William T. and Nicole L. Gladden - Page 8




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          Subcontract, at a rate, with certain adjustments, per acre-foot              
          of water pegged to what HID was required to pay the CAP Water                
          District.                                                                    
               Each year, HID, with approval of the CAP Water District                 
          could sell or exchange “excess” water (namely, Colorado River                
          water available under the Subcontract that the Harquahala Valley             
          landowners did not wish to receive) but only to landowners within            
          Maricopa, Pinal, and Pima Counties, Arizona.  Funds HID realized             
          on sale of excess water, over and above its costs, could not be              
          retained by HID but were required to be paid to the CAP Water                
          District to pay down the debt obligation of HID to the CAP Water             
          District.                                                                    
               The Harquahala Valley landowners could sell their beneficial            
          interests in Colorado River water rights to third parties but                
          only as part of a sale of their ownership interests in the land.             
               Under the Subcontract, it was provided that all uses of                 
          Colorado River water by water districts and landowners to whom               
          the water was allocated and distributed had to be consistent with            
          Federal Government and CAP Water District directives regarding               
          Colorado River water.                                                        
               Under the Subcontract, the Interior Department retained the             
          right to sell to other water districts, to landowners, and to                
          others Colorado River water that was not distributed to those                
          with specific allocations under the Subcontract.                             
               In 1984, HID contracted with the Interior Department for                
          construction of a water distribution system in and about                     


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