ALP 15

and direct flow use of water were the basis for the determination of OM &R costs to be
paid pursuant to the Funding Agreement.
1.10 On April 22, 2005, the Purchaser and the Authority entered into an
agreement for purchase and sale of 700 acre -feet of annual average municipal and
industrial depletion out of the ALPD Depletion Allocation, correlating to an annual ALP
Project water supply of 1,400 acre -feet for municipal and industrial use ( "Purchase
Agreement "). The Purchase Agreement provides for the Purchaser to pay the purchase
price for the water supply acquired, defined in the Purchase Agreement, and to receive a
partial assignment of the Authority's rights and obligations under the Funding
Agreement, including its continuing obligation to pay OM &R costs.
1.11 On April 22, 2005, the Authority entered into an agreement with the City
of Durango ( "Durango ") for purchase and sale of 1,900 acre -feet of annual average
municipal and industrial depletion out of the ALPD Depletion Allocation, correlating to
an annual ALP Project water supply of 3,800 acre -feet for municipal and industrial use
( "Durango Purchase Agreement "). The Durango Purchase Agreement provides for
Durango to pay the purchase price for the water supply acquired, defined in the Durango
Purchase Agreement, and to receive a partial assignment of the Authority's rights and
obligations under the Funding Agreement, including its continuing obligation to pay
OM &R costs.
1.12 Subsequent to the execution of the Purchase Agreement and the Durango
Purchase Agreement, the Authority, the Purchaser, and other ALP Project participants
(including Durango and the State of Colorado), have engaged in extensive discussions
concerning operation and maintenance of the ALP Project upon completion. As a result
of these discussions, the Authority and the Purchaser, and the San Juan Water
Commission, the La Plata Water Conservancy District, the Southern Ute Indian Tribe,
the Navajo Nation, and the Ute Mountain Ute Tribe have negotiated an
intergovernmental agreement ( "IGA ") to establish the Animas -La Plata Operation and
Maintenance Association (the "Association ") for operation and maintenance of the ALP
Project upon completion. The Association is to be formed upon the approval of the IGA
by the parties thereto, comprising the Authority, the San Juan Water Commission, the La
Plata Water Conservancy District, the Southern Ute Indian Tribe, the Navajo Nation,
and the Ute Mountain Ute Tribe, who shall be the Members of the Association. The
IGA contemplates that an additional Member may join the Association, and that
Members may be replaced by other entities upon the transfer of their interest in the ALP
Project. The parties to the IGA, in consultation with the ALPWCD, Durango and the
State of Colorado, have also negotiated concepts and principles for the operation and
allocation of OM &R costs of the ALP Project ( "Operation Principles ") appended as an
exhibit and incorporated into the IGA. The parties to the IGA and the ALPWCD have
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