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CWCB Loan Narrative Overview 4 <br />1987 FLOOD & CUCHARAS RESERVOIR STORAGE RESTRICTION In the spring of 1987 snow fall in the mountains was heavy. In May the weather turned unusually warm and a very rapid snow melt sent large volumes of water down the Cucharas River and into the Cucharas Reservoir. The Cucharas Dam spillway overflowed and extensive seepage appeared along the toe abutments of the dam. It was later discovered that a portion of the upstream concrete facing on the rock fill dam had failed, which allowed large quantities of seepage to flow through the rock filled embankment. Within a year of the flooding of the Cucharas Reservoir, the State Engineer’s Office, Dam Safety Branch, (SEO) restricted storage to a gauge height of 100 feet or approximately 10,000 acre-feet of storage. The storage restriction remains in effect today. There was no money to repair the dam. For decades HCIC operated on a shoe string budget. Most farmers along the ditch quit farming and moved away. The majority of HCIC shareholders became descendants of farmers rather than farmers along the HCIC ditch. They had little appetite for the farming hardships they either remembered as children or were told about by their parents. Yet, they controlled HCIC and its budgets and approved nothing more than minimum assessments to maintain the water rights. Capital improvements were none existent and only the barest of operations funded. HCIC SYSTEM DECAY & 2008 SEO SUSPENSE LETTER Inevitably, as a result of decades of inaction and decay, the SEO issued a suspense letter on July 1, 2008. The letter requested submission of designs, plans and specifications for rehabilitation of the Cucharas Dam for review and approval by October 1, 2010 or a zero, no storage, restriction would be issued. Financially strapped, HCIC, a beleaguered mutual ditch company with a majority of shareholders who had moved away long ago or were farming but barely eking out an existence and hadn’t paid assessments larger than $10 a year for decades, was faced with a multi-million problem they could no longer ignore or avoid. CHANGE OF OWNERSHIP & CHANGE OF MANAGEMENT Faced with the loss of the HCIC’s largest asset, the Cucharas Reservoir, HCIC shareholders sought out a purchaser to buy the shares of shareholders. The majority of farmers who had remained over the decades wanted to sell, but only to someone who was interested in farming themselves, not someone who was interested in moving the water rights to a municipality up north. They wanted someone who would repair the HCIC system and agree to long term leases of water back to the farmers as part of the sale of their HCIC shares. In February 2010, Two Rivers purchased a controlling interest in HCIC, changed the makeup of the five member HCIC board. Two Rivers’ installed three board members and two other previous board members were retained, Mike Rinks, the past President and Jeff Dorenkamp a farmer who was still