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HomeMy WebLinkAbout1993-164-11/02/1993-AGREEMENT HALLIGAN RESERVOIR NORTH FORK POUDRE RIVER NORTH POUDRE IRRIGATION CO PHANTOM CANYON RANCH RESOLUTION 93-164 OF THE COUNCIL OF THE CITY OF FORT COLLINS APPROVING AN AGREEMENT WITH NORTH POUDRE IRRIGATION COMPANY FOR AN OPTION TO PURCHASE THE HALLIGAN RESERVOIR WHEREAS, it is projected that the City of Fort Collins will need additional storage water to meet the long-term water demands of the City sometime after the year 2000; and WHEREAS, North Poudre Irrigation Company (hereinafter referred to as "North Poudre") is the owner of an existing reservoir known as Halligan Reservoir which is located on the North Fork of the Cache la Poudre River; and WHEREAS, the City has entered into an agreement with Halligan Resources Company and Phantom Canyon Ranch Company, dated October 14, 1987, whereby the City has, among other things, obtained an option to acquire certain property to facilitate the enlargement of Halligan Reservoir and has acquired all engineering plans, drawings and studies owned by Halligan Resources Company pertaining to the Halligan Reservoir enlargement; and WHEREAS, by subsequent assignment agreements, the City has obtained the interest of Halligan Resources Company in that certain agreement dated December 30, 1985, between Halligan Resources Company and North Poudre and also the interest of Halligan Resources Company in that certain decree entered in Case Number 85CW435 in the District Court for Water Division No. 1; and WHEREAS, the City has conducted feasibility studies evaluating the engineering, environmental aspects and any permit process with regard to enlarging Halligan Reservoir; and WHEREAS, the City is presently in a position to, in cooperation with North Poudre, conduct additional feasibility studies regarding the enlargement of Halligan Reservoir, and the City desires to proceed with such enlargement if feasible; and WHEREAS, if the City subsequently determines that enlargement of the Halligan Reservoir is feasible and desirable for the City, it wants to be able to purchase the Halligan Reservoir from North Poudre; and WHEREAS, in order to accomplish this, the City and North Poudre have negotiated a proposed agreement granting the City the option to purchase the Halligan Reservoir, a copy of which agreement is attached hereto as Exhibit "A" and incorporated herein by reference. NOW, THEREFORE, BE IT RESOLVED BY THE COUNCIL OF THE CITY OF FORT COLLINS that the Mayor be, and hereby is, authorized on behalf of the City to enter into an agreement with North Poudre upon substantially the same terms and conditions as are contained in Exhibit "A," subject to such modifications as the City Manager and City Attorney may determine to be necessary to protect the interests of the City and effectuate the purposes of the agreement. Passed and adopted at a regular meeting of the Council of the City of Fort Collins held this 2nd day of November, A.D. 1993. ATTEST: Mayor City Clerk HALLIGAN RESERVOIR AGREEMENT Page Article 1 . Project Option 1 . 1 Definition of Project 3 1 .2 Option to Proceed with Project 3 1 . 3 Term 3 1 .4 Activities During Option Period 5 1.4 . 1 Diligence 5 1 . 5 Effect of Storage Restrictions Upon Option 6 1 . 6 Major Repairs 7 1.7 Title Review 8 1 . 8 Termination of Option by City 10 1 . 9 Memorandum 11 Article 2 . Exercise of Option 2 . 1 Exercise of Option 11 2 . 2 Conveyances and Payment for Project 11 2 .2 . 1 Conveyances 11 2 .2 . 2 Payment 12 2 . 2 .3 Easements and Retained Ownership 12 2 .2 .4 Title 13 2 .2 .5 Perfection of Conditional Decree 15 2 . 3 Design and Construction of Project 15 2 . 3 . 1 Termination Prior to Construction of Reservoir 15 2 .4 Operations Advisory Committee 16 2 . 5 Construction 17 Article 3 . Security Arrangements 3 . 1 Option Period 18 3 .2 Option Exercise 19 Article 4 . Ownership, Operation, and Maintenance of Enlarged Reservoir 4 .1 Storage Capacity Allocation 20 4 .1 . 1 Evaporation and Seepage 21 4 . 1 . 2 water Represented by North Poudre Stock 21 4 .2 Outlet Capacity 22 4 . 3 Temporary Storage Capacity Restrictions 22 4 .4 Recreation 22 4 . 5 Operation of Reservoir 23 4 . 6 Measurement Devices 23 4 .7 Exchanges 23 4 . 8 Maintenance and Repair 24 4 .8 .1 Routine Maintenance and Repairs 24 4 . 8 .2 Capital Reconstruction 24 4 . 8 . 2 .1 Reconveyance 25 4 .9 Liability 27 Article 5 . Miscellaneous 5 .1 Water Court Filings 27 5 .2 Notices 28 5 . 3 Default 28 5 .4 Assignment by North Poudre 29 5 .5 Assignment of City' s and Board' s Rights 29 5 .6 Binding Effect 32 5 .7 Survival of Agreement After Closing 32 5 . 8 Prepayment 32 5 .9 Agreement with The Nature Conservancy 33 Article 6 . Conditions Subsequent 6 . 1 Stockholder Ratification 33 HALLIGAN RESERVOIR AGREEMENT THIS AGREEMENT is executed this D day of Alo✓ ('� LPG, 1993, by and between the CITY OF FORT COLLINS, COLORADO, a Colorado municipal corporation (hereinafter referred to as "City" ) , the BOARD OF THE FORT COLLINS WATER UTILITY, a City-owned enterprise (hereinafter referred to as "Board" ) , and THE NORTH POUDRE IRRIGATION COMPANY (hereinafter referred to as "North Poudre") . W I T N E S S E T H: WHEREAS, North Poudre is the owner of an existing Reservoir known as Halligan Reservoir situate in Sections 32 , 33 and 34, Township 11 North, Range 71 West of the 6th P.M. , in Larimer County, Colorado; and WHEREAS, the City has entered into an agreement with Halligan Resources Company and Phantom Canyon Ranch Company, dated October 14 , 1987 (the "Phantom Canyon Agreement") , whereby the City, among other things, obtained an option to acquire certain property to facilitate the enlargement of Halligan Reservoir and acquired all engineering plans , drawings, and studies owned by Halligan Resources Company pertaining to the Halligan Reservoir Enlargement; and WHEREAS, by subsequent assignment agreements, the City obtained the interest of Halligan Resources Company in that certain Agreement dated December 30, 1985, between Halligan Resources Company and North Poudre and also the interest of Halligan Resources Company in that certain Decree entered in Case No. 85CW435 in the District Court in and for Water Division No. 1 awarding a conditional storage decree for the Halligan Reservoir Enlargement; and WHEREAS, the City has conducted initial feasibility studies evaluating the engineering, environmental aspects, and permit processes needed with regard to enlargement of Halligan Reservoir; and WHEREAS, the City is presently in a position, in cooperation with North Poudre, to conduct additional necessary feasibility studies regarding the enlargement of Halligan Reservoir, and the City wishes to proceed with such enlargement if possible; and WHEREAS, pursuant to Section 19 . 3 of the City Charter, as amended April 6 , 1993 , and Ordinance No. 61, 1993 , the City has established the City' s water utility as an enterprise within the meaning of Art. X, §20 of the Colorado Constitution and authorized the Board to issue its own revenue bonds and other obligations on behalf of the City payable solely from the net revenues derived from the operation of the enterprise; and WHEREAS, the City, the Board and North Poudre desire by this Agreement to set forth the rights and obligations of the parties hereto with respect to said studies and enlargement and the option to purchase described herein; NOW, THEREFORE, in consideration of the mutual promises of the parties hereto and other good and valuable consideration, the -2- receipt and adequacy of which are hereby acknowledged, the parties agree as follows : Article 1. Project Option. 1 .1 Definition of Project: The Project that is the subject of this Agreement consists of the enlargement of the existing Halligan Reservoir which will include the existing Reservoir site. The Project contemplates that a new dam will be built below the existing structure to increase the storage capacity of the Reser- voir. The Project includes the acquisition of all property or other rights necessary for the proposed enlargement, and the design and construction of the necessary facilities for such enlargement. 1.2 Option to Proceed with Project. For and in consideration of the agreement of the City to pay North Poudre the sum of $40, 000 . 00, the payment of which shall be due 60 days after execution hereof, and the option payments which are due on or before December 31 of each year as set forth on Exhibit A attached hereto and incorporated herein by this reference, North Poudre hereby grants to the City the exclusive option (the "Option" ) to proceed with the Project upon the further terms and conditions set forth in this Agreement. 1.3 Term. The initial term of the Option granted hereby shall extend from the date of execution of this Agreement through December 31, 1993 . The term of the Option may be extended by the City for successive terms of one calendar year each up to and including December 31, 2000, a 7 -year period, by payment by the -3- City of the additional Option amounts set forth in Exhibit A in advance of each year for which extension of the Option is desired. There shall be one additional written extension of the option to December 31, 2002, if the City requests same in writing if there are problems in obtaining any necessary permits for the Project or if litigation is causing delay in the Project. The City shall continue making Option payments during any requested extension. Nothing herein shall prohibit North Poudre from further extending the time in writing by action of its Board of Directors should the City request an extension and if there is a reasonable basis for same, but North Poudre is not obligated to grant a further extension beyond December 31, 2002 . After December 31, 2002 , if North Poudre has not further extended the Option in writing in its sole discretion, all rights and duties end and all option money will be retained. However, during the initial option period and any extension thereof, North Poudre shall promptly give the City written notice of non-receipt of additional Option payments, whereupon the City shall have twenty days to cure any failure to pay. After expiration of such twenty day grace period without payment, the City' s further rights under this Agreement shall terminate. The obligations of the City to pay any additional Option payment shall be subject to appropriation of such payment by the City Council in advance of each year for which the Option is to be extended. The failure to appropriate such payment does not change North Poudre' s right to declare termination for non-payment. -4 - 1 .4 Activities During Option Periods . During the Option periods, the City shall prepare or commission at its sole expense such technical studies prerequisite to construction of the Project as it determines are necessary or desirable. The City shall, before taking such action, apprise North Poudre of its activities in this regard and shall invite its advice and comments upon all aspects of the technical studies undertaken by the City. Such consultation between the parties is anticipated to include frequent briefings concerning progress of studies; sharing of all documents; inclusion of North Poudre representatives on any advisory commit- tees; participation, to the extent permitted by the City Code and Charter and its purchasing policies, in interviewing and selection of consultants . The City may, at its sole expense, obtain a survey of the property that is the subject of this Agreement. 1 .4 .1 Diligence. During the term of the Option the parties shall cooperate in connection with required diligence applications for maintenance of the conditional water rights for Halligan Reservoir Enlargement. In this connection, the City shall prepare and file and further prosecute, in the City' s and North Poudre' s name, any necessary diligence proceedings . The City and North Poudre shall consult and cooperate fully in connection with such proceedings . The City shall bear the costs and expenses of such proceedings, except for such costs and expenses which North Poudre may incur as the result of the use of its own staff, its engineers, accountants, and its attorneys . The parties acknowledge -5- that the City' s activities contemplated hereby in studying the Project are of the sort ordinarily undertaken in connection with the development of conditional water rights in the State of Colorado. The parties agree that such activities may be cited and relied upon to demonstrate reasonable diligence in the development of the conditional water right for the Project in any water court diligence proceedings during the term of the Option. The parties further acknowledge that the City' s undertaking such activities will not guarantee that findings of reasonable diligence will be entered by the water Court. 1 .5 Effect of Storage Restrictions Upon Option. If after December 31, 1995 and prior to termination or exercise of the Option, the existing Halligan Reservoir is restricted by Order of the Colorado State Engineer to storage of less than 3 , 200 acre-feet of water, then the City shall have one (1) year from the date of notification of the storage restriction to exercise the Option. If the City fails to exercise the Option within the one (1) year period, then the parties shall consult and North Poudre may thereafter, alternatively, at its discretion, terminate or elect not to terminate the Option. If it does not initially terminate the Option, North Poudre may nevertheless, so long as the storage restrictions remain in effect, elect to terminate the Option at each annual renewal, by providing written notice to the City no later than thirty (30) days in advance of the expiration of the current Option term. If North Poudre terminates the Option, -6 - either initially or at an annual renewal, it shall remit to the City within 60 days of its written notice of termination, without interest, one-half of all Option payments previously paid by the City pursuant to this Agreement, and this Agreement shall be terminated and of no further force or effect. If North Poudre elects not to terminate the Option, it may, at its election, in each year that the Option and the storage restrictions continue in effect, require the City to waive the use of water attributable to one (1) share of North Poudre stock owned by the City for each five acre-feet that the storage in Halligan Reservoir is restricted below 3 , 200 acre-feet. This provision is based upon a yield of a 5 acre-feet per share per year of North Poudre stock. The formula will not be changed if it is subse- quently determined that the yield of North Poudre stock actually varies from 5 acre-feet per share per year. The formula will operate as follows: for example, if storage is restricted to 2 , 000 acre-feet, the City may be required to waive delivery on 240 shares of North Poudre stock. If, however, the Option thereafter termi- nates by reason of the City' s nonrenewal thereof, following such termination the City shall have no further obligation to North Poudre to waive the use of share water. 1 . 6 Maior Repairs . If Halligan Reservoir requires major repair or reconstruction during the Option period, the parties shall negotiate in good faith to determine whether and how to undertake and finance such repairs in a manner beneficial to both -7- parties . If the parties are unable to agree concerning such repairs, then North Poudre may terminate the Option by providing written notice of termination to the City, and shall remit to the City within 90 days of its written notice of termination, without interest, one-half of all Option payments previously paid by the City pursuant to this Agreement, and this Agreement shall be of no further force and effect. 1 .7 Title Review. North Poudre has provided to the City a title insurance commitment offering to insure the property that is the subject of this Agreement in the amount of $1, 000, 000 .00 for the land to be conveyed to the City pursuant to Paragraph 2 .2 . 1 below upon exercise of the Option. North Poudre has used access over private property to the Project from the Laramie Highway (now U. S. Highway 287) without hindrance over 18 years . There has not been any public access over this route. Access over any State land has been without any special use permit or right-of-way. North Poudre will transfer only such rights of access as it has . Failure of the title commitment or title abstract to evidence such right of access shall not constitute a defect of title. The title commit- ment or the title policy shall not be required to evidence a valid and subsisting right-of-way for occupancy of lands needed for the Project or access thereto which are owned by the United States of America or the State of Colorado. North Poudre and the City shall cooperate to identify, secure, and transfer any necessary rights of way required for the Project from the United States of America and -8 - the State of Colorado. Any costs to acquire any rights required shall be the City' s sole expense except for the cooperation to be provided by North Poudre. In addition, North Poudre has disclosed the existence and scope of any existing easements or encumbrances upon the land not disclosed by the title commitment and known to North Poudre. These are any rights of private owners, Poudre Valley REA, a U.S. west underground cable, and The Nature Conservancy. The City shall have 30 days from the signing of this agreement by the City to provide written notice of defects of title to which it objects. Existing exceptions in Schedule B of the title insurance commitment for easements or encumbrances shall not constitute defects of title. North Poudre covenants and agrees that it shall not, after the signing of this Agreement, transfer or convey the property required for the Project or by its actions or omissions suffer or permit any liens, encumbrances, or other detriments to title to such property without the prior written consent of the City (which consent shall not be unreasonably withheld) . The parties acknowledge that there is an existing Recreation Lease, dated June 1, 1988 (the "Lease") , in effect for the Reservoir by and between North Poudre and the North Fork Recreation Association (the "NFRA") , which has been assigned by the NFRA to the Landowners Association for Phantom Canyon Ranches (the "Lessee") , which Lease includes a preferential right in the Lessee for future recreation uses, and that the conveyance will be subject to the provisions of the Lease upon exercise of the option. The -9 - City acknowledges receipt of a copy of the Lease, which is in effect as of the date of this Agreement. However, North Poudre agrees that during the term of the Option, North Poudre will not renew the Lease or enter into any other recreation lease without the prior written approval of the City which will not unreasonably be refused. 1 . 8 Termination of Option by City. If the City either fails to renew the Option in accordance with Paragraph 1. 3 above, or to exercise the Option in accordance with Paragraph 2 . 1 below, the Option shall terminate at the expiration of its then current term. In such case, North Poudre shall retain all Option payments previously paid, and all rights of the City to the Project shall terminate and North Poudre shall own and hold the conditional decree for the Project with no further obligation to the City. The City shall promptly take such further actions, including execution of quitclaim deeds and assignment of all rights in the conditional decree and reservoir and site, as are necessary to vest the entire conditional decree and its rights thereunder in North Poudre. The City shall transfer ownership of and furnish North Poudre, without charge, with copies of all technical and engineering reports, studies, permits and data pertinent to the Project to the extent same are City records that are by law open to inspection by the public. Otherwise, same shall be furnished upon reimbursement from North Poudre of the out-of-pocket cost paid by the City for such information. -10- 1 .9 Memorandum. Either the City or North Poudre may record a memorandum of this Agreement in the records of Larimer County, Colorado. In that event, the parties will cooperate in the drafting of such memorandum. Article 2 . Exercise of option. 2 . 1 Exercise of Option. If the City elects to exercise the Option, it shall notify North Poudre in writing in the manner provided in Paragraph 5.2 that it is exercising the Option. The Option can be exercised only in November or December of any year, to enable North Poudre to plan for the appropriate assessments at the next years annual meeting. 2 .2 Conveyances and Payment for Proiect. 2 . 2 .1 Conveyances. Within 60 days of exercise of the Option by the City, North Poudre shall convey to the City by General Warranty Deed with the reservations provided in Paragraph 2 .2 .3 hereof all land described in Transamerica Title Insurance Company Title Commitment No. 6418310 which has been furnished, including any and all easements and other appurtenances owned by North Poudre in connection with such dam and reservoir, and all land or rights owned by North Poudre in Sections 32, 33 and 34 , Township 11 North, Range 71 West, 6th P.M. , and by Bargain and Sale Deed, without covenants of warranty, all its interest in Sections 27, 28 and 29 , Township 11 North, Range 71 West of the 6th P.M. , and all its interest in the conditional water right awarded in Case No. 85CW435 for the Halligan Reservoir Enlargement, also known as -11- North Poudre Reservoir No. 16 , in the amount of 33 , 462 acre-feet with an appropriation date of August 1, 1979 , and adjudication date of December 31, 1985 . 2 .2 . 2 Payment. For and in consideration of the conveyance set forth in Paragraph 2 .2 .1, the City shall, at the time of delivery of the deed, make an initial payment in the amount set forth on Exhibit A for the year of exercise of the Option, and the Board shall thereafter continue to make payments to North Poudre in accordance with the balance of the payment schedule attached hereto as Exhibit A and incorporated by this reference, which continued payments and all prior option payments made shall constitute the purchase price. Each payment made shall be con- sidered to cover the City' s obligation for the ensuing calendar year. The obligation of the Board to make the payments specified herein shall be evidenced by a non-interest bearing revenue bond (the "Bond") issued by the Board to North Poudre. The Bond shall be a special obligation of the Board payable from the net revenues of the City' s water system as provided in Article V, §19 . 3 of the City Charter and shall be issued upon the exercise of the Option by ordinance duly adopted by the Board, or as otherwise provided by law. 2 .2 .3 Easements and Retained Ownership. The convey- ance set forth in Paragraph 2 .2 . 1 shall be subject to a permanent, reserved easement of active storage space in favor of North Poudre in the enlarged reservoir in the amount of 6,408 acre-feet, to be -12 - used for the lawful storage of any North Poudre water rights . "Active storage" means a perpetual pool of 6408 acre-feet not diminished by any silt or dead storage. In addition to such reserved storage, the parties acknowledge and agree that North Poudre shall reserve and retain water then in storage and the storage decrees for Halligan Reservoir, which are set forth below: Amount (af) Appropriation Adjudication Name (Acre Feet) Date Date No.Poudre Reservoir 16 3719 04/30/1900 12/09/1904 No.Poudre Reservoir 16 2689 08/16/1906 04/22/1922 No.Poudre Reservoir 16 (Refill) 4591 12/31/1921 09/10/1953 NO. Poudre Reservoir 16 (Refill) 1817 cond- 12/31/1921 09/10/1953 tional Halligan Reservoir is also known as North Poudre Reservoir No. 16 . 2 .2 .4 Title. Title shown by the Title Commitment previously furnished, Transamerica Title Commitment No. 6418310, shall be acceptable to the City. A general Warranty Deed containing the exceptions and restrictions and easements therein mentioned is acceptable to the City if no written notice of defects is provided within thirty (30) days from the date this Agreement is signed by the City, provided such defects were not known to the City at the execution hereof and such defects affect the merchanta- bility of title for the City' s intended use. Title to the property to be conveyed to the City shall be merchantable and free and clear of all liens and encumbrances, but subject to exceptions in the title commitment furnished the City and the Lease, reservations and restrictions and any easements of record or existing as of the date -13 - of this Agreement, the existence of which have previously been disclosed to the City and not objected to by the City as a defect of title in accordance with Paragraph 1 .7 above. Within 30 days of exercise of the Option, North Poudre shall provide to the City updated title insurance commitments or ab- stracts of title to the land to be conveyed pursuant to Paragraph 2 .2 .1 above. If there are new matters shown from those previously disclosed by the title commitment described in paragraph 1 .7 above which detrimentally affect marketable title and restrict or prevent intended use, the City shall have 20 days thereafter to provide written notice of defects of title, and failing such notice shall have agreed that title is merchantable. North Poudre shall take such action as is necessary to cure any title defects arising subsequent to the approval of title provided for in Paragraph 1 .7 above of which written notice is provided by the City. If such title defects are not cured within 365 days of notice of defects, the City may, at its discretion, terminate this Agreement, and the City shall thereupon be reimbursed without interest for all Option or other payments made to North Poudre to date; provided, however, that if the title defect was caused by intentional actions of North Poudre, then the City shall not be limited to recovery of its Option payments but shall be entitled to collect all consequential damages resulting from North Poudre' s failure to cure title defects . The parties acknowledge and agree that the imposition of nonconsensual liens such as judgment liens upon the property shall 14- not be considered to have been caused by the intentional actions of North Poudre. 2 .2 . 5 Perfection of Conditional Decree. From and after the conveyance by North Poudre to the City of all North Poudre' s interest in the conditional decree for the Halligan Reservoir Enlargement, the City shall in its own name be solely responsible for the prosecution of any required diligence application for the conditional decree. The parties acknowledge that the City' s prosecution of such diligence cases will not guarantee that any findings of reasonable diligence will be duly entered by the Water Court, and the City shall bear no liability for the results of such diligence proceedings, unless the City fails to timely file and diligently pursue an application for a finding of reasonable diligence. 2 . 3 Design and Construction of Project. Upon exercise of the Option, the City shall undertake any further feasibility study and facility design needed in its judgment for construction of the Project. The City on a timely basis shall continue to advise North Poudre of its activities in this regard and to consult with it as set forth in Paragraph 2 .4 below. 2 .3 .1 Termination Prior to Construction of Reservoir. If after exercise of the Option the City determines that because of legal, technical, operational, or financial problems, the Project is not feasible or is impossible, the City may, in its discretion, terminate the Project. In such case, the City shall reconvey and -15 - transfer to North Poudre without charge any and all property previously conveyed or transferred to it pursuant to Paragraph 2 .2 .1 above, free and clear of any lien or encumbrance created by the City, except for any easements, permits, or restrictions placed upon such property in aid of the construction or operation of the Project, by deed or transfer carrying the same warranties of title as the deed or transfer to the City; and shall convey or assign and deliver to North Poudre any studies, reports, data, or other documents prepared or received by it relating to the Project that are by law open to inspection by the public; and North Poudre shall retain all option and purchase payments previously received from the City and Board and any due and unpaid shall be paid by the Board. In addition, in such case the City will, upon request of North Poudre and on payment of the City' s actual cost without interest, convey to North Poudre any additional real property and personal property that the City had acquired in order to complete the Project free of all liens or encumbrances created by the City except for any easements, permits, or restrictions placed on any such additional real property and personal property in aid of or in anticipation of construction or operation of the Project. Actual cost shall not include any charge for time spent by City employees nor any mark-up for consulting charges . 2.4 Operations Advisory Committee. No later than six (6) months after the exercise of the Option, the parties shall establish an Operations Advisory Committee, consisting of two City -16 - representatives appointed by the City Manager and two North Poudre representatives, who shall not be City employees, appointed by the North Poudre Board of Directors. The Committee shall develop written operation guidelines to aid in the operation of the Enlarged Reservoir (as hereinafter defined) after construction. Such guidelines shall address reservoir operations, accounting, and measurement, including specific recommendations on the location and type of measurement devices needed for accounting to meet the terms of this Agreement. In case of disagreements between the North Poudre and City representatives, the Operations Committee shall jointly select a neutral party possessing experience and expertise in the operation of reservoirs storing water used for both irrigation and municipal purposes to mediate the disagreement by reviewing materials supplied by the parties and meeting with all members of the Operating Committee. All costs and expenses of the mediator shall be split equally between North Poudre and the City. If the foregoing mediation is unsuccessful in resolving the disagreement, or if the Operations Committee cannot agree in selecting the mediator, the parties may pursue such legal redress as they determine best, with venue for any action arising from such disagreement in the District Court of Larimer County. 2 .5 Construction. Upon completion of any necessary design and study after exercise of the Option and upon obtaining any necessary permits, the City shall proceed in a timely manner with construction of the Project at its sole cost. The City will -17- continue to inform North Poudre and consult with it concerning the progress and the status of construction. All construction shall be planned so as to avoid or minimize any loss of water storage or delivery capacity from the existing reservoir during construction. In the case of any such temporary loss of storage capacity or delivery capacity resulting from construction, the City will make available to North Poudre to the extent reasonably feasible an equivalent amount of substitute water from other sources of supply available to the City. If such substitute water does not restore the yield otherwise due the stockholders of North Poudre, North Poudre may, at its election, require the City to waive the use of water attributable to one share of North Poudre stock owned by the City for each five acre feet of otherwise unreplaced shortage in yield suffered by North Poudre stockholders . This procedure may be invoked by North Poudre in each year of temporary loss . Article 3 . Security Arrangements. In order to secure the parties ' respective performance of their obligations hereunder during the term of this Agreement, the parties agree to the following security arrangements : 3 . 1 Option Period. Promptly after receipt of any money from the City for option payments, North Poudre will place one-half of the Option payments made by the City in an FDIC-insured savings account in the State of Colorado. North Poudre shall be entitled to regularly receive the interest on the funds so deposited. North Poudre will, upon creation of the account, give the City a first -18- lien on such account which shall either be perfected by delivering possession of the passbook for the savings account to the City or, alternatively, by setting up the account so that no withdrawals of principal may be made without the City' s express written approval (as by making the City a required signatory for withdrawals) . In either case, North Poudre shall also provide the City with the depository bank' s written Waiver of Set-Off against the savings account or make a trust account arrangement at the sole expense of North Poudre so the bank cannot claim this money. The security interest shall be released and the passbook returned to North Poudre or the City' s signature removed from the account at such time as the Option is exercised or earlier if there is a written agreement providing for such release signed by the City and North Poudre. The City shall not be obligated to consent to any release of security interest prior to the exercise of the Option. if the Option is not exercised by the City prior to its expiration, and there are no conditions which have occurred which require the return of Option payments to the City, then the security interest shall be released and the passbook returned to North Poudre or the City' s signature removed from the account. 3 .2 Option Exercise. Simultaneously with the delivery of the deed conveying the Halligan Reservoir property to the City, the Board shall execute and deliver to North Poudre the Bond evidencing its obligation to North Poudre in order to secure the Board' s payment of the purchase price described in paragraph 2 .2 .2 above. -19 - Upon termination of the Project in accordance with Paragraph 2 . 3 . 1 above, and reconveyance by the City of the property previously conveyed to it and compliance by the city with all obligations under this Agreement, North Poudre shall return to the Board for cancellation the Bond to be given to North Poudre by the Board. Article 4. ownership, operation, and Maintenance of Enlarged Reservoir. 4 .1 Storage Capacity Allocation. Upon completion of the Halligan Reservoir Enlargement (the "Enlarged Reservoir") , North Poudre shall be entitled to independent, free, and unrestricted use of its reserved easement of 6 , 408 acre-feet of active storage space in the Enlarged Reservoir ("North Poudre Is separate storage" ) , and the City shall be entitled to the balance of capacity within the Enlarged Reservoir (,,city, s separate storage" ) . Each party shall be entitled to store water owned and controlled by it in the temporarily unused capacity of the other, without charge, subject to such water supply being "booked over" or transferred to the other party, or being spilled from the Enlarged Reservoir, as the other party makes use of its separate storage capacity. Further, provided that there is no interference with the water rights identified in this Agreement, each party shall be entitled to store any water supply available to it from any source within its separate storage capacity without charge for such use; the parties agree, however, to cooperate to ensure that the -20- introduction of water supply from other sources does not impair water quality within the Enlarged Reservoir to the detriment of either party. 4 .1 .1 Evaporation and Seepage. In the event of lawful imposition of evaporation and seepage charges on Reservoir operations by administrative authorities, so long as the City has a water supply in storage within its separate capacity within the Reservoir, all evaporation and seepage from the Reservoir shall be deducted from the City' s share of water in the Reservoir. At any time that the only water stored in the Reservoir is owned by North Poudre, then, in the event of lawful imposition of evaporation and seepage charges on reservoir operations by administrative authori- ties, evaporation and seepage losses shall be borne by North Poudre. 4 . 1 .2 Water Represented by North Poudre Stock. This Agreement does not convey nor grant any rights to the City for independently operating any North Poudre storage for the 6 , 408 acre feet secured to North Poudre under this Agreement which may be attributed to the City' s ownership of North Poudre stock; provided, however, that at the City' s request and to the extent North Poudre may legally do so, North Poudre may allocate all or some water attributable to stock owned by the City for delivery to the City' s enlargement space in Halligan Reservoir under the policies of North Poudre. -21- 4 .2 Outlet Capacity. In the operation of the Enlarged Reservoir, the City shall at all times honor North Poudre' s right to the benefit of up to 250 c. f .s. of outlet capacity for releases from the North Poudre separate storage. 4 . 3 Temporary Storage Capacity Restrictions . North Poudre' s storage capacity of 6, 408 acre-feet shall be preserved inviolate subject only to any temporary emergency restrictions which invade such capacity. In the event that the storage capacity available in the Enlarged Reservoir is restricted below the full, enlarged capacity as a result of (a) hold orders issued by the State Engineer or (b) sedimentation reducing storage capacity, or if a portion of the capacity is dedicated to storage for purposes not envisioned in this Agreement, the parties agree that any such restrictions or deduction of capacity shall be deducted, first, against the City' s separate storage capacity in the Reservoir, to the end that North Poudre' s separate storage capacity will be inviolate so long as the total usable storage capacity in the Enlarged Reservoir is at least 6,408 acre-feet. 4 .4 Recreation. The City shall enjoy sole ownership and control of all recreational rights on the Reservoir, subject to the Lease and any preferential right to recreational rights as contained in the Lease if it is extant upon exercise of the Option. All such recreation rights shall be subject and subordinate to the use of the Reservoir for water storage and release for the water supply purposes of the parties . -22- 4 .5 OAeration of Reservoir. If the Option is exercised, upon delivery of the deeds to City, the City shall operate the Reservoir and provide all Reservoir accounting necessary to document the operation of the Reservoir and the allocation of water supply within the Reservoir between the City and North Poudre. If requested by North Poudre, the City shall provide daily verbal reports of storage and releases. In addition, the City shall provide North Poudre with monthly written accountings broken down to a daily basis of inflow, storage, and releases into and from North Poudre' s and the City' s separate storage. The City will effect releases or exchanges of North Poudre' s water stored under its retained decrees and entitlements within 24 hours after receipt of request for releases or exchanges from North Poudre and approval, if required, of such requests by the Division Engineer. The City will, if reasonably possible, accommodate requests for earlier releases by North Poudre. 4 . 6 Measurement Devices . As a part of the construction of the Project, the City shall install a gauging station below the Reservoir and such other measuring devices as the Operations Advisory Committee may recommend. 4 .7 Exchanges. In the event that either the City or North Poudre determines to lease or exchange water in the Enlarged Reservoir outside of their respective water supply systems, the other party shall enjoy a first right of refusal of acquiring any such water to be exchanged or leased on the same terms and -23 - conditions as offered to any other party. The first right of refusal must be exercised or declined within seven (7) days from the receipt of written notification of the terms of an acceptable lease or exchange agreement. Notwithstanding the foregoing, the first right of refusal of North Poudre shall not apply to any water that might be required to be delivered by the City to Halligan Resources Company and the Phantom Canyon Ranch Company pursuant to the Phantom Canyon Agree- ment, which can be up to 1000 acre-feet. 4 . 8 Maintenance and Repair. Once each year the City shall, after notifying North Poudre and inviting its participation, conduct a thorough maintenance inspection of the Enlarged Reservoir for determining maintenance or repairs needed. The City shall thereafter categorize repairs recommended or required as a result of the inspection or otherwise as "routine maintenance and repairs" or "capital reconstruction. " 4 .8 .1 Routine Maintenance and Repairs . Routine maintenance and repairs shall include ordinary and foreseeable preventative maintenance and upkeep generally required to maintain the Enlarged Reservoir and its appurtenances in sound operating condition. The City shall be responsible for and shall bear all costs of such routine maintenance and repair of the Enlarged Reservoir and its appurtenances and additions . 4 .8.2 Capital Reconstruction. Capital Reconstruction shall include major repairs or rehabilitation of the Enlarged -24 - Reservoir of a nature not reasonably foreseeable, or the reconstruction or rehabilitation of the Enlarged Reservoir at the conclusion of its useful life. Such capital reconstruction includes, but is not limited to, complete rehabilitation or replacement of the dam and its appurtenant structures as a result of an act of God, failure of the Reservoir, or otherwise. If such capital reconstruction would be required to maintain the Enlarged Reservoir at its enlarged capacity, then the City shall, after consultation with North Poudre, determine in its discretion whether it will expend the funds necessary for such capital reconstruction. The City, in its discretion may relinquish the use of the Enlarged Reservoir, transfer to North Poudre the conditional decree for Halligan Reservoir and any other water rights it has specifically appropriated for the Enlarged Reservoir, and convey to North Poudre the land and appurtenances acquired for the Project to North Poudre pursuant to the following paragraph; provided, however, that nothing herein shall require the City to convey to North Poudre any water rights it has changed to allow storage in the Enlarged Reservoir. 4 .8 .2 .1 Reconvevance. If the City determines that because of legal, technical, operational or financial problems, it is infeasible or impossible to complete the required capital recon- struction so that North Poudre' s separate storage is maintained, the City shall convey to North Poudre at no charge the entire Project, including, all property previously conveyed or transferred -25- to the City under this Agreement. Such conveyances shall be by instruments carrying the same warranties of title as received by the City when the property was conveyed to it, free and clear of all liens and encumbrances created by the City except for easements, permits or restrictions placed upon the property in aid of the construction or operation of the Enlarged Reservoir. If the cause of the needed capital reconstruction is an Act of God, and the City relinquishes its interest acquired under this Agreement, the City shall bear no further responsibility or liability to North Poudre for the relinquishment of the Enlarged Reservoir. If, however, the cause of the needed capital reconstruction is faulty design, faulty construction, or negligent operation of the Enlarged Reservoir, or some other cause within the reasonable control of the City, and the Enlarged Reservoir, if not reconstructed, is unable to maintain an active capacity of at least 6 , 408 acre-feet, then the City, if it determines that because of legal, technical, operational or financial problems, it is not feasible or possible to undertake a capital reconstruction of the Enlarged Reservoir, shall either reconstruct the Enlarged Reservoir to a capacity to allow North Poudre continued use of its separate storage capacity in the Enlarged Reservoir or, alternatively, provide equivalent storage capacity in another facility to which North Poudre' s retained Halligan Reservoir decrees may reasonably be transferred and used. -26- Upon the reconveyance herein required, North Poudre shall deliver the Bond to the Board for cancellation. 4 .9 Liability. Upon conveyance of the Project to the City, the City shall, to the extent permitted by law, indemnify North Poudre and hold it harmless from any and all claims or causes of action arising from or caused by the negligent acts or omissions by the City or its officers or employees in the construction and operation of the Enlarged Reservoir, dam, and appurtenances. The aforesaid indemnification shall not apply if the City has, in any manner, been prevented by North Poudre from conducting maintenance or repair of the Enlarged Reservoir or its appurtenances . Further, this indemnification is subject to the requirements, defenses , and limitations of the Colorado Governmental Immunity Act, Section 24 - 10-101 , C.R.S. , et sue. , as from time to time amended, and as otherwise provided by law. North Poudre shall continue to be responsible for all of its own actions but it is not responsible for the acts or omissions of the City. Article 5 . Miscellaneous. 5 . 1 Water Court Filings . Subject to the specific provisions of this Agreement concerning applications for findings of reason- able diligence, any party to this Agreement may make water court filings involving their respective interests in Halligan Reservoir without objection from any other party so long as such filings are not inconsistent with this Agreement and so long as any filing is not detrimental to other rights of a party to this Agreement. -27- water court filings may include new appropriations, and inclusion of Halligan Reservoir in change of use, augmentation or exchange plans . 5 .2 Notices . Any notices to be provided pursuant to this Agreement shall be deemed delivered three (3) business days after deposit in the United States mail, postage prepaid, addressed as follows : If to North Poudre: The North Poudre Irrigation Company P.O. Box 100 3729 Cleveland Avenue Wellington, Colorado 80549 with copies to its board of directors and manager. One copy shall be sent to the North Poudre president at the residence address. If to City or Board: Water and Wastewater Director City of Fort Collins P.O. Box 580 Fort Collins, Colorado 80522 Notices shall be sent by certified or registered mail, return receipt requested. These addresses may be changed by written notice to the other parties. 5 .3 Default. Each and every term and condition of this Agreement shall be deemed to be a material element of the Agreement. In the event that any party should fail or refuse to perform according to the terms of this Agreement, such party may be declared in default. All payment obligations of the Board here- under shall be merged into the Bond and the ordinance authorizing the issuance thereof . The parties acknowledge and agree that the subject of this Agreement concerns unique property and performance -28- by the parties, and the parties therefore agree that in case of default by any party hereto, the other party shall be enitited to specific performance by the other party of its obligations here- under. In the event of such default, if the party that is not in default commences legal or equitable action against the defaulting party, the defaulting party shall be liable for the non-defaulting party Is reasonable attorneys fees and costs incurred because of the default. 5 .4 Assignment by North Poudre. North Poudre may assign its rights and obligations hereunder only with the prior written consent of the City and the Board, which consent shall not be unreasonably withheld. 5 . 5 Assignment of City' s and Board' s Rights . The City and the Board may assign their rights under this Agreement only as follows : (1) The City and the Board may assign their rights and obligations under this Agreement without restraint to a municipal or quasi -municipal corporation or enterprise thereof that succeeds to the water service obligations of the City and/or the Board to the City' s inhabitants and has demonstrated to North Poudre that it is financially responsible. Any interest sought to be assigned or conveyed by the City shall always be specifically and expressly subordinate to the rights reserved in North Poudre described in Paragraph 2 .2 .3 of this Agreement. Upon such assignment, the City -29 - and the Board shall be discharged from any further obligations under this Agreement. (2) The parties agree that should the City ever desire to assign or convey all or any part of its interest in the Enlarged Reservoir or water rights associated therewith to a public entity (defined for purposes of this paragraph to mean the United States or any agency or instrumentality thereof, the State of Colorado or any agency, instrumentality or political subdivision thereof, a municipal or quasi -municipal corporation or enterprise thereof, or any other public district engaged in developing, managing or supplying water in the State of Colorado) that will not succeed to the City' s and/or the Board' s water service obligations to its inhabitants, and that the City, in the good faith exercise of its discretion, has determined is financially responsible, then the City will consult with North Poudre concerning the reason for any such proposed assignment or conveyance and whether such assignment or conveyance can be avoided. In addition, in such case, North Poudre shall have a Right of First Refusal to acquire any interest in the Enlarged Reservoir or associated water rights sought to be assigned or conveyed by the City at the same price and upon the same terms and conditions as those contained in a bona fide written offer made to the City by a public entity, which price and terms and conditions are acceptable to the City. The Right of First Refusal shall be exercised as follows: Upon receipt of an acceptable bona fide offer from a public entity, the City shall -30- provide North Poudre with written notice of the price and terms and conditions thereof; North Poudre shall have thirty (30) days thereafter to provide the City with a written notice of exercise of the Right of First Refusal. Should North Poudre not provide a written notice of exercise of its Right of First Refusal within that 30-day period, the Right of First Refusal shall be terminated and the City shall be free to proceed with the assignment or conveyance to the third party. Should North Poudre provide a written notice of exercise of its Right of First Refusal, then it shall have six months from the date of its notice of exercise in which to close upon the assignment or conveyance of the interest to be conveyed by providing the consideration therefor to the City. Should North Poudre fail to consummate the closing within such 6 - month period, or any extension thereof granted by the City (which extension will not be unreasonably refused provided North Poudre is diligently pursuing appropriate financing to effect the closing) , then the Right of First Refusal shall be terminated, and the City may assign or convey the interest to a third party upon the same terms and conditions as the transaction that was not consummated with North Poudre. Any interest sought to be assigned or conveyed by the City shall always be specifically and expressly subordinate to the rights reserved in North Poudre described in Paragraph 2 .2 .3 of this Agreement. Should North Poudre either not provide timely notice of exercise of its Right of First Refusal upon receipt of notice from the City, or should it fail, after providing notice of -31- exercise, to close the transaction within six months of the notice of exercise, and should the City thereafter not consummate the contemplated transaction with a third party, then, if the City subsequently seeks to enter into a new arrangement for assignment or conveyance, it will again honor North Poudre' s Right of First Refusal in accordance with the procedures set forth above. (3) Nothing in this Agreement shall be construed to prevent the City from discharging any duties or responsibilities hereunder by or through its duly authorized departments, officials, agents or employees including, without limitation, the Board or its duly authorized officials, agents or employees . 5 . 6 Binding Effect. This Agreement is the entire agreement of the parties with respect to the subject matter hereof and shall be binding upon and inure to the benefit of the parties, their successors and assigns . 5 .7 Survival of Agreement After Closing. Except as provided in Paragraph 5 . 3 hereof, this Agreement shall survive any convey- ance of property and shall not merge into any deed or deeds given if the Option is exercised. 5. 8 Prepayment. The Board and the City shall not have the right of prepayment of any sum due North Poudre under this Agreement or the Bond without North Poudre' s written consent. North Poudre shall not be obligated to accept any prepayment which may create an income tax obligation upon North Poudre. -32- 5 .9 Agreement with The Nature Conservancy. There is pre- sently an Agreement in effect between The Nature Conservancy and The North Poudre Irrigation Company, which was approved by the North Poudre manager on December 9 , 1991 . It is for a three-year term. A copy of this agreement has been furnished to the City. Any conveyance to the City by North Poudre will be subject to the terms of any existing agreement with The Nature Conservancy. North Poudre agrees it will not make a new written agreement or extend such agreement without the City' s written approval of any agreement, which approval shall not be unreasonably withheld. The City will have not less than thirty (30) days from written notice to it of the proposed agreement to respond. Article 6 . Conditions Subsequent 6 .1 Stockholder Ratification. This Agreement is conditioned upon the ratification by a majority of the stockholders of North Poudre present at the 1994 Annual Meeting of Stockholders . If the Agreement is not so ratified by the stockholders of North Poudre, then the Agreement shall be of no further force or effect, and any payments previously made hereunder shall be promptly refunded to the City without interest. CITY OF F COLLINS ORADO, a Colorado ipa1 co orati By: Mayor P.O. Box 580 Fort Collins, CO 80522 -0580 ATTE T �qq I-yi"1:6']City Clerk _ V / -33 - APPROVED AS T9 FORM: P,," I i, As istan't City Attorney , A'w� City Spe ial Water Counsel City Sp cial Bond Counsel BOARD OF THE F OLLINS UTILITY, a City-owne usi ess a erpr' e By. ahv - P.O. Box 580 Fort Collins, CO 80522 -0580 ATTEST: o ct"( THE NORTH POUDRE IRRIGATION COMPANY By: ident 3729 Cleveland Avenue P.O. Box 100 Wellington, CO 80549 ATTEST: Manager APPROVED AS TO FORM: HILL & HILL, P.C. Qu'-, �L -DO /n 2�- 973 Alden V. Hill 160 W. Mountain Avenue PO Box 421 Fort Collins, CO 80522 COUNSEL FOR THE NORTH POUDRE IRRIGATION COMPANY -34- EXHIBIT A HALLIGAN RESERVOIR ENLARGEMENT PROJECT SCHEDULE OF PAYMENTS TO NORTH POUDRE IRRIGATION COMPANY Payment Due Date Payment See Note Below $40,000. 00 December 31 , 1993 $30,000 . 00 December 31, 1994 $40,000 . 00 December 31, 1995 $50,000 . 00 December 31 , 1996 $60 ,000 . 00 December 31, 1997 $70,000 . 00 December 31 , 1998 $80,000 .00 December 31, 1999 $90,000 . 00 December 31 , 2000 $188,223 .51 December 31, 2001 $188,223 . 51 December 31 , 2002 $188 ,223 .51 December 31, 2003 $188,223 . 51 December 31 , 2004 $188,223 .51 December 31, 2005 $188,223 . 51 December 31, 2006 $188,223 .51 December 31 , 2007 $188,223 .51 December 31, 2008 $188,223 .51 December 31 , 2009 $188,223 .51 December 31, 2010 $188,223 .51 December 31 , 2011 $188 ,223 .51 December 31, 2012 $188,223 . 51 December 31 , 2013 $188 ,223 .51 December 31, 2014 $188,223 . 51 December 31, 2015 $188 ,223 .51 December 31 , 2016 $188,223 . 51 December 31, 2017 $188,223 .51 December 31 , 2018 $188,223 .51 December 31, 2019 $188 ,223 .51 December 31 , 2020 $188,223 . 51 December 31, 2021 $188,223 .51 December 31 , 2022 $188,223 . 51 December 31, 2023 $187, 925 . 67 December 31 , 2024 $110,611. 82 December 31, 2025 $110, 611 .82 December 31 , 2026 $43,420 . 31 December 31, 2027 $43 ,420 .31 December 31, 2028 $38,851 .24 December 31, 2029 $19,846. 68 December 31 , 2030 $19 ,846. 68 TOTAL $5, , -2-G Note: An initial option payment of $40,000 is due within 60 days after signing the agreement, which extends the option through December 31, 1993 .