4,301,075                 3/22/2025
------------------------------------------------------------------------------------------------------
9021                               3/22/90                    3,763,441                 3/22/2025
------------------------------------------------------------------------------------------------------
9022                               3/22/90                    3,225,806                 3/22/2025
------------------------------------------------------------------------------------------------------
9024                               3/10/92                    846,411                   3/10/2027
------------------------------------------------------------------------------------------------------
9025                               3/10/92                    846,411                   3/10/2027
------------------------------------------------------------------------------------------------------
9026                               3/10/92                    846,411                   3/10/2027
------------------------------------------------------------------------------------------------------
9027                               3/10/92                    846,411                   3/10/2027
------------------------------------------------------------------------------------------------------
Lone Wolf Electric Cooperative, Inc.
------------------------------------------------------------------------------------------------------
9028                               3/30/93                    10,000                    2/17/2007
------------------------------------------------------------------------------------------------------
9030                               3/30/93                    146,000                   10/16/2014
------------------------------------------------------------------------------------------------------
9031                               3/30/93                    641,000                   6/4/2016
------------------------------------------------------------------------------------------------------
9034                               3/30/93                    4,268,617                 3/30/2028
------------------------------------------------------------------------------------------------------
9035                               3/30/93                    4,268,617                 3/30/2028
------------------------------------------------------------------------------------------------------
9036                               3/30/93                    4,268,617                 3/30/2028
------------------------------------------------------------------------------------------------------
9037                               3/30/93                    4,268,617                 3/30/2028
------------------------------------------------------------------------------------------------------
9039                               12/13/94                   5,072,000                 12/13/2029
------------------------------------------------------------------------------------------------------
9040                               12/13/94                   5,072,000                 12/13/2029
------------------------------------------------------------------------------------------------------
9041                               12/13/94                   5,072,000                 12/13/2029
------------------------------------------------------------------------------------------------------
9043                               10/24/95                   15,000,000                10/24/2005
------------------------------------------------------------------------------------------------------

<PAGE>

<CAPTION>
======================================================================================================
Original
Note Designation                   Loan Agreement             Principal Amount          Maturity Date
======================================================================================================
<S>                                <C>                        <C>                       <C>       ns Cooperative
------------------------------------------------------------------------------------------------------
10-49-044-C-9005                   2/21/86                    $743,617                  4/23/2021
------------------------------------------------------------------------------------------------------
</TABLE>

<PAGE>

                        APPENDIX B - - PROPERTY SCHEDULE

         (a)      The counties referred to in Section 2.01 are Andrews, Borden,
                  Collin, Dawson, Ector, Fannin, Fisher, Glasscock, Howard,
                  Hunt, Irion, Martin, Midland, Mitchell, Nolan, Reagan, Scurry,
                  Sterling, Tom Green and Upton in the state of Texas.

         (b)      The property referred to in the Granting clause includes the
                  following:

                                  SEE ATTACHED

<PAGE>

                        APPENDIX C - - EXCEPTED PROPERTY

                                 NOT APPLICABLE

<PAGE>

STATE OF TEXAS        )
         -------------

COUNTY OF MIDLAND     )
          ------------

         On this 24TH day of OCTOBER , 1995, before me appeared RUSSEL E.
JONES and ALFRED J. personally known, by me and having been duly sworn by me
did say that they are the Chairman of the Board and Secretary, respectively,
of Cap Rock Electric Cooperative, Inc., a Texas corporation, and that the
seal affixed to the foregoing instrument is the corporate seal of said
corporation, and that said instrument was signed and sealed in behalf of said
corporation by authority of its Board of Directors, and said  S.W. BUCHANNAN
and H.F. DUNN acknowledged that the execution of said instrument was a free
act and deed of said corporation.

         IN WITNESS whereof, I have hereunto set my hand and official seal the
day and year last above written.

---------------------------------
            RONALD W. LYON                           /s/ Ronald W. Lyon
[SEAL]       NOTARY PUBLIC                        ---------------------------
            STATE OF TEXAS                              Notary Public
       Commission Expires 3-29-97
---------------------------------

My commission expires:

COMMONWEALTH OF VIRGINIA ) SS

         BEFORE ME, a Notary Public, in and for the Commonwealth of Virginia,
appeared in person G.V. BEER , signing for the Governor of the National Rural
Utilities Cooperative Finance Corporation, to me personally known, and known to
be the identical person who subscribed the name of said corporation to the
foregoing instrument, being by me duly sworn, and who stated that she/he is duly
authorized to execute the foregoing instrument on behalf of said corporation,
and further stated and acknowledged that she/he executed the foregoing
instrument as a free and voluntary act and deed of said corporation for the
consideration therein mentioned and set forth.

         IN TESTIMONY WHEREOF, I have hereunto set my hand and official seal
this 20TH day of OCTOBER , 1995.

                                                 /s/ Susan Smallwood
                                             ---------------------------
                                                    Notary Public
(Notarial Seal)

My Commission expires:
                        January 31, 1998

<PAGE>

                          SECOND DEED OF TRUST ADDENDUM

                                       TO

                         MORTGAGE AND SECURITY AGREEMENT

This Second Deed of Trust Addendum to Mortgage and Security Agreement
(referred to herein as the "Deed of Trust") is attached to and is made a part
of the Second Mortgage and Security Agreement dated as of the 7 day of
October, 1995 (the "Mortgage") made by and between CAP ROCK ELECTRIC
COOPERATIVE, INC. (referred to in the Mortgage as the "Mortgagor") and
NATIONAL RURAL UTILITIES COOPERATIVE FINANCE CORPORATION (referred to in the
Mortgage as the. "Mortgagee").

         The purpose of this Deed of Trust is to grant to Mortgagee, in
addition to the liens contained in the Mortgage, a deed of trust lien in and
to the real property, improvements, fixtures, appurtenances and other
properties which make up the Mortgaged Property (as that term is defined in
the Mortgage, but as modified pursuant to Section 1 below). The liens granted
in this Deed of Trust shall be in addition to, and not in lieu of, the liens
and security interests granted in the Mortgage.

         For purposes of the liens granted as set forth below, in addition to
any defined terms set forth in the Mortgage (which defined terms shall have
the same meanings when used herein) or elsewhere in this Deed of Trust, the
following definitions shall apply:

Grantor:           Cap Rock Electric Cooperative, Inc.
                   500 West Wall, Suite 400
                   Midland, Texas 79701

Beneficiary:       National Rural Utilities Cooperative Finance Corporation
                   Woodland Park
                   2201 Cooperative Way
                   Herndon, VA 22071-3025

Trustee:           Steven T. Berman

For good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged and confessed, the undersigned parties do hereby agree as
follows:

     SECTION 1. MORTGAGED PROPERTY. The Mortgaged Property shall include, in
addition to the properties described in the Mortgage, the properties as
described in Schedule 1 hereto.

     SECTION 2. CONVEYANCE IN TRUST. Grantor hereby conveys the Mortgaged
Property to Trustee in trust, with power of sale, TO HAVE AND TO HOLD the
Mortgaged Property, together with the rights, privileges, and appurtenances
thereto belonging, unto Trustee and Trustee's substitutes or successors
forever. Grantor binds itself and its legal representatives, successors and
assigns to WARRANT AND FOREVER DEFEND the Mortgaged Property unto the
Trustee, and the Trustee's substitutes or successors and assigns, against the
claim or claims of all persons claiming or to claim the same or any part
thereof.

     SECTION 3. INDEBTEDNESS SECURED. The liens granted in this Deed of Trust
shall secure the payment of the principal of and interest on the CFC Notes,
according to their terms, and further to secure the due performance of
covenants, agreements and provisions contained in the Mortgage and this Deed
of Trust, and the CFC Loan Agreements (hereinafter referred to as the
"Indebtedness").

                                       1
<PAGE>

     SECTION 4. REMEDIES UPON EVENTS OF DEFAULT. Upon the occurrence of any
of the Events of Default, Beneficiary may proceed with foreclosure and
enforce its rights and remedies under the following terms and conditions:

     (a) NOTICE OF SALE - Notice of sale of all or part of the Mortgaged
Property by the Trustee shall be given by posting written notice thereof at
the courthouse door (or other area in the courthouse as may be designated for
such public notices) of the county in which the sale is to be made, and by
filing a copy of the notice in the office of the county clerk of the county
in which the sale is to be made, at least twenty-one (21) days preceding the
date of the sale, and if the Mortgaged Property to be sold is in more than
one county a notice shall be posted at the courthouse door (or other area in
the courthouse as may be designated for such public notices) and filed with
the county clerk of each county in which the Mortgaged Property to be sold is
situated. In addition, Beneficiary shall, at least twenty-one (21) days
preceding the date of sale, serve written notice of the proposed sale by
certified mail on Grantor and each debtor obligated to pay the Indebtedness
secured hereby according to the records of Beneficiary. Service of such
notice shall be completed upon deposit of the notice, enclosed in a postpaid
wrapper, properly addressed to such debt?or at the most recent address as
shown by the records of Beneficiary, in a post office or official depository
under the care and custody of the United States Postal Service. The affidavit
of any person having knowledge of the facts to the effect that such service
was completed shall be prima facie evidence of the fact of service. Any
notice that is required or permitted to be given to Grantor may be addressed
to Grantor at Grantor's address as stated in this Deed of Trust. Any notice
that is to be given by certified mail to any other debtor may, if no address
for such other debtor is shown by the records of Beneficiary, be addressed to
such other debtor at the address of Grantor as is shown by the records of
Beneficiary. Notwithstanding the foregoing provisions of this Section, notice
of such sale given in accordance with the requirements of the applicable laws
of the State of Texas in effect at the time of such sale shall constitute
sufficient notice of such sale.

     (b) TRUSTEE'S SALE - Beneficiary may require the Trustee to sell all or
part of the Mortgaged Property, at public auction, to the highest bidder, for
cash, at the county courthouse of the county in Texas in which the Mortgaged
Property is located and if the Mortgaged Property is located in more than one
county such sale or sales may be made at the courthouse in any county in
which the Mortgaged Property is situated. All sales shall take place at such
area of the courthouse as shall be properly designated from time to time by
the commissioners court (or, if not so designated by the commissioners court,
at such other area in the courthouse as may be provided in the notice of sale
hereinafter described) of the specified county, between the hours of 10:00
o'clock a.m. and 4:00 o'clock p.m. (the commencement of such sale to occur
within three hours following the time designated in the above described
notice of sale as the earliest time at which such sale shall occur, if
required by applicable law) on the first Tuesday of any month, after giving
notice of the time, place and terms of said sale (including the earliest time
at which such sale shall occur) and of the Mortgaged Property to be sold in
the manner hereinafter described. Trustee may sell all or any port ion of the
Mortgaged Property, together or in lots or parcels. Beneficiary may bid and
become the purchaser of all or any part of the Mortgaged Property at any
trustee's or foreclosure sale hereunder, and the amount of Beneficiary's
successful bid may be credited on the Indebtedness.

     (c) PARTIAL SALES - The sale by Trustee of less than the whole of the
Mortgaged Property shall not exhaust the power of sale herein granted, and
Trustee is specifically empowered to make successive sales under such power
until the whole of the Mortgaged Property shall be sold; and if the proceeds
of such sale of less than the whole of the Mortgaged Property shall be less
than the aggregate of Indebtedness and expenses thereof, this Deed of Trust
and the lien, security interest and assignment hereof shall remain in full
force and effect as to the unsold portion of the Mortgaged Property just as
though no sale had been

                                       2
<PAGE>

made; provided, however, that Grantor shall never have any right to require
the sale of less than the whole of the Mortgaged Property, but Beneficiary
shall have the right, at its sole election, to request Trustee to sell less
than the whole of the Mortgaged Property. If there is a default on the
payment of any installment on any Portion of the Indebtedness, and
Beneficiary elects not to accelerate the unpaid balance of the Note
or~Indebtedness, Beneficiary shall have the option to proceed with
foreclosure in satisfaction of such unpaid installment or other amount either
through judicial proceedings or by directing Trustee to proceed as if under a
full foreclosure, conducting the sale as herein provided without declaring
the entire Indebtedness due. It is agreed that such sale, if so made, shall
not in any manner affect the unmatured part of the Indebtedness, but as to
such unmatured part this Deed of Trust shall remain in full force and effect
as though no-sale had been made under the provisions of this Section. Several
sales may be made hereunder without exhausting the right of sale for any
unmatured part of the Indebtedness.

     (d) FORECLOSURE OF ALL MORTGAGED PROPERTY - The Mortgaged Property may
be sold in one or more public sales pursuant to Texas Property Code Section
51.002 and Texas UCC Section 9.504(d). Grantor and all persons obligated to
pay the Indebtedness agree that notice of sale of the Mortgaged Property
provided pursuant to paragraph (a) above and pursuant to Texas Property Code
Section 51.002 is and shall constitute commercially reasonable notice of the
Mortgaged Property or any part of the Mortgaged Property. Beneficiary shall
also be entitled to foreclose its security interests against any personal
property in accordance with any other rights and remedies Beneficiary may
have as a secured party under the Texas UCC.

     (e) TRUSTEE'S DEED - Trustee shall deliver to the purchaser a Trustee's
deed and such other assignments and documents of transfer and sale as Trustee
may deem necessary conveying the Mortgaged Property so sold in fee simple
with covenants of general warranty. Grantor covenants and agrees to defend
generally the purchaser's title to the Mortgaged Property against all claims
and demands.

     (f) PROCEEDS OF SALE - Trustee shall apply the proceeds of the sale in
the following order: (a) to all reasonable costs and expenses of the sale,
including but not limited to, reasonable Trustee's fees and attorney's fees
and costs of title evidence; (b) to all sums secured by this Deed of Trust in
such order as Beneficiary, in Beneficiary's sole discretion, directs; and (c)
the excess, if any, to the person or persons legally entitled thereto.

     (g) POSSESSION AFTER SALE - If the Mortgaged Property is sold pursuant
to paragraph (b), Grantor or any person holding possession of the Mortgaged
Property through the Grantor shall immediately surrender possession of the
Mortgaged Property to the purchaser at such sale upon the purchaser's written
demand. If possession is no surrendered upon the purchaser's written demand,
Grantor or such person shall be a tenant at sufferance and may be removed by
writ of possession or by an action for forcible entry and detainer.

     (h) COSTS AND EXPENSES - Beneficiary shall be entitled to collect all
costs and expenses incurred in pursuing such remedies, including but not
limited to, attorney's fees and costs of documentary evidence, abstracts and
title reports.

     (i) SUBSTITUTE TRUSTEE - Beneficiary, at Beneficiary's option, with or
without cause, may from time to time remove Trustee and appoint a successor
trustee to any Trustee appointed hereunder without other formality than a
designation in writing. Without conveyance of the Mortgaged Property, the
successor trustee shall succeed to all title, power, and duties conferred
upon the Trustee by this Deed of Trust and by applicable law.

     (j) REMEDIES CUMULATIVE - Each remedy provided in this Deed of Trust is
distinct and cumulative to all other rights or remedies under this Deed of
Trust or afforded by law or equity, and may be exercised concurrently,
independently, or successively, in any order whatsoever.

     (k) SCHEDULE 1. Schedule 1 attached hereto is an integral part of this
Deed of Trust and is incorporated herein by reference.

                                       3
<PAGE>

     IN WITNESS WHEREOF, CAP ROCK ELECTRIC COOPERATIVE, INC., as
Mortgagor/Grantor, has caused this Deed of Trust to be signed and its
corporate seal to be hereunto affixed and attested by its officers thereunto
duly authorized, and NATIONAL RURAL UTILITIES COOPERATIVE FINANCE
CORPORATION, as Mortgagee/Beneficiary, has caused this Deed of Trust to be
signed in its name and its corporate seal to be hereunto affixed and attested
by its officers thereunto duly authorized, all as of the day and year first
above written.

                                            CAP ROCK ELECTRIC COOPERATIVE, INC.

                                            By: /s/ Russell E. Jones
                                               -------------------------------
                                                     Russell E Jones
                                                     Chairman of the Board

(SEAL)

Attest: /s/ Alfred J. Schwartz
        -----------------------------
                  Secretary

Executed by the Mortgagor/Grantor
in the presences of:

/s/ ILLEGIBLE
-------------------------------------

/s/ ILLEGIBLE
-------------------------------------
            Witnesses

                                            NATIONAL RURAL UTILITIES COOPERATIVE
                                                FINANCE CORPORATION

                                            By: /s/ ILLEGIBLE
                                                --------------------------------
                                                          for Governor

[SEAL]

Attest: /s/ ILLEGIBLE
       ------------------------------
        Assistant Secretary-Treasurer

Executed by the Mortgagee/Beneficiary
in the presences of:

/s/ Carmen Bennett
-------------------------------------

/s/ Jan J. Hill
-------------------------------------
            Witnesses

                                       4
<PAGE>

STATE OF TEXAS                  )
                                )       SS
COUNTY OF Midland               )

On this 24TH day of OCTOBER, 1995, before me appeared Russell E. Jones, who
did say that he signed as the Chairman of the Board of CAP ROCK ELECTRIC
COOPERATIVE, INC., a corporation, and that the seal affixed to the foregoing
instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority
of a duly adopted resolution of its board of directors, and he acknowledged
to me that said corporation executed the same.

         IN WITNESS WHEREOF I have heretofore set my and official seal the day
and year last above written.

---------------------------                         /s/ RONALD W. LYON
      RONALD W. LYON                          ------------------------------
      NOTARY PUBLIC                                    Notary Public
     STATE OF TEXAS
Commission Expires 3-29-97
---------------------------

(Notarial Seal)

My commission expires:

COMMONWEALTH OF VIRGINIA          )
                                  )        SS
COUNTY OF FAIRFAX                 )

On this 20TH day of OCTOBER , 1995, before me appeared G.V. BEER ,who did say
that the undersigned for the Governor of NATIONAL RURAL UTILITIES COOPERATIVE
FINANCE CORPORATION, a corporation, and that the seal affixed to the
foregoing instrument is the corporate seal of said corporation, and that said
instrument was signed and sealed on behalf of said corporation by authority
of a duly adopted resolution of its board of directors, and HE acknowledged
to me that said corporation executed the same.

         IN WITNESS WHEREOF I have heretofore set my and official seal the day
and year last above written.

                                                   /s/ Susan Smallwood
                                              ------------------------------
                                                       Notary Public

(Notarial Seal)

My commission expires: January 31, 1998

<PAGE>

                                   SCHEDULE 1

                                 NOT APPLICABLE

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