Document:

exv10w31

EXHIBIT
10.31

	 	 	 	 	 
	 

	 	[SEAL]
	 	OFFICIAL RECORDS OF

 FINAL COUNTY RECORDER
	 
	 	 	 	 
	 	 	LAURA DEAN-LYTLE
	When recorded mail to:
	 	 	 	 
	 	 	DATE : 08/01/03 TIME: 1650
	Pinal County Board of Supervisors	 	FEE : 0.00
	P.O. Box 827	 	PAGES : 15
	Florence, Arizona 85232	 	FEE NO : 2003-053302

 

(The above space reserved for recording information)

CAPTION HEADING

RE-RECORD Water Supply and Management Services Agreement between

the 387 Domestic Water Improvement District and Sonoran Utility Services, L.L.C.

Necessary to re-record to include exhibit “A”. Original fee #2003-045208.

 

 

 

	 	 	 	 	 
	 

	 	[SEAL]
	 	OFFICIAL RECORDS OF

FINAL COUNTY RECORDER
	 
	 	 	 	 
	 	 	LAURA DEAN-LYTLE
	When recorded mail to:
	 	 	 	 
	 	 	DATE : 07/03/03 TIME: 1632
	Pinal County Board of Supervisors	 	FEE : 0.00
	P.O. Box 827	 	PAGES : 8
	Florence, Arizona 85232	 	FEE NO : 2003-045209

 

(The above space reserved for recording information)

CAPTION HEADING

Water Supply and Management Services Agreement between the 387 Domestic Water Improvement District

and Sonoran Utility Services, L.L.C.

 

 

 

WATER SUPPLY AND

MANAGEMENT SERVICES AGREEMENT

     This Water Supply and Management Services Agreement (the “Agreement”) is made and entered into this
25th day of June, 2003, by and between the 387 Water Improvement District (hereinafter
referred to as (“387 WID” or the “District”), an improvement district organized pursuant to A.R.S.
Section 48-901 et. seq., and Sonoran Utility Services L.L.C., or its assignee, (hereinafter
referred to as (“Sonoran Services”).

WITNESSETH

     WHEREAS, the 387 Water Improvement District was organized pursuant to the laws of the State of
Arizona as hereinabove set forth, with boundaries established in Pinal County as more particularly
set forth in Exhibit A hereto; and

     WHEREAS, the Pinal County Board of Supervisors serves as the Board of Directors for 387 WID and
desires to secure water services for the District, as well as management of the water services
during construction of the required Facilities, as hereinafter defined, and during the operation; of
the Facilities; and

     WHEREAS, it is in the best interest of the District to enter into an agreement for the provision of
water delivery and management services to fund the construction of facilities, infrastructure,
operations; and

     WHEREAS, Sonoran Services is willing and able to fund the construction and operation of the water
facilities in accordance with the terms of this Agreement; and

     WHEREAS, Sonoran Services makes assurances that it has substantial ability and experience enabling
it to construct, operate, and manage the Facilities and provide the water services; and

     WHEREAS, an agreement has been reached with Sonoran Services to construct, manage and operate the
Facilities within the District and provide the water services.

     NOW, THEREFORE, the parties enter into this Agreement for and in consideration of the mutual
covenants, warranties and representations, and agree as follows:

	 	1.	 	Facilities. Sonoran Services shall construct, or cause to be constructed, wells,
pumps, storage, water treatment plant(s), transmission and distribution lines, valves,
services and meters (the “Facilities”) necessary to supply water within the District as such
demand may increase, through facilities approved by the Pinal County Engineer, the Arizona
Department of Environmental Quality and/or the County Planning and Development Services
Department and or Pinal County Health Department, or their successor agenc(ies),
(“hereinafter collectively referred to as “ADEQ”). All Facilities shall become the property of
Sonoran Services after acceptance by Sonoran Services.

 

 

	 	2.	 	Location. Sonoran Services shall provide the Facilities described in Paragraph 1
above at location(s) within the District mutually agreed upon by the parties.
	 
	 	3.	 	Real Property. Sonoran Services shall pay all costs of acquisition of real property
and/or rights, including any condemnation action initiated by 387 WID, for water plants, well
sites, water mains, and related sites that are necessary for Sonoran Services to construct
service related facilities.
	 
	 	4.	 	Easements. The Facilities shall be constructed within established easements or
rights-of-way or upon property leased, purchased, or otherwise set aside for such use. These
easements shall provide Sonoran Services access to the water system for purposes of
installation, repair, maintenance and removal of the Facilities. The proposed water treatment
plant shall he constructed within the boundaries of the District on property that has been
deeded to Sonoran Services.
	 
	 	5.	 	Equipment. Sonoran Services shall provide all vehicles, construction equipment, tools
and instruments, howsoever described (the “Equipment”) necessary to perform its obligations
under this Agreement. The cost of such Equipment, and its operator(s) shall be charged to the
District only for the time during which the Equipment and operator(s) are performing services
for the benefit of the District.
	 
	 	6.	 	Capital Costs. No construction costs for the Facilities shall be borne by 387 WID.
However, Sonoran Services may recoup those costs and a return of and on its investment in the
Facilities and an operating profit by collecting and retaining all Hook-Up Fees from property owners, developer, and Customers, and
through the sharing of monthly service charges for water services, all as established under
this Agreement.
	 
	 	7.	 	Line Extension Agreements: On-site facilities constructed by developers under Line
Extension Agreements shall be refunded in accordance with those agreements as approved by the
Board of Directors of the District.
	 
	 	8.	 	Title. The District shall not obtain by terms of this Agreement, and Sonoran Services
does not surrender, any ownership rights in the subject Real Property, Facilities, or
Equipment.
	 
	 	9.	 	Service. Sonoran Services shall provide water delivery services to residential and
commercial properties within the district boundaries through appropriately sized meters
consistent with requirements of ADEQ.
	 
	 	10.	 	Customers. Sonoran Services shall provide the water services under this Agreement to
all property owners within the District, subject only to the property owners complying with
all District rules and regulations and their paying the rates and charges established pursuant
to this Agreement.

2

 

	 	11.	 	District Employees. 387 WID may, but is not required to, have employees for its
performance under this Agreement. In the event it does hire any such employee, all costs
associated with those employees will be assigned directly to the District.
	 
	 	12.	 	Revenue Allocation. Sonoran Services shall fund all operations of 387 WID and retains
those portions of rates collected on behalf of 387 WID directly attributable to the
construction, operation and maintenance expenses. All fees and charges collected by Sonoran
Services shall be retained by Sonoran Serving.
	 
	 	13.	 	Costs. Sonoran Services is responsible for, and will arrange the funding of all
costs, expenses and capital improvements, including but not limited to the following.

	 	12.1	 	Electric power and energy for the operation of the water systems.
	 
	 	12.2	 	All chemicals required to treat the water.
	 
	 	12.3	 	Required testing performed by a laboratory.
	 
	 	12.4	 	All employee related salaries and costs.
	 
	 	12.5	 	All rents, office, operating fees, vehicle, equipment, depreciation and tax expenses.
	 
	 	12.6	 	Insurance as may be required by the water system.
	 
	 	12.7	 	Replacement of, and repairs to, the water system.
	 
	 	12.8	 	All plant additions and improvements.
	 
	 	12.9	 	Legal counsel for the water systems.
	 
	 	12.10	 	Engineering and accounting services.

	 	14.	 	Operating Shortfalls. Sonoran Services shall be responsible for any and all
shortfalls in operating expenses incurred by 387 WID during the period of this Agreement.
	 
	 	15.	 	Management. Sonoran Services shall manage and coordinate all aspects of construction
resulting from this Agreement and once constructed, manage all daily operations in providing
water services to the District which include the following:

	 	15.1	 	Provide ADEQ a certified operator for the system.
	 
	 	15.2	 	Obtain all ADEQ Approvals to Construct, Approvals of Construction, and Operating Permits for
the Facilities.

3

 

	 	15.3	 	Conduct all Water quality/system tests required by all applicable rules and regulations.
	 
	 	15.4	 	File all applicable regulatory agency requirements, including but not limited to those for
ADEQ, ADOR, and Pinal County.
	 
	 	15.5	 	Inspect, maintain, repair, and operate all Facilities.
	 
	 	15.6	 	Negotiate and prepare all Hook-Up Fee Agreements (HUF’s) and on-site Line Extension
Agreements (LXA’s) with developers as approved by 357 WID.
	 
	 	15.7	 	Maintain all records, track all data, and make approved refunds for LXAs.
	 
	 	15.8	 	Inspect, manage, and supervise all on-site Facilities construction performed by developers.
	 
	 	15.9	 	Provide a customer service office within ten (10) miles of the District boundaries.
	 
	 	15.10	 	Provide all customer service functions related to initiating, operating, and maintaining
water services to the 387 WID including: taking orders, receiving payments, responding to
complaints, answering inquires related to water services and/or billing; provide on-site
hook-up, maintenance, water shut-off’s, turn outs, as well as any other service functions as
deemed necessary by 387 WID.
	 
	 	15.11	 	Recommend appropriate customer fees, rates, and charges to the 387 WID Board of Directors
that are consistent with area rates.
	 
	 	15.12	 	Bill and collect all fees, rates and charges for water services pursuant to the fees,
rates, and charges established by the 387 WID Board of Directors.
	 
	 	15.13	 	Pay all expenses and bills of 387 WID as required by this Agreement and as authorized by the
387 WID Board of Directors.

	16.	 	Office. Sonoran Services shall provide adequate office space and shop/storage areas
in the vicinity of the District, which office and shop/storage areas will permit Sonoran
Services to perform its obligations under the Agreement

	17.	 	Regulatory Filings. Sonoran Services shall be responsible for filing, maintaining,
and reporting all regulatory, health, tax and corporate documents necessary for the continued
operation of the Water system.

4

 

	18.	 	Reports. Sonoran Services shall provide to the District for all capital
construction projects, repair and maintenance items, and all other expenses billed, copies of
any and all applicable permits, easements, detailed invoices, and as-built drawings specifying
all materials, labor and services contracted for on behalf of the District. Said records will
be coded for accounting purposes in accordance with Generally Accepted Accounting Principles.
	 
	19.	 	Fees, Rates, and Charges and Revisions. Sonoran Services shall provide initial Water
at the rates set forth in the attached schedule (Exhibit B hereto). The parties to this
Agreement acknowledge that the fees, rates, and charges are subject to change periodically but
will not exceed a maximum increase of three percent (3%) per calendar year and are subject to
the approval by the Board of Directors of the District.
	 
	20.	 	Insurance. Sonoran Services shall arrange to have the District named as an additional
insurer on its liability insurance coverage and shall maintain $5,000,000 liability insurance
during the term hereof. A copy of this coverage shall be filed with the Board of Directors of
the District on the date this Agreement is first signed and shall remain in effect throughout
the term of this Agreement
	 
	21.	 	Indemnification. Sonoran Services agrees that they shall indemnify, defend and hold
harmless the District, the County, and their elected officials, officers, departments,
employees, commissions and agents, from and against any and all suits, actions, legal
proceedings, claims, demands, attorney fees, costs of litigation, or damages of any kind
arising out of this Agreement which are attributed to the alleged acts or omissions of Sonoran
Services, their agents, employees, or anyone acting under their direction or on their behalf,
whether intentional or negligent, in connection with or incident to this Agreement.
	 
	22.	 	Term. To permit Sonoran Services to recover the substantial investment it is making
in the treatment and collection facilities necessary to perform under this Agreement, this
Agreement shall continue in full force and effect for thirty (30) years from the day and year
first above written and may be extended or renewed at any time during its term upon the
request and mutual agreement of the parties, and automatically will be renewed for successive
5 year terms as long as Sonoran Services remains in good standing
	 
	23.	 	Force Majeure. Sonoran Services shall not be liable to District nor to any of the
District’s customers, nor to any other person, firm or corporation whatsoever, for or on
account of any claim resulting from any condition that existed prior to the date of this
Agreement, or for any interruption or failure in delivery of service in accordance with this
Agreement, or for or on account of any loss, injury or damage occasioned thereby, where such
interruption or failure, either directly or indirectly, is caused by or results from any of
the following:

	 	22.1	 	Fire, lightning, flood, cold, windstorm, Act of God, invasion or force majeure.

5

 

	 	22.2	 	Compliance with any orders, rules or regulations, whether valid or invalid, or any
governmental authority or agency.
	 
	 	22.3	 	Strikes, lockouts or labor disputes.
	 
	 	22.4	 	Interruption in supply or delivery, or any other failure to perform by any person under any
contracted supplier of any service to Sonoran Services.
	 
	 	22.5	 	Breakdown, repair or replacement of any machinery, equipment, pipeline or other facility not
foreseeable or preventable through normal maintenance and only for periods reasonable to make
repairs..
	 
	 	22.6	 	Shortage of power, supplies, material or labor, or where such interruption or failure is
directly or indirectly due to any cause not reasonably preventable by Sonoran Services or not
reasonably within its control.

In case such interruption or failure shall be occasioned by any cause specified under Paragraphs
22.4, 22.5, and 22 6 above, Sonoran Services will endeavor to remedy or eliminate such cause as
expeditiously as is reasonably possible. In the event claims or causes of action are instituted by
third parties as a result of the interruptions as hereinabove specified, Sonoran Services shall
indemnify and defend District against all liability or loss.

	24.	 	Notice. All notices under this Agreement shall be provided to the parties designated
below. Written notices may be provided by personal delivery, fax or mailing by registered or
certified mail, return receipt requested, to the address below. Notice of any change in
address shall be given m the same manner.

	 	 	 
	Sonoran Utility Services, L.L.C.:

	 	District:
	George H. Johnson

	 	Stanley D. Griffis, Ph.D, Clerk
	5230 E. Shea Blvd.

	 	Pinal County Board of Supervisors
	Scottsdale, Arizona 85254

	 	P.O. Box 827
	 

	 	Florence, Arizona 85232

	24.	 	Miscellaneous. The terms of this Agreement constitute the entire agreement between
the parties, and the parties represent that there are no other collateral agreements or side
agreements not otherwise provided for within the terms of this Agreement. This Agreement may
not be changed, modified or rescinded except in writing, signed by all parties hereto This
Agreement shall be subject to and governed by the laws of the State of Arizona. No waiver by a
party of any breach by the other party of any provision of this Agreement nor any failure by a
party to insist on strict performance by the other party of any provision of this Agreement
shall in any way be construed to be a waiver of any future or subsequent breach by a party or
bar the right of the other party to insist on strict performance. Each party is an independent
contractor and not an agent or employee of the other party. This Agreement shall insure to the
benefit of, be

6

 

binding upon, and be enforceable by the parties hereto and their respective successors and assigns.

     IN WITNESS WHEREOF, the parties hereto have caused this agreement to be executed as of the first
day and year written above.

	 	 	 	 	 	 	 	 	 	 	 
	PINAL COUNTY, a political	 	 	 	SONORAN UTILITY SERVICES L.L.C.,	 	 
	subdivision of the State of Arizona	 	 	 	an Arizona corporation	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	By:

	 	/s/ Sandie Smith
	 	 	 	By:
	 	/s/ George H. Johnson	 	 
	 

	 	 

Sandie Smith, Chairman
	 	 
	 	 	 	 

George H. Johnson
	 	 
	 

	 	Board of Supervisors
	 	 	 	 
	 	Its: President	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	ATTEST:	 	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 	 	 	 	 
	/s/ Stanley D. Griffis	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 
	Stanley D. Griffis, Ph.D., Clerk	 	 	 	 	 	 	 	 
	Board of Supervisors	 	 	 	 	 	 	 	 

Date: (Illegible)

(Illegible)

CONSENTED to and APPROVED as to form this (Illegible) day of (Illegible), 2003.

	 	 	 	 	 
	ROBERT CARTER OLSON

PINAL COUNTY ATTORNEY

 	 	 
	By:  	/s/ Richard V. Husk
 	 	 
	 	Richard V. Husk 	 	 
	 	Deputy County Attorney 	 	 

7

 

	 	 	 	 	 

Exhibit a 

387 Domestic Water Improvement District

Those portions of Sections 26, 27, 28, 33, 34 Township 4 South Range 3 East; Sections 2, 3, 11, 12
Township 5 South Range 3 East; Sections 21,28 Township 4 South 4 East; Section 3 Township 5 South 4
East, of the Gila and Salt River Base and Meridian, Pinal County, Arizona being more particularly
described as follows;

Beginning at the Northwest corner of Section 28 Township 4 South Range 3 East; thence East
[Illegible] the north line of section 28 to the easterly line of Hamilton Ave.; thence southerly
along said easterly line to a point 77.46 feet
north of the east west mid-section line of said Section 28;

Thence North 89 degrees 38 minutes 01 seconds east 397.78 feet;

Thence North 00 degrees 21 minutes 59 seconds west 360.00 feet;

Thence North 89 degrees 38 minutes 01 seconds east 290.00 feet;

Thence North 00 degrees 21 minutes (Illegible) seconds west 345.00 feet;

Thence North 89 degrees 38 minute 01 seconds east 310.59 feet;

Thence South 00 degrees 09 minutes 24 seconds east 730.62 feet;

Thence North 89 degrees 09 minutes 29 seconds east 514.33 feet,

Thence South 00 degrees 45 minutes 29 seconds east 60.69 feet; to the east west mid-section line of
said Section 28; Thence East to the westerly ROW line of John Wayne Parkway/State Route 347
([Illegible] Road): Thence southerly along said west ROW line to the South line of Section 28;
Thence West along the South line of section 28 to the Southwest corner of section 28; Thence North
along the West line of section 28 to the West quarior corner of section 28;

Thence East 330.00 feet;

Thence North 660 feet;

Thence West 330.00 feet to the West section line of section 28;

Thence north along said West section line to the Northwest corner of section 28 and the Point of
Beginning.

The West half of section 27 township 4 south range 3 east lying south and west of Rail Road and
those portions of section 28 more particularly described in PCR Fee Number 2001-040284.

Groves 1 thru 23, inclusive, of Maricopa Groves Unit 3 according to PCR Book 17 of Maps, Page 3

Those portions of lots 5 and 6 Block 40, and lots 5 and 6 Block 42 of Maricopa Townsite according
to PCR Book 3 of Maps Page 6 lying West of the East line of section 27

Page 1 of 3

 

That portion of the North 1/2 of the Northeast 1/4 of section 27, lying East of Maricopa Groves Unit 3
and North of Maricopa Townsite

That portion of the northwest quarter of section 27 township 4 south range 3 east, lying East of
and adjacent to the northwest 1/4 of the northwest 1/4 and West of Groves 6 and 7 of Maricopa Groves
Unit 3

Except that portion conveyed to Maricopa Rotary in PCR Fee Number 2003-004986

Also Excepting that portion of the Northwest 1/4 of section described as follows;

Commencing at the Southwest corner of Grove 7 of Maricopa Groves Unit 3, said point being on the
Northwesterly line of the Maricopa Rotary parcel described in PCR Fee Number 2003-004 986, Thence
North 54 degrees 19 minutes 31 seconds West 37.35 fast to the Point of Beginning;

Thence North 54 degrees 19 minutes 31 seconds West along the North line of said Maricopa Rotary
parcel 186.73 feet;

Thence North 00 degrees 52 minute 54 seconds West 100.00 feet;

Thence North 89 degrees 07 minutes [Illegible] seconds East 150.00 feet;

Thence South 00 degrees 52 minutes 54 seconds East 211.22 feet to the Point of Beginning.

The Northwest 1/4 of the Northwest 1/4 and the West 80.00 feet of the East 1/2 of the West 1/2 Section 26
Township 4 South Range 3 East.

Lots 1, 2,
3, 4, Block 40, and Lots 1, 2, 3, 4, Block 42, Lots 1, 2, 3, Block 44 of Maricopa
Townsite according to PCR Book 3 of Maps Page 5

Except that portion of Lot 3 Block 44 lying in section 27

All of section 28 and the South 1/2 of section 21 Township 4 South Range 4 East

The Northeast 1/4 of section 3 Township 5 South Range 4 East

The North 1/2 of the Northwest 1/4 and the Northeast 1/4 of Section 33 Township 4 South Range 3
East.

The Southwest 1/4 of Section 34 Township 4 South Range 3 East; Except any portion of the John Wayne
Parkway ROW;

The North 1/2 of Section 3 Township 5 South Range 3 East,

Except the West 150 feet

Also Except the North 220.00 feet of the West 264.00 feet of the East 636.00 feet of GLO Lot 3

Also Except the North 210.00 feet of the East 210.00 feet of GLO Lot 3

Page 2 of 3

 

All of Sections 2 and 11 Township 5 South Range 3 East

The West
1/2
of Section 12 Township 5 South Range 3 East; 
Except the East 1/2 of the Northeast 1/4 of the
Northwest 1/4,
Also Except the East 229.26 feet of the South 950.00 feet

That portion of the Southeast 1/4 of the Northeast 1/4 of Section 28 Township 4 South Range 3 East.
Lying East of John Wayne Parkway/State Route 347; Except the North 50 feet;

Also Except the South 150.00 feet of the North 200.00 feet of the West 147.00 feet;

Also Except the North 150.00 feet of the South 320.00 feet of the West 147.00 feet

Page 3 of 3

 

 

 

387 WATER IMPROVEMENT DISTRICT

Rates and Charges

Rates effective January 1, 2003

 

	 	 	 	 	 
	MONTHLY RATES	 	 	 
	Monthly Minimum	 	 	 
	All Service	 	 	 
	Meter Size	 	Per Month	 
	3/4”
	 	$	27.00	 
	1”
	 	$	45.00	 
	1 1/2”
	 	$	90.00	 
	2”
	 	$	144.00	 
	3”
	 	$	270.00	 
	4”
	 	$	450.00	 
	6”
	 	$	900.00	 
	Usage Charges
	 	 	 	 
	Rate per Thousand Gallons in excess of Minimum included
	 	 	 	 
	0-7.000 Gallons
	 	$	2.25	 
	7.000 Gallons Over
	 	$	2.50	 
	Standpipe commodity change for all consumption
	 	$	3.75	 
	 
	 	 	 	 
	OTHER
WATER RATES
	 	 	 	 
	Service
Line and Meter Advance (Payable at
[Illegible] of new Service Location)
	 	 	 	 
	Meter Size
	 	 	 	 
	3/4”
	 	$	405.00	 
	1”
	 	$	455.00	 
	1 1/2”
	 	$	885.00	 
	2”
	 	$	1,080.00	 
	3”
	 	$	2,190.00	 
	4” Compound
	 	$	2,985.00	 
	6” Compound
	 	$	5,780.00	 
	 
	 	 	 	 
	ADDITIONAL WATER CHARGES
	 	 	 	 
	A. Establishment of Service
	 	$	25.00	 
	Additional charge if after Hours:
	 	$	15.00	 
	B. Re-establishment of Service
	 	 	(2	)
	C. Reconnection of Service
	 	$	50.00	 
	D. Charge for Moving Meter
	 	Cost
	E. Deposit
	 	 	 	 
	1. Residential
	 	2 times estimated bill
	2. Commercial
	 	2.5 times estimated bill
	3. Deposit interest
	 	 	3.00	%
	F. Meter Test (If correct)
	 	$	25.00	 
	G. Meter Record (If correct)
	 	$	5.00	 
	H. Charge for NSF Check
	 	$	15.00	 
	I. Late Payment Charge
	 	$	5.00	 
	J. Main Extension (Refundable per Agreement)
	 	Cost

 

			
	(1)	 	If Contractor does not provide meter, District will require a refundable deposit
	 
	 	 	In the amount of the appropriately sized meter cost. If an account is not established, payment for
water shall be upon delivery.
	 
	(2)	 	Months off system times Minimum Monthly Charge

					
	 	 	 	 	 
	 
	 	Water Rates	 	 
	 
	 	Exhibit B	 	 
	 
	 	Page 1 of 2
	 	6/23/2003

 

 

387 WATER IMPROVEMENT DISTRICT

Hook-Up Fees

Fees effective January 1, 2003

 

HOOK-UP FEES

All Hook-Up Fees are payable for each service line installed Irrespective of whether a Meter is set
at the time of construction. HUF’s for all units within a subdivision are payable in full at the
time the Final Plot of the subdivision is recorded. HUF’s are [Illegible] by the District or its
Management Contractor.

	 	 	 	 	 
	 	 	HUF	 
	Meter Size	 	Per Meter	 
	3/4”
	 	$	900.00	 
	1”
	 	$	1,500.00	 
	1 1/2”
	 	$	3,000.00	 
	2”
	 	$	4,800.00	 
	3”
	 	$	9.000.00	 
	4”
	 	$	15,000.00	 
	6” or larger
	 	$	30,000.00	 

					
	 	 	 	 	 
	 
	 	Water HUF’s	 	 
	 
	 	Exhibit B	 	 
	 
	 	Page 2 of 2
	 	6/23/2003exv10w32

	 	 	 	 	 
	When recorded mail to:

Terry Doolittle

Deputy County Manager

	 	
	 	OFFICIAL RECORDS OF

PINAL COUNTY RECORDER

LAURA DEAN-LYTLE

	 	 	 	 	 	 	 	 	 
	 
	 	DATE/TIME:	 	10/05/05 1027	 	 
	 
	 	FEE:	 	$0.00	 	 
	 
	 	PAGES:	 	24	 	 
	 

	 	FEE NUMBER:
	 	2005-134947
	 	 

 
(The above space reserved for recording information)

CAPTION HEADING

Management Agreement for 387 Improvement District

 

DO NOT DISCARD THIS PAGE. THIS COVER PAGE IS RECORDED AS PART OF YOUR DOCUMENT. THE CERTIFICATE OF
RECORDATION WITH THE FEE NUMBER IN THE UPPER RIGHT CORNER IS THE PERMANENT REFERENCE NUMBER OF THIS
DOCUMENT IN THE PINAL COUNTY RECORDER’S OFFICE.

Form RE-49

 

 

AGREEMENT RELATING TO ASSIGNMENT

OF MANAGEMENT AGREEMENT FOR

THE 387 WATER IMPROVEMENT DISTRICT

This Agreement is made among the 387 Water Improvement District (the “387 District” or the
“District”), Sonoran Utility Services, L.L.C. (“Sonoran”) and Global Water Resources, LLC
(“Global”), with an Effective Date of September 1, 2005.

Recitals

1. On June 25, 2003 the 387 District entered into a Water Supply and Management Services
Agreement (“Management Agreement”) with Sonoran whereby Sonoran agreed to construct, own and
operate the facilities necessary for the 387 District to carry out its statutory purpose of water
delivery to its member lands.

2. On or about June 1,2005, the 387 District scheduled a date to commence a public hearing to
determine whether default(s) should be declared under the Management
Agreement.

3. On June 15, 2005 Sonoran and Global entered into an agreement whereby Sonoran assigned to
Global certain rights and obligations under the Management Agreement.

4. The 387 District believes that the assignment of the Management Agreement is not effective
without the consent of the 387 District, which consent has not been given. Sonoran and Global
believe that the Management Agreement may be assigned without the consent of the 387 District.

5. The 387 District believes that there have been past and current defaults in the Management
Agreement. Sonoran and Global do not believe that there have been defaults.

6. On June 30, 2005 Global applied to the Arizona Corporation Commission (“ACC”) for a certificate
of convenience and necessity to provide private water service to the lands located within the 387
District. As part of that application Global submitted the petitions of the majority of the
landowners in the 387 District that would request dissolution of the 387 District and or
deannexation from the 387 District in the event the ACC approved the application for the
certificate of convenience and necessity.

7. The parties by this agreement wish to clarify the relative rights and obligations of the
parties, resolve the issues relating to the assignment and the alleged contract breaches and
amend the Management Agreement.

Agreement

Now therefore, for their mutual promises contained herein, and for other good and valuable
consideration, the parties agree:

Page 1

 

1. Assignment. Upon the effective date of the Agreement the 387 District consents to
the assignment of the Management Agreement to Global, consistent with the provisions of this
Agreement.

2. Assumption of Liabilities by Global. Effective on March 30, 2005 Global assumes all
duties and responsibilities under the Management Agreement. This assumption shall not include
the obligation of indemnification (or any other obligation or liability) of the 387 District
for acts or omissions occurring before March 30, 2005, provided that Global provides
satisfactory evidence to the District that the insurance required by the Management Agreement
has been procured and is in place, covering acts and omissions from the inception of the
Management Agreement.

3. No Release of Sonoran. The assignment shall not release Sonoran from its
obligations under the Agreement with respect to acts or omissions, or performance of the Management
Agreement, occurring prior to March 30, 2005.

4. Forgiveness of Contract Breach. Upon the Effective Date the District forgives all
contract breaches including but not limited to the following alleged contract breaches, to the
extent that they exist on the Effective Date:

	 	1.	 	Failure to construct usable wells, pumps, storage, water treatment plants,
transmission and distribution lines, valves, services, and/or meters necessary to
supply water within the District as such demand may increase.
	 
	 	2.	 	Failure to provide and construct said Facilities at locations within the District.
	 
	 	3.	 	Failure to pay all costs of acquisition of real property necessary for said Facilities.
	 
	 	4.	 	Failure to provide an adequate, continuous water services to District customers
	 
	 	5.	 	Failure to provide required payment and performance bonds.
	 
	 	6.	 	Failure to provide required insurance coverages.
	 
	 	7.	 	Failure to inspect, maintain, and/or repair all necessary Facilities.
	 
	 	8.	 	Failure to obtain all necessary City of Maricopa permits.

5. Establishment of Indemnification Fund. The parties will establish an indemnification
fund for the purpose of indemnifying the District and its board members from currently pending and
unasserted claims arising out of acts or omissions of Sonoran during its performance under the
Management Agreement, and for the purpose of securing payment to the District for other amounts due
under this Agreement or under the Management Agreement. Initially the indemnification fund shall
consist of an irrevocable letter of credit issued and maintained by Global, and delivered to the
District in the amount of $1 million plus a pledge of $1 million of the purchase money proceeds
otherwise due from Global to Sonoran under the June 15, 2005

Page 2

 

asset purchase agreement (“APA”) between those parties. The letter of credit shall be substantially
in the form attached as Exhibit One to this Agreement. At the time that the initial payment under
the APA is due from Global to Sonoran, the purchase money pledge amount of $1 million will be
replaced with cash, which will be deposited in an escrow account (it being the intent of the
parties that the cash component of the escrow after the initial payment under the APA will be the
lesser of $1 million or the remaining required indemnification fund). The purchase money pledge
agreement shall be substantially in the form attached as Exhibit Two to this Agreement. The escrow
account will be established substantially according to the escrow agreement attached as Exhibit
Three to this Agreement. This indemnification fund shall also serve as the indemnification fund
contemplated by the “Agreement Relating to Assignment of Management Agreement for the 387 Water
Improvement District”, entered into by Sonoran and Global on even date herewith. Sonoran and Global
will fund the indemnification account to maintain at least the following balances:

	 	 	 
	Upon the Effective Date:

	 	$2,000,000, in the
	form referenced above.
	 	 

Upon the dismissal of the Lennar claims against Pinal County, the District, the District Board
members, and the Pinal County Board of Supervisors (hereinafter collectively referred to as the
“Related Parties”) and there are no other claims pending or threatened against Districts and
Related Parties arising out of or relating to the Agreements or the Operating Agreements, or the
operation of the Districts (“District Claims”), and the purchase money pledge has been replaced
by cash, the escrow will be reduced by $1,000,000 from the purchase money pledge, letter of
credit, or cash, or a combination of these, as determined by the District.

Upon the dismantling or District-accepted alternative plan for usage of plant number one, and
there are no “District Claims” pending the escrow will be reduced by $500,000 from the purchase
money pledge, letter of credit, or cash, or a combination of these, as determined by the
District.

Upon one year following the dissolution of the District and there are no “District Claims” pending
the escrow will be reduced by $250,000 from the purchase money pledge, letter of credit, or cash,
or a combination of these, as determined by the District.

Upon two years following the dissolution of the District and there are no “District Claims”
pending the escrow will be reduced by $250,000 from the purchase money pledge, letter of credit,
or cash, or a combination of these, as determined by the District.

The 387 District shall provide twenty days written notice to Global in the event that it intends to
draw upon the letter of credit or the escrow.

6. Additional and Modified Management Agreement Terms. The Management Agreement will
continue according to its terms, except as modified as follows, which modifications shall be
effective as of March 30, 2005:

Page 3

 

	6.1	 	Global shall be substituted for Sonoran Services in the Management Agreement.
	 
	6.2	 	Replace paragraph 20 as follows:

20. Insurance and Reimbursement of Expenses

20.1 During the Term Global shall obtain and maintain on behalf of District and Global the
insurance coverage set forth in the attached Exhibit C [Exhibit Four to this Agreement] to this
Agreement, as the same may be amended by the mutual agreement of District and Global from time
to time. All costs associated with obtaining and maintaining the necessary insurance coverage
described herein shall be paid by Global. All applicable insurance policies shall be issued by
such companies authorized to do business in Arizona. District shall be named an additional
insured in all liability policies, and each such policy shall contain a waiver by the insurer of
the rights of recourse of subrogation by the insurer against the other insured parties, to the
extent such waiver is available under such policies. All policies of insurance provided for in
this Section 20, to the extent obtainable, will have attached an endorsement that such policy
may not be canceled or materially changed without at least thirty (30) days prior written notice
to District and Global.

20.2 In the event Global enters into any leases, licenses, or concession agreement in accordance
with the provisions of this Agreement, any such leases, licenses, or concession agreements shall
require all such tenants, licenses and concessionaires to carry such insurance and in such
amounts as is normal and customary for the relevant tenant, licensee or concessionaire, and to
furnish certificates naming District and Global as an additional insured.

20.3 In addition to the above described policies of insurance, Global shall reimburse the
District for the cost of its public officials errors and omissions coverage, in an amount not
to exceed $5,000 per year.

20.4 To the extent any insurance coverage required under this Section is purchased on a
“claims-made” basis, such insurance shall cover all prior acts of the District from and after the
Effective Date, and such insurance shall be continuously maintained until at least two years
beyond the expiration or termination of the Agreement, or Global shall purchase “tail” coverage,
effective upon termination of any such policy or upon termination or expiration of the Term, to
provide coverage for at least two years from the occurrence of either such event.

20.5 Upon request by the District, Global shall reimburse the District for all reasonable
expenses that the District may incur in administering this Agreement or generally in the
operation of the District, including expenses of retained consultants and attorneys. Other than
normal day to day expenses, the District shall, where reasonably feasible, give notice to Global
that it intends to incur the expenses, and shall reasonably consider the input of Global
regarding methods of reducing the proposed expenses. The annual budget for this section has been
established at a maximum of $20,000/annum which shall not be exceeded except where agreed to in
writing by the parties.

Page 4

 

	6.3	 	Replace paragraph 21 as follows:

21.  Indemnification by Global. Global shall defend (by counsel reasonably approved by
District), indemnify and hold harmless the District and Pinal County, and District’s and Pinal
County’s respective officers, directors, members, shareholders, employees, and agents from and
against any and all claims, causes of action, liabilities, damages, losses, fines, costs, fees and
expenses (including reasonable attorneys’ fees and expenses) arising from or relating to any of
the operation or maintenance of the Facilities and which accrue on or following March 30, 2005
(other than those arising as a result of the gross negligence or fraud of the District or anyone
acting on its behalf or the District’s breach of this Agreement); any failure of Global to fully
and timely fulfill its duties under this Agreement or under any applicable law; Global’s willful,
negligent or criminal misconduct, negligence or fraud.

	6.4	 	Replace paragraph 22 as follows:

22.  Term and Termination.

22.1  Term. To permit Global to recover the substantial investment it is making in the
treatment and collection facilities necessary to perform under this Agreement, this Agreement
shall continue in full force and effect for thirty (30) years from the day and year first above
written and may be extended or renewed at any time during its term upon the request and mutual
agreement of the parties.

22.2  Termination by District. During the Term, District shall have the right to terminate
this Agreement upon the occurrence of one or more of the following events:

a.  Global shall fail to keep, observe or perform any material covenant, agreement, term or
provision of this Agreement to be kept, observed or performed by Global, and except for fraud
and criminal misconduct (for which there shall be no cure period), such breach shall continue
for a period of ninety (90) calendar days after written notice thereof to Global from
District provided that Global promptly begins and diligently pursues cure of the same;
provided, however, that if the nature of the breach is such that it cannot reasonably be
cured within such ninety (90) calendar day period, Global shall not be deemed to be in
default hereunder if Global commences to cure such breach within such ninety (90) calendar
period and thereafter diligently prosecutes the same to completion;

b.  If Global shall apply for or consent to the appointment of a receiver, trustee or
liquidator of Global or of all or a substantial part of its assets, file a voluntary
petition in bankruptcy, admit in writing its inability to pay its debts as they become
due, make a general assignment for the benefit of creditors or file a petition or an
answer seeking reorganization or arrangement with creditors or to take advantage of any
insolvency proceeding;

Page 5

 

c. if any order, judgment or decree shall be entered by any court of competent
jurisdiction, on the application of any creditor, adjudicating Global as bankrupt or
insolvent or approving a petition seeking reorganization of Global or appointing a
receiver, trustee or liquidator of Global or of all or a substantial part of its assets,
and such order, judgment or decree shall continue unstayed and in effect for any period
of sixty (60) calendar days, then District shall have the right, in its sole discretion,
to terminate this Agreement upon written notice thereof to Global given at any time after
the period of grace applicable to such event shall have expired, and this Agreement shall
thereafter terminate as of the date specified in such notice of termination;

d. In the event that the District shall be dissolved according to statute or
according to the request of the District landowners.

22.3  Procedure Upon Termination. Following termination pursuant to the provisions of
section 22.2 (but not including termination under section 22.2(d) in which case the District
shall have no further rights hereunder other than the provisions herein which expressly survive
termination) (“Termination Date”) it is the overall intent and obligation of the parties to take
such steps as may be reasonably necessary to insure continued uninterrupted service to District
customers. These steps shall include, without limitation:

a. District, or a contractor retained by the District, may, upon written notice, assume operation of the Facilities, under all permits
applicable to the operation of the Facilities. The right of the District to operate the
facilities shall continue for at least one year, during which time the District may evaluate the
most effective means to provide future service to District customers. During the one year
following termination, the District shall have the option, but not the obligation, to purchase
any or all of the assets used by Global to provide the services required and assumed hereunder at
their fair market value.

b. Global shall deliver to District copies of all records in the possession of Global
pertaining to the accounting, management, maintenance, operation and use of the
Facilities.

c. To the extent reasonably necessary to facilitate the rights set forth in subparagraph
22.3(a), Global shall assign and transfer to District all of Global’s right, title and
interest in and to all licenses and permits, if any, and any and all service contracts
approved by District with respect to the operation and management of the Facilities, to
the extent that the same are legally or contractually transferable by Global.

	 	 	22.4  Effect of Termination. The expiration or termination of this Agreement shall not
affect the rights of the terminating Party with respect to any damages it has suffered as a result
of any breach of this Agreement by the other Party, nor shall it affect the rights of either party
with respect to liability or claims accrued, or arising out of, events occurring prior to the date
of expiration or termination. Neither the right of termination nor the

Page 6

 

	 	 	right to sue for damages, nor any other remedy available to either Party hereunder, shall be
exclusive of any other remedy given hereunder or now or hereafter existing at law or in equity.
The indemnification, insurance and escrow provisions shall survive termination of this Agreement.

	6.5	 	Replace paragraph 18 as follows:

	 	18.	 	Statements and Reports.

18.1  Annual Statements. Within sixty (60) calendar days following the end
of each Fiscal Year (or portion thereof) during the Term, Global shall cause to be
prepared and delivered to District financial statements for the Facilities, reflecting
the results of operations for the Facilities for the Fiscal Year then ended, which
statements need not be audited unless requested by District and/or Global. In the event
this Agreement terminates or is terminated at a time other than the end of a Fiscal
Year, Global shall provide such financial statements through the end of the Term within
sixty (60) calendar days of the Termination Date.

18.2
 Books and Records. During the Term, Global will establish and cause to
be implemented a flow of financial and other information to District, at least on a
monthly basis, which will permit District to keep complete and accurate accounting
records of all matters and transactions relating to the management, operation and
maintenance of the Facilities. Such records shall be kept in the manner prescribed by
Generally Accepted Accounting Principles. Without limitation of the foregoing, Global
shall cooperate with District in the implementation of such bookkeeping, accounting or
administrative procedures as District and Global shall reasonably agree as necessary to
prepare and provide the financial statements and reports contemplated by this Agreement.

	6.6	 	Add the following language to the end of paragraph 15:

During the Term, District hereby retains Global as an independent contractor to operate,
maintain and otherwise manage the Facilities, and Global hereby agrees to operate, maintain and
otherwise manage the same throughout the Term, subject to all terms and conditions of this
Agreement. It is understood that Global assumes all risk and responsibility for the operation of
the Facilities and the business of the District other than with respect to claims arising as a
result of the gross negligence or fraud by the District or those actions on its behalf or those
claims arising as a result of the District’s breach of this Agreement. Global shall have the duty
and responsibility to manage the Facilities and the Business in a first-class manner, offering
first-class services and facilities in accordance with the terms · and conditions of this
Agreement, and the reasonable instructions provided by District. Global covenants with District
to furnish its best skill and judgment in performing its obligations hereunder, and shall at all
times provide such services in a manner which maintains the good name and business reputation of
the District and the Facilities. Global shall perform its duties and obligations under this
Agreement in an efficient, expeditious, prudent and economical

Page 7

 

manner, consistent with the best interests of the District. Global is entering into this
Agreement as an independent contractor to provide the duties set forth in this Agreement.

	6.7	 	Replace paragraph 19 as follows:

19.  Fees. Rates, Charges and Revisions. The fees, rates and charges pursuant to
which Global shall provide water service to the District customers shall be as set forth on
Exhibit B attached hereto as modified by District Resolution 060105-387 WID adopted on June 1,
2005. Global shall comply with all legal requirements for providing retail utility service,
including without limitation laws regarding non-discrimination in service and pricing. Upon the
Effective Date Global shall submit its current fee structure to the District for approval.
Thereafter, any changes shall be submitted to the District and shall not be effective until
approved by the District.

	6.8	 	Add a new paragraph 25 as follows:

25. Assignment. This Agreement may not be assigned, directly or indirectly, by Global
without the prior written consent of District which may be given or withheld in its sole
discretion.

	6.9	 	Add a new paragraph 26:

26.  Contracts and Agreements. Global shall have no authority to enter into
agreements, make application, or otherwise act as agent for the District, except as
specifically provided under the Management Agreement, as amended herein.

	6.10	 	Replace paragraph 2 as follows:

2.
 Location. Global shall provide the Facilities described in paragraph 1 above at
locations mutually agreed upon by the parties.

	6.11	 	Replace paragraph 4 as follows:

4.  Easements. The Facilities shall be constructed within established easements or
rights of way or upon property leased, purchased or otherwise set aside for such use.
These easements shall provide Global access to the water system for purposes of
installation, repair, maintenance, and removal of the Facilities.

	7.	 	Miscellaneous Terms

7.1   Entire Agreement. This Agreement and the Management Agreement as amended by this
Agreement, constitute the entire agreement between the parties with respect to the subject matter
hereof, and all prior or contemporaneous oral or written agreements, understandings, statements,
representations or warranties between the parties other than those set forth herein or herein
provided for, are hereby superseded and merged herein.

Page 8

 

7.2 Modifications. No modification or waiver of any provision of this Agreement shall
be binding upon the party against whom it is sought to be enforced, unless specifically set forth
in a writing signed by an authorized representative of that party. A waiver by any party of any of
the terms or conditions of this Agreement in any one instance shall not be deemed or construed to be
a waiver of such terms or conditions for the future, or of any subsequent breach thereof. The
failure by any party at any time to enforce any of the provisions of this Agreement, or to require
at any time performance of any of the provisions hereof, shall in no way be construed to be a
waiver of such provisions or to effect either the validity of this Agreement or the right of any
party to thereafter enforce each and every provision of this Agreement.

7.3 Attorney’s Fees and Costs. If either party to this Agreement shall bring any action,
suit, counterclaim, appeal, arbitration or mediation for any relief against the other, declaratory
or otherwise, to enforce the terms hereof or to declare rights hereunder (collectively “Action”),
the losing party shall pay to the prevailing party a reasonable sum for attorneys’ fees and costs
incurred in bringing and prosecuting such Action and/or enforcing any judgment, order, or ruling
(collectively “Decision”) granted therein, all of which shall be deemed to have accrued on the
commencement of such Action and shall be paid whether or not such Action is prosecuted to a
Decision. Any Decision entered in such Action shall contain a specific provision providing for the
recovery of attorneys’ fees and costs incurred in enforcing such Decision. The court or arbitrator
may fix the amount of reasonable attorneys’ fees and costs on the request of either party. For the
purposes of this section, attorneys’ fees shall include without limitation, fees incurred in the
following: (a) postjudgment motions and collection actions; (b) contempt proceedings; (c)
garnishment, levy, and debtor and third party examinations; (d) discovery; and (e) bankruptcy
litigation.

7.4 Section and Other Headings. The section and other headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or interpretation of
this Agreement.

7.5 Successors. Except as otherwise specifically provided in this Agreement, this Agreement
shall be binding upon and inure to the benefit of, and be enforceable by, the parties hereto and
their respective successors and permitted assigns and other legal representatives.

7.6 Invalidity. If any material covenant, condition or provision herein contained is held
to be invalid, void or unenforceable, the remaining provisions and portions shall nevertheless be
carried into effect.

7.7 Counterparts. This Agreement may be executed in any number of counterparts, each of
which will be deemed to be an original, and all of which together will constitute one instrument.

7.8 Governing Law. This Agreement will be construed and enforced in accordance with and
governed by the substantive laws of the State of Arizona.

7.9 Costs and Expenses. Upon the Effective Date Sonoran shall reimburse the District for
all its reasonable expenses, including attorneys fees, incurred in connection with the
negotiation and preparation of this Agreement, and in closing and carrying out the transactions
contemplated hereby, but in no event shall such costs exceed $50,000.

Page 9

 

7.10 Notices. Any notice or other communication to be given or served upon any party hereto must be
in writing, and delivered to the other parties (i) in person, (ii) by facsimile transmission (with
the original and a copy of the facsimile confirmation following in the United States mail), (iii)
by overnight delivery service (including Federal Express), or (iv) by certified mail, return
receipt requested. Such notice will be deemed received upon receipt or proof of refusal to accept
delivery. Notice or other communication will go to the parties at the following addresses:

	 	 	 
	If to Districts:

	 	Terry Doolittle
	 

	 	Superintendent
	 

	 	387 Water Improvement District
	 

	 	P. O. Box 827
	 

	 	Florence, AZ 85232
	 
	 	 
	If to Sonoran:

	 	Sonoran Utility Services, L.L.C.
	 

	 	1121 W. Warner Road, Suite 109
	 

	 	Tempe, AZ 85254
	 
	 	 
	If to Global:

	 	Global Water Resources, LLC
	 

	 	Attention: Trevor Hill
	 

	 	22601 North 19thAvenue, Suite 210
	 

	 	Phoenix, Arizona 85027

This Agreement made as of the Effective Date:

GLOBAL WATER RESOURCES, LLC.

/s/ Trevor T. Hill 
By Trevor T. Hill
 
Its President
 

SONORAN UTILITY SERVICES, L.L.C.

/s/ Illegable 
By 
Its 

Page 10

 

387 WATER IMPROVEMENT DISTRICT

/s/ Terry Doolittle 
By Terry Doolittle
Its Superintendent

/s/ Sandie Smith 
Sandie Smith, District Chairman

 

Page 11

 

EXHIBIT ONE

WELLS FARGO BANK, N.A.

TRADE SERVICES DIVISION, NORTHERN CALIFORNIA

ONE FRONT STREET, 21ST FLOOR

SAN FRANCISCO, CALIFORNIA 94111

Contact Phone: 1(800) 798-2815 (Option 1)

Email: sftrade@wellsfargo.com

IRREVOCABLE LETTER OF CREDIT

      
                
                
                
                
                
                
                
  Letter of Credit No.           
                 

                
                
                
                
                
                
   Date:             
      , 2005

387 Water Improvement District

387 Wastewater Improvement District

(collectively “387 District”)

Ladies and Gentlemen:

     At the request and for the account of Global Water Resources, LLC we hereby establish our
Irrevocable Letter of Credit in your favor in the amount of One Million Dollars ($1,000,000)
available with us at our above office by payment of your draft drawn on us at sight accompanied by
your and Escrow Agents signed and dated statement worded as follows:

“The undersigned individuals, including an authorized representative of 387 District and the
Escrow Agent under that certain Agreements Relating to Assignment of Management Agreements for the
387 Water and Wastewater Improvement Districts (“Agreements”), certifies that the amount drawn
under Wells Fargo Bank, N.A. Letter of Credit No.                      is due pursuant to the terms of the Agreements
and, specifically Section 5 thereof and the Escrow Instructions attached thereto. All conditions
precedent to a draw under the Letter of Credit as set forth in the Agreements and the Escrow
Instructions attached thereto have been fulfilled including, but not limited to, the giving of all
required notices and the passing of all agreed-upon cure periods.”

     The draft must also be accompanied by the original of this Letter of Credit for our
endorsement on this Letter of Credit of our payment of such draft.

 

 

     Only drafts drawn and presented under and in compliance with the terms of this Letter of
Credit will be honored, and such draft may be for less than the full amount of this Letter of
Credit.

     The draft must be marked “Drawn under Wells Fargo Bank, N.A. Letter of Credit No.                     .”

     If any instructions accompanying a drawing under this Letter of Credit request that payment is
to be made by transfer to an account with us or at another bank, we and/or such other bank may rely
on an account number specified in such instructions even if the number identifies a person or
entity different from the intended payee.

     This Letter of Credit expires at our above office on December 31, 2005.

     This Letter of Credit is subject to the Uniform Customs and Practice For Documentary Credits
(1993 Revision), International Chamber of Commerce Publication No. 500, and engages us in
accordance therewith.

	 	 	 	 	 
	 	 	Very truly yours
	 
	 	 	 	 
	 	 	WELLS FARGO BANK, N.A.
	 
	 	 	 	 
	 

	 	BY:
	 	 
	 

	 	 	 	 
	 

	 	 	 	(AUTHORIZED SIGNATURE)

Agreed to and accepted by:

      

 

APPLICANT

      

 

AUTHORIZED SIGNATURE

Page 2 

 

EXHIBIT TWO

SECURITY AGREEMENT

1. Grant of Security Interest. For valuable consideration, the undersigned Sonoran Utility
Services, LLC, an Arizona limited liability company (“Debtor”), hereby grants and transfers to the
387 Wastewater Improvement District and the 387 Water Improvement District, both improvement
districts organized pursuant to A.R.S. Section 48-901 et. seq. (“Creditor”) a security interest
this       day of                     , 2005 in the following property of Debtor (collectively, the “Collateral”): One
Million Dollars out of the initial purchase proceeds due to the Debtor under that certain Purchase
and Sale Agreement by and among Global Water Resources, LLC and Debtor dated June 15, 2005 together
with whatever is received when any of the foregoing or the proceeds thereof are sold, leased,
collected, exchanged or otherwise disposed of, whether such disposition is voluntary or
involuntary, including without limitation, all rights to payment (collectively “Proceeds”).

2. Obligations Secured. The obligation secured hereby is the requirement to pledge collateral
for the Indemnification Fund in accordance with the terms and conditions of Section 5 of the
Agreements (“Agreements”) Relating to the Management Agreements between Global Water Resources, LLC
and the Creditor dated effective September 1, 2005 (the “Indebtedness”).

3. Termination. This Agreement will terminate in accordance with the terms and conditions of
Section 5 of the Agreements.

4. Covenants of Debtor.

     (a) Debtor agrees to: (i) to execute and deliver such documents as Creditor reasonably deems
necessary to create, perfect and continue the security interests contemplated hereby; (ii) not to
change its name, and as applicable, its chief executive office, its principal residence or the
jurisdiction in which it is organized and/or registered without giving Creditor prior written
notice thereof; and (iii) to cooperate with Creditor in perfecting all security interests granted
herein.

     (b) Debtor agrees with regard to the Collateral and Proceeds: (i) that Creditor is authorized
to file financing statements in the name of Debtor to perfect Creditor’s security interest in
Collateral and Proceeds; (ii) not to permit any lien on the Collateral or Proceeds except in favor
of Creditor.

5. Powers of Creditor. Debtor appoints Creditor its true attorney in fact to perform any of the
following powers, which are coupled with an interest, are irrevocable until termination of
this Agreement and may be exercised from time to time by Creditor’s officers and employees, or
any of them, upon an Event of Default: (a) to perform any obligation of Debtor hereunder in
Debtor’s name or otherwise; (b) to give notice to account debtors or others of Creditor’s
rights in the Collateral and Proceeds, to enforce or forebear from enforcing the same and make
extension and modification agreements with respect thereto; (c) to release persons liable on
Collateral or Proceeds and to give receipts and acquittances and compromise disputes in
connection therewith; (d) to release or substitute security; (e) to receive, open and read
mail addressed to Debtor with

 

 

respect to the Collateral; (f) to verify facts concerning the Collateral and Proceeds by inquiry of
obligors thereon, or otherwise, in its own name or a fictitious name; (g) to endorse, collect,
deliver and receive payment under instruments for the payment of money constituting or
relating to Proceeds; (h) to exercise all rights, powers and remedies’ which Debtor would
have, but for this Agreement, with respect to all Collateral and Proceeds subject hereto.

6. Events of Default. The occurrence of any of the following shall constitute an “Event of
Default” under this Agreement: (a) any default in the payment or performance of any obligation, or
any defined event of default this Agreement; (b) any impairment of the rights of Creditor in any
Collateral or Proceeds

7. Remedies. Creditor shall have all other rights, powers, privileges and remedies granted to a
secured party upon default under the Arizona Uniform Commercial Code or otherwise provided by
law, including without limitation, the right (a) to contact all persons obligated to Debtor on
any Collateral or Proceeds and to instruct such persons to deliver all Collateral and/or
Proceeds directly to Creditor, and (b) to sell, lease, license or otherwise dispose of any or
all Collateral following not less than 20 days’ written notice to debtor and Global Water
Resources, LLC. All rights, powers, privileges and remedies of Creditor shall be cumulative.
No delay, failure or discontinuance of Creditor in exercising any right, power, privilege or
remedy hereunder shall affect or operate as a waiver of such right, power, privilege or
remedy; nor shall any single or partial exercise of any such right, power, privilege or remedy
preclude, waive or otherwise affect any other or further exercise thereof or the exercise of
any other right, power, privilege or remedy.

8. Disposition of Collateral and Proceeds; Transfer of Indebtedness. In disposing of Collateral
hereunder, Creditor may disclaim all warranties of title, possession, quiet enjoyment and the like.
Any proceeds of any disposition of any Collateral or Proceeds, or any part thereof, may be applied
by Creditor to the payment of expenses incurred by Creditor in connection with the foregoing,
including reasonable attorneys’ fees, and the balance of such proceeds may be applied by Creditor
toward the payment of the Indebtedness.

9. Notices. All notices, requests and demands required under this Agreement must be in writing,
addressed to Creditor, Debtor and Global Water Resources, LLC at the following addresses:

	 	 	 
	If to Creditor:

	 	Terry Doolittle,
Superintendent
387 Districts
P. O. Box 827
Florence, AZ 85232
	 
	 	 
	With a copy to:

	 	Kenneth C. Sundlof, Jr.
Jennings, Strouss & Salmon, P.L.C.
201 E. Washington Street, 11th Floor
Phoenix, AZ 85004-2385

Page 2 

 

	 	 	 
	If to Debtor:

	 	Sonoran Utility Services, L.L.C.
1121 W. Warner Road, Suite 109
Tempe, AZ 85254
	 
	 	 
	If to Global Water Resources, LLC:

	 	Trevor Hill
Deer Valley Financial Center
22601 N. 19th Ave, Suite 210
Phoenix, AZ 85027
	 
	 	 
	With a copy to:

	 	Andrew Abraham
Burch & Cracchiolo, PA
PO Box 16882
Phoenix, AZ 85011

or to such other address as any party may designate by written notice to each other party, and
shall be deemed to have been given or made as follows: (a) if personally delivered, upon delivery;
(b) if sent by mail, upon the earlier of the date of receipt or three (3) days after deposit in the
U.S. mail, fIrst class and postage prepaid; and (c) if sent by telecopy, upon receipt.

10.
Successors; Assigns; Amendment. This Agreement shall be binding upon and inure to the benefIt of
the heirs, executors, administrators, legal representatives, successors and assigns of the parties,
and may be amended or modifIed only in writing signed by Creditor and Debtor.

11. Severability of Provisions. If any provision of this Agreement shall be held to be
prohibited by or invalid under applicable law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of such provision or
any remaining provisions of this Agreement.

12. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of
the State of Arizona.

        
    IN WITNESS WHEREOF, this Agreement has been duly executed as of                                         .

	 	 	 	 	 
	 	 	DEBTOR
	 	 	Sonoran Utility Services, LLC
	 
	 	 	 	 
	 

	 	By
	 	 
	 

	 	 	 
	 
	 	 	 	 
	 

	 	Its
	 	 
	 

	 	 	 

Page 3 

 

Page 4 

 

EXHIBIT THREE

ESCROW INSTRUCTIONS

     Pursuant to Section 5 of the “Agreement Relating to Assignment of Management Agreement for the
387 Water Improvement District” and Section 5 of the “Agreement Relating to Assignment of
Management Agreement for the 387 Wastewater Improvement District”, both having an Effective Date of
September 1, 2005 (“Agreements”), made among the 387 Water Improvement District (the “387 Water
District”), the 387 Wastewater Improvement District (the “387 Wastewater District”) (collectively
the “Districts”), Sonoran Utility Services, L.L.C. (“Sonoran”) and Global Water Resources, LLC
(“Global”), Escrow Agent is hereby instructed to hold and disburse the Escrow Funds, according to
the following instructions:

     1. Defined Terms. Each capitalized term appearing herein shall have the meanings ascribed
herein or, if no meaning is ascribed herein, shall have the meaning ascribed to such term in the
Agreements.

     2. Delivery of the Escrow Funds. Upon the Effective Date, Global and Sonoran will cause an
irrevocable letter of credit to be issued and maintained by Global in the amount of $1 million
(“Letter of Credit”) plus a pledge (by way of execution and delivery of a security agreement to the
Escrow Agent in a form approved by the parties hereto) of $1 million of the purchase money proceeds
under the APA as detailed in Section 5 of the Agreements (“Pledge”) to be deposited with the Escrow
Agent (the Letter of Credit and the Pledge, together with any replacement thereof, are collectively
referred to as the “Escrow Funds”). The Escrow Agent will hold the Escrow Funds and allow them to
be drawn upon/executed upon/released in accordance with Section 5 of the Agreements and as set
forth herein. Notwithstanding any other provision herein, there shall be no draws on the Letter of
Credit without the Districts giving all parties  hereto not less than twenty (20) days written
notice of its intent to do so which notice shall further provide details of the basis upon which
the Districts believe they are entitled to draw on the Letter of Credit. At the time that the
initial payment under the APA is due from Global to Sonoran, the purchase money pledge amount of $1
million will be replaced with cash, subject to the escrow fund reduction provisions set forth
below. The Escrow Fund is to serve as security for the performance of Global and Sonoran of their
respective obligations under the Agreements and under the Water Supply and Management Services
Agreement and the Wastewater Treatment, Collection and Management Services Agreement, as amended
(“Operating Agreements”).

     4. Disposition of the Escrow Funds The Escrow Funds shall be held and disbursed by the Escrow
Agent in strict accordance with the following terms and conditions:

(a) From time-to-time, Districts may submit disbursement requests for amounts due to the
Districts under the Agreements. The disbursement request shall be accompanied by reasonable backup
and shall be simultaneously submitted to Global and Sonoran. Global and/or Sonoran

 

 

 shall have five days to object to the amount requested. If Global or Sonoran does not object
to the disbursement request within the five day period, each shall be deemed to have approved the
draw request. If Global or Sonoran objects, Global, Sonoran and Districts shall confer and reach a
mutually acceptable amount.

(b) Escrow Agent shall disburse funds to Sonoran as follows:

     1. Upon the dismissal of the Lennar claims against Pinal County, the District, the District
Board members, and the County Supervisors and there are no other claims pending or threatened
against Districts and Related Parties arising out of or relating to the Agreements or the Operating
Agreements, or the operation of the Districts (“District Claims”), and the purchase money pledge
has been replaced by cash, the escrow will be reduced by $1,000,000 from the purchase money pledge,
letter of credit, or cash, or a combination of these, as determined by the District.

     2. Upon the dismantling or District-accepted alternative plan for usage of plant number one, and
there are no “District Claims” pending the escrow will be reduced by $500,000 from the
purchase money pledge, letter of credit, or cash, or a combination of these, as determined by
the District.

     3. Upon one year following the dissolution of the District and there are no “District Claims”
pending the escrow will be reduced by $250,000 from the purchase money pledge, letter of credit, or
cash, or a combination of these, as determined by the District.

     4. Upon two years following the dissolution of the District and there are no “District Claims”
pending the escrow will be reduced by $250,000 from the purchase money pledge, letter of
credit, or cash, or a combination of these, as determined by the District.

     5. Liability, Duties and Obligations of Escrow Agent. The parties do hereby agree as follows:

          (a) Escrow Agent undertakes to perform only such obligations as are expressly set forth
herein.

          (b) Except for Escrow Agent’s negligence or willful misconduct, Escrow Agent shall not be
liable for any action taken by it in good faith and authorized by or within the rights and powers
conferred upon it under these Instructions. Global and Sonoran shall indemnify and save harmless
Escrow Agent against all costs, damages, attorney’s fees, expenses and liabilities (except as
caused by the negligence or willful misconduct of Escrow Agent or the District), which it may incur
or sustain in connection with these Instructions or the escrow or any court action arising
therefrom (except for acts of gross negligence or willful misconduct on the part of Escrow Agent or
the District) and will pay the same upon demand.

Page 2 

 

          (c) In the event of any dispute with respect to the disposition of the Escrow Funds, Escrow
Agent shall disburse the undisputed portion thereof in strict compliance with the terms of these
Instructions, but Escrow Agent shall not be required (but may if it so elects) to affirmatively
commence any action by interpleader or otherwise.

     6. Expenses. Global agrees to pay all costs and expenses incurred by Escrow Agent of any kind,
whatsoever, pertaining to the Escrow Funds, or in connection with the services to be rendered
hereunder, including, but not limited to all charges of Escrow Agent for performing its duties
hereunder; provided, however, Global shall not be obligated to pay any costs or expenses caused or
arising from Escrow Agent’s or the District’s negligence or willful misconduct.

     7. Notices. Any notice or other communication to be given or served upon any party hereto in
connection with these Instructions must be in writing, and delivered to the other parties (i) in
person, (ii) by facsimile transmission (with the original and a copy of the facsimile confirmation
following in the United States mail), (iii) by overnight delivery service (including Federal
Express), or (iv) by certified mail, return receipt requested. Such notice will be deemed received
upon receipt or proof of refusal to accept delivery. Notice or other communication will go to the
parties at the following addresses:

	 	 	 
	If to Districts:

	 	Terry Doolittle
Superintendent
387 Water Improvement District and
387 Wastewater Improvement District
P.O. Box 827
Florence, AZ 85232
	 
	 	 
	If to Sonoran:

	 	Sonoran Utility Services, L.L.C.
1121 W. Warner Road, Suite 109
Tempe, AZ 85254
	 
	 	 
	If to Global:

	 	Global Water Resources, LLC
Attention: Trevor Hill
22601 North 19th Avenue, Suite 210
Phoenix, Arizona 85027
	 
	 	 
	If to Escrow Agent:

	 	LandAmerica/Lawyers Title
Attention: Judy Sorensen
2425 East Camelback Road, Suite 700
Phoenix, AZ 85016

     Any party may change its address, facsimile number or telephone number for the purpose of this
paragraph by giving written notice of such change to each of the other parties in the

Page 3 

 

manner herein provided. To be effective, such notice of change must expressly state that it is
given for the purpose of changing the notice provisions of these Instructions.

This Agreement made as of the Effective Date:

Page 4 

 

	 	 	 	 	 
	SONORAN UTILITY SERVICES, L.L.C.	 	 
	By
	 	 	 	 

	 	 	 	 

	 	 	 	 	 

	Its
	 	 
	 	 

	 	 	 	 

ACCEPTANCE

     The foregoing instructions are hereby accepted this       day of                     , 2005.

	 	 	 	 	 
	 	 	ESCROW AGENT:
	 
	 	 	 	 
	 

	 	By
	 	 
	 

	 	 	 	 
	 

	 	Its:
	 	 
	 

	 	 	 	 

Page 5 

 

EXHIBIT FOUR

INSURANCE COVERAGES

	 	 	 	 	 	 	 
	Coverage	 	Carrier	 	Policy Number	 	Limit of Insurance
	Property

	 	Arch Insurance

Corporation
	 	GWPKG0051600
	 	$2,910,000 Building

$120,000 EDP

$236,700 Owned, Scheduled, Leased/Rented Equipment

$4,030,000 Business Income/Extra Expense
	Crime

	 	Arch Insurance

Corporation
	 	GWPKG0051600
	 	$100,000 Employee Dishonesty; Forgery or Alteration;

Money Securities Inside/Outside; Computer Fraud
	General Liability

	 	Arch Insurance

Corporation
	 	GWPKG0051600
	 	$3,000,000 Aggregate; $1,000,000 Per Occurrence

$1,000,000 Employee Benefits Liability

$3,000,000 Personal Injury and Advertising Injury Per Occurrence

$1,000,000 Damage to Premises Rented to You-Any One Premises

$10,000 Medical Expense

$5,000 Non-Monetary Liability Per Incident
	Professional 

Liability

	 	Arch Insurance

Corporation
	 	GWPKG005l600
	 	$1,000,000 Aggregate; $1,000,000 Each Claim
	Wrongful Acts 

Liability (D&O)

	 	Arch Insurance

Corporation
	 	GWPKG0051600
	 	$1,000,000 Wrongful Acts Aggregate; $1,000,000 Each
Claim
	Employment 

Practices Liability

	 	Arch Insurance

Corporation
	 	GWPKG005l600
	 	$1,000,000 Aggregate; $1,000,000 per claim
	Automobile

	 	Arch Insurance

Corporation
	 	GWPKG0051600
	 	$1,000,000 Per Accident

$5,000 Medical Payments-Per Person

$1,000,000 Uninsured/Underinsured Motorists Coverage

$50,000 Limit per Vehicle-Physical Damage Hired Vehicles
	Umbrella

	 	Arch Insurance

Corporation
	 	GWUFP0051600
	 	$10,000,000 Per Occurrence

$10,000,000 Aggregate

 

 

	 	 	 
	STATE
OF ARIZONA

	 	)
	 

	 	) SS
	COUNTY
OF PINAL

	 	)

I hereby certify that this is a true copy of the official records on file in the office of the
Recorder of Pinal County located in

	 	 	 
	DKT/PG or Fee No:

	 	2005-134947
	 

	 	 

	 	 	 
	Pages:

	 	     1     thru     24     of     24
	 

	 	 

	 	 	 
	Date:

	 	10/05/2005
	 

	 	 

Witness my hand and official seal:

Laura Dean-Lytle,

Recorder of Pinal County

     DO NOT REMOVE FROM DOCUMENT, THIS IS NOW PART OF THE DOCUMENT.

 

	 	 	 	 	 	 	 	 	 	 
	Voter Registration

	 	520-866-7101
	 	Casa Grande Satellite Office:
	 	Recordings
	 	520-866-7486
	Voter Outreach

	 	520-866-7127
	 	820 E. Cottonwood Ln A-2 Casa Grande
	 	Fax
	 	520-866-7487
	Micrographics Division

	 	520-866-7117
	 	Apache Junction Satellite Office:
	 	Recordings
	 	480-983-7038 or 520-866-6179
	TDD Phone

	 	520-866-7166
	 	575 N. Idaho Rd. — Suite 110 Apache Junction
	 	Fax
	 	520-866-6190

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