Discussion of outstanding

1
Cottonwood Mutual Water Company

• Discussion of outstanding
• Issues with regard to the Wilkinson Farm LLC.

2
Class C Shares

• The water company is comprised of several classes
  of Shares
• Class A 712 shares
• Class C 7000 shares
• Class C share are Ownership or Control shares

3
Class C Shares Cont.

• Class C to Maintain control during interim period
• Deeded over to Gardner Development as part of the
  land sale contract
• Gardner agreed to allow Wilkinson's to retain
  half voting power
• Both agreed to never use Class C vote during
  shareholder meeting to avoid throwing the vote.

4
Class C. Shares Cont.

• Class C ownership unclear
• Control of company unknown
• Difficult to manage
• Water company desires to rid company of Class C
  shares so it can move forward
• Tax incentives
• Decision making power
• Control over future

5
Class C. Shares cont

• Gardner Development agrees to relinquish interest
  in Class C shares in exchange for a development
  agreement
• GCC will deed over all infrastructure and provide
  easements
• Water company agree to continue service
  development
• Great.

6
Class C. Shares cont

• Wilkinson Family agrees to relinquish interest in
  Class C shares in exchange for a master
  agreement.
• Wilkinson current proposal
• Will eliminate all legal concerns
• Allow the company to move forward
• Particulars of agreement are of concern.

7
Methods to deal with disagreement

• 1) Both parties come to a mutually acceptable
  agreement
• 2) Mediation (non-binding)
• 3) Arbitration (binding)
• 4) Litigation

8
Wilkinson Proposal

•  ( 1.   Cottonwood Mutual Water Company will pay
  to the Wilkinson Family LLC 116,000.00 past due
  on the Loan note, either in a lump sum or by
  payments to be agreed uponstarting Sept. 1 of
  2011. 
•  A. WFLLC will  retain 86 thousand gallons of
  storage water.

9
Wilkinson Proposal cont.

• (2.   Wilkinson Family will expect a contract
  from the Water Company stating that they will
  supply Will Serve Letters for the build-out of
  the rest of the farm.
• (3.  The Water Company will not pursue the
  supposed 54K payback

10
Wilkinson Proposal cont.

•  (4.    The Water Company will not charge the
  Wilkinson Family (questionable) 35 K legal fees
  or any other past legal fees.
• (5.     The Wilkinson Family will retain the
  fifty acre feet.

11
Wilkinson Proposal cont.

• (6.    There will be a binding contract between
  WFF and CMWC stating that neither party will
  pursue legal (or otherwise) action concerning
  these matters  after there is an agreement and
  settlement.

12
Wilkinson Proposal cont.

• ( 7.   A document stating  that the C shares held
  in Escrow will be signed by Rulon Gardner and the
  Wilkinsons releasing said shares to the
  Wilkinsons so they can then be turned over to
  the Cottonwood Mutual Water Company thereby
  giving control of the Company to the rest of the
  share holders.

13
Wilkinson Proposal cont.

• For this the water company will get
• A company worth 1.5 million dollars. To include
• All remaining Wilkinson C Shares
• Ground under 500k tank worth 100,000
• All infrastructure-tanks-pipelines-easements-reser
  voir, ect.
• The reservoir (silver lake)

14
Utah State Law

• R746-330-6
• There is a rebuttable presumption that the value
  of original utility plant and assets has been
  recovered in the sale of lots in a development to
  be served by a developer-owned water or sewer
  utility.

15
Standard Procedure for new development

• Developer builds required infrastructure
• Developer acquires water rights
• Developer deeds infrastructure/water rights to
  water company free of charge
• Water company services new development.
• No cost to new or existing customers

16
Item 1 Wilkinson Loan

• 1997 Babcock and Wilkinson's jointly build a
  250,000 tank
• Wilkinson Proportion 146,000 gallons.
• Engineers estimate of all improvements for
  Wilkinson Portion.
• 135,925.40
• Actual cost unknown
• Proportion of costs for new vs old dev. unknown

17
Wilkinson Loan Cont.
18
Concerns with Wilkinson Loan

• Water company forced to buy infrastructure to
  support future development
• Major PSC Failure
• Undesirable loan term.
• No connection fees associated
• No known actual costs.
• Only engineers estimate
• How much of costs was required to maintain
  existing system vs. support new development.

19
Concerns with Wilkinson Loan

• Interest accrued between 1997 and 1999
• 22,106
• Not enough money in company to pay for loan
• PSC did not grant rate increase to pay for full
  loan.
• Interest balloons over course of loan.

20
Concerns with Wilkinson Loan

• 1999 Water company sells storage back to
  Wilkinson family
• 54,180
• Where did this figure come from?
• 0.37/gal, undervalued?
• No credit for interest paid
• Bad business deal for water company

21
Concerns with Wilkinson Loan

• 2003 Wilkinsons sell back extra storage to water
  company
• 109,500 0.75/gal
• Going rate for new construction
• No PSC approval
• PSC audited books, PSC FAIL

22
Concerns with Wilkinson Loan

• Water company sold to GCC as part of land sale
• 2008 payments stopped
• Lack of funds
• Concerns over loan

23
Concerns with Wilkinson Loan

• Paid approx 186,000 in principal plus interest
• Loan Balance 100,464
• Original estimated costs 135,000
• Wilkinsons charging 18 interest between 2008
  and 2011

24
Wilkinson proposal to company

• Wilkinsons to buy back 86,000 of storage at
  0.75/gal (same as 2003)
• Company charged interest between 2003 and 2011.
• Estimated over 60,000
• Leaves loan at approximately 100,000 248/con.
• Going rate 1.10
• Total gain to Wilkinson's, 151,000 plus 86,000
  gallons/storage
• 286,000 paid minus estimate cost of 135,000 for
  60,000 gal storrage

25
Water company proposed Position

• PSC approval of 1998 rate increase
• 90,526 capacity held for expansion
• 1997 Rate based loan adjusted to 44,474
• Apply same payments/Loan Terms
• Wilkinsons retain extra storage
• Accept 2003 buy of 146,000 gal of tank storage at
  0.75
• Apply same payments/Loan Terms

26
Water company proposed Position

• Accept Purchase of Extra Tank Storage
• Fulfill new fire suppression standards
• 60,000 gal
• Retire old tanks
• Minimize amount due to water company
• Shows overpayment of loan
• Approximately 7,200

27
Item 354,000 payment to Wilkinson's

• Company Files for PSC exemption
• April 21, 2006 Board approves to pay Wilkinson's
  for Infrastructure
• September 16, 2006 Board amends April 21, 2006
  minutes to state 1,000/lot for 70 lots
• 54,000 paid out by October 16, 2006

28
54,000 payment to Wilkinson's

• October 16, 2006 Memo indicates payment is for
  Rose hill sub. Infrastructure.
• No proof of expenditures
• R746-330-6 Law
• PSC said NO to Wayne for many years

29
54,000 payment to Wilkinson's

• Drained Companys savings
• Company collects connection fees for a reason.
• Company ran out of money.
• Potentially an illegal distribution of funds to
  share holders.
• Wilkinsons settlement asking for remaining
  16,000 or 174/connection for 70,000

30
Water company proposed position

• Water company requesting written documentation
  showing expenses and validating expenses as an
  appropriate water company expense. Ie. Not to
  support new development (Rosehill), or
• Pay back the 54,000

31
Item 4 Additional costs to perfect water rights

• In addition to the 50 acre feet there were other
  water rights not in the company after the sale.
• Water company expended 35,273.26 to correct
  them. 87/connection.

32
Item 4,5Proving of water rights

• Important to understand that ability to develop
  consists of providing
• Source of Water
• Storage / Infrastructure
• Water Right

33
Proving of Water Right

• Missing 50 Acre feet to supply homes built
  between 1986 and 1999 (52 Total)
• Streets affected include
• Garnet Drive
• Cottonwood Canyon Road
• Old Highway
• Lilac Lane
• Daisy Drive
• Tulip Drive
• Iris Avenue

34
Hearing Report
35
LotsServed
36
Proving of Water Right

• Company currently whole through Weber Basin Water
  Right leases
• Cost to company
• 245.32 per acre foot
• 50 acre feet costs water company 12,266 per year
• Cost to you
• 30.36 per active connection per year, or
• 2.53 per active connection per month

37
Proving of water rights

• Change application on right 35-5791 filed June
  11, 1992
• Original Place of Use SW¼ Sec. 30 T5 NR 2E
• Use Changed to N ½ of SE ¼ Sec. 25 T5 NR 1E, S½
  NW, W½ of SW Sec. 30 T5 NR 2 E
• Purpose
• Applying for additional water for use in
  Wilkinson Water Companys Culinary System

38
T 5 N R 2 E
T 5 N R 1 E
25
30
SW 1/4
39
T 5 N R 2 E
T 5 N R 1 E
25
30
S ½ NW, W ½ of SW
N ½ of SE ¼
40
Proving of water rights

• Change Application Approved
• January 13, 2006
• Change Application Authorized
• 53 Domestic Connections
• 9 Irrigated acres between May 1 and Oct 31

41
Wilkinson Proposal

• Retain the 50 acre-feet of water.
• Require water company to acquire and maintain
  water right to supply Wilkinson development
  (Rosehill).

42
Water Company position

• Require the transfer of the 50 acre feet, water
  right 35-5791

43
Proposed Water Company Action

• Cancel all will serves for Remaining Wilkinson
  Land
• Will not offer new Will Serves until all issues
  resolved

44
Water Company Proposed Compromise

• Give Credit for Wilkinsons voluntarily
  relinquishing interests in Class C Shares
• These Issues are fuzzy, not sufficient
  documentation to fully support either side.
• Give benefit of doubt on some issues
• Let the past be the past and move forward.

45
Water Company Proposed Compromise

• Wilkinson's Relinquish all interest in the water
  company except for Class A Shares
• Wilkinson's transfer over water right 35-5791
• Water company recognize all other issues
  resolved, estimated over 100,000.
• Both sides give up right for future recourse.

46
Summary of Wilkinson Proposal

• Pay Additional 116,000 or approximately
  288/active connection.
• Accept liability to acquire water rights for
  Rosehill sub, with annual 12,226/year
• Accept ownership of well 2. (High nitrates)

47
Summary of Wilkinson Proposal

• Class C shares are gone!!
• Legal issues resolved
• Full control given to community