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<br />Linda J. Bassi, Esq.
<br />September 12, 1997
<br />Page 2
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<br />purposes. Up to $205,000 can be used directly by HCWUA for its accrued and unpaid legal and
<br />engineering expenses, and, in fact, it now appears that by the time that the CWCB loan funds are
<br />disbursed to HCWUA, these expenses will exceed $205,000. The expenses have been larger than
<br />anticipated, in part because HCWUA has incurred expenses in responding to a lawsuit related to
<br />Case No. 95 CW 211, filed by Rodney Preisser, and seeking to negotiate a settlement, consistent
<br />with the 95 CW 211 settlement, with him, as well as expenses associated with developing the plan
<br />for augmentation and preparing for its implementation, and expenses associated with Case
<br />No. 95 CW 211 before it finally was settled. Fortunately, the language of Senate Bill 97-008,
<br />conversations and correspondence with CWCB members and staff, and the CWCB feasibility study
<br />all make it clear that it was intended that HCWUA would be able to pay for a broad range oflegal
<br />and engineering expenses, such as these, out of the CWCB loan proceeds.
<br />
<br />With respect to the remaining $620,000 of loan proceeds, $504,000 will be deposited into
<br />escrow. This represents the amount of the purchase price for the Box Springs water rights, i.e.
<br />$520,000, less one lease payment, in the amount of$16,000, that has been paid in 1997. See Escrow
<br />Agreement, ~ 6B(l). The remaining $116,000 of the CWCB loan proceeds is not required to be
<br />escrowed. It is contemplated that HCWUA will invest these funds until the payments to Reid and
<br />to Smith are due. One hundred thousand dollars is payable to Reid Cattle Company and to Smith
<br />Cattle, Inc., but only after "Final Court Approval" of HCWUA's plan for augmentation (the
<br />"HCWUA Plan") and the satisfaction of contingencies in the Settlement Agreement.
<br />
<br />. The remaining $16,000 (the amount ofthe lease payment already made to Box Springs), an
<br />amount equal to the credit for any future lease payments made to Box Springs, interest earned on all
<br />funds disbursed by CWCB, and any uncommitted principal may be used as needed by HCWUA for
<br />such things as making annual payments to Reid, paying legal and engineering expenses,
<br />accumulating funds to invest in a certificate of deposit, which is to be held as security for the CWCB
<br />loan, and other HCWUA expenses. It is hoped that this approach will defray assessments that
<br />HCWUA otherwise would charge its members.
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<br />You should be aware, however, that under some circumstances, the interest income may not
<br />all be available to HCWUA. On February 28, 1997, HCWUA signed a Memorandum of
<br />Understanding with Box Springs and its shareholders. This provides that Box Springs' shareholders
<br />would share in interest earned if the HCWUA plan for augmentation does not receive Final Court
<br />Approval within two years after disbursement of the CWCB loan proceeds. This Memorandum of
<br />Understanding has not yet been converted into an amendment to the Settlement Agreement, and Box
<br />Springs currently is evaluating whether it wants such an amendment. In any event, if HCWUA
<br />promptly receives Final Court Approval of its plan for augmentation, the interest-sharing provisions
<br />would not come into play.
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