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196~) ATIORNEY'S REPORT , We are pleased' to report to the stockholders concerning the following legal matters which affect,ed The Fort Lyon Canal Company during the past year and the present status of those cases which are stili pending. Trinidad Reseritolr Water Applications. We advised you at the last Annual Meeting that the Colorado Supreme Court in October 1991 entered a decision which cancelled a 39,000 acre foot storage right in Trinidad Reservoir. After that decision, the Purgatoire District proceeded to triai on another storage application which was also cancelled by th$ Water Court in Pueblo in a decision entered in April 1992. This ruiing was again up~eld by the Colorado Supreme Court in its decision entered in September 1993. AI~o, a three week trial set in Water Court in July 1993 was vacated when the Court rul$d that the Purgatoire District must obtain the consent of the Bureau of Reclamat'ion, State of Kansas, and Arkansas River Compact Administra- tion before attempting to amend the Operating Principles of Trinidad Reservoir. These favorable rulings were obtained through a joint defense consisting of Fort Lyon, Highland Irrigation Company, and the District 67 Ditch Association. Queen Storage RI9ht - John Martin Article III ApDllcations. You are aware that your Company flwns a 5,483 acre foot storage right in Queen Reservoir, which has unfortunately tieen the source of much litigation and dispute with the Amity Mutual Irrigation Cofr,pany. The Fort Lyon has been receiving part of its interest of this water right thrqugh the Winter Storage Program by storage in John Martin Reservoir pursuant \0 Article III of the 1980 Operating Agreement approved by the Arkansas River Cotnpact Administration. Fort Lyon is seeking confirmation of its rights in Water Couh, together with the rights for alternate storage in Adobe Creek Reservoir and Horse Creek Reservoir as well as direct flow through the Fort Lyon main canal. The W",ter Court is expected to issue a preliminary decision in the near future and if the case is not resoived, trial will be scheduled in 1994. Kansas v. ColOrado Litigation. The State of Kansas, alleging a material depletion of water ~hich would constitute vioiation of the Arkansas River compact signed in 1948, fileg suit against the State of Colorado In the U.S. Supreme Court in 1985. Trial oftheca$e and presentation oftestimony and exhibits was completed last December. The claims involved are very substantial, with the State of Kansas alleging i1iegal depletions of nearly 500,000 acre feet over the period from 1950 to 1985. A PreliminarY Ruling is expected from the Special Master in the near future, but a final decision by the U.S. Supreme Court wili likely take several years. Emplovee Lltil/atlon. As a result of numerous federal and state statutes which protect employees ,from harassment, discrimi~ation, and other conduct based on age, race, sex, andjreligion, there has been a nationwide increase in litigation when employees are de"loled, suspended, or terminated. Your Company is no exception, as four complaints ljIere filed with Colorado Civil Rights Commission, National Labor Relations Board, arid the Occupational Safety and Health Administration. The claim involving the Civil Rights Commission was resolved through reinstatement and settlement of back pay. The complaints fiied with the NLRB and OSHA were dismissed prior to trial. 8