Cottonwood Mutual Water Company Discussion of outstanding Issues

Cottonwood Mutual Water Company Discussion of outstanding Issues with regard to the Wilkinson Farm LLC.

Cottonwood Mutual Water Company Class C Shares • The water company is comprised of several classes of Shares – Class A 712 shares – Class C 7000 shares • Class C share “Ownership” or “Control” shares

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company Methods to deal with disagreement • 1) Both parties come to a mutually acceptable agreement • 2) Mediation (non-binding) • 3) Arbitration (binding) • 4) Litigation

Cottonwood Mutual Water Company 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 upon—starting Sept. 1 of 2011. A. WFLLC will retain 86 thousand gallons of storage water.

Cottonwood Mutual Water Company 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 $54 K payback

Cottonwood Mutual Water Company 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’.

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company Wilkinson Proposal cont. • ( 7. A document stating that the C shares held in Escrow will be signed by Rulon Gardner and the Wilkinson’s releasing said shares to the Wilkinson’s 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.

Cottonwood Mutual Water Company 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 500 k tank worth $100, 000 – All infrastructure-tanks-pipelines-easementsreservoir, ect. – The reservoir (silver lake)

Cottonwood Mutual Water Company Utah State Law • R 746 -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 developerowned water or sewer utility.

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company Wilkinson Loan Cont.

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company Concerns with Wilkinson Loan • 2003 Wilkinson’s 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

Cottonwood Mutual Water Company Concerns with Wilkinson Loan • Water company sold to GCC as part of land sale • 2008 payments stopped – Lack of funds – Concerns over loan

Cottonwood Mutual Water Company Concerns with Wilkinson Loan • Paid approx $186, 000 in principal plus interest • Loan Balance $100, 464 • Original estimated costs $135, 000 • Wilkinson’s charging 18% interest between 2008 and 2011

Cottonwood Mutual Water Company Wilkinson proposal to company • Wilkinson’s 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

Cottonwood Mutual Water Company 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 – Wilkinson’s retain extra storage • Accept 2003 buy of 146, 000 gal of tank storage at $0. 75 – Apply same payments/Loan Terms

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company Item #3 $54, 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

Cottonwood Mutual Water Company $54, 000 payment to Wilkinson's • October 16, 2006 Memo indicates payment is for Rose hill sub. Infrastructure. • No proof of expenditures • R 746 -330 -6 Law • PSC said NO to Wayne for many years

Cottonwood Mutual Water Company $54, 000 payment to Wilkinson's • Drained Company’s savings – Company collects connection fees for a reason. – Company ran out of money. • Potentially an illegal distribution of funds to • share holders. Wilkinson’s settlement asking for remaining $16, 000 or $174/connection for $70, 000

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company 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.

Cottonwood Mutual Water Company Item #4, 5 Proving of water rights • Important to understand that ability to develop consists of providing – Source of Water – Storage / Infrastructure – Water Right

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company Hearing Report

Cottonwood Mutual Water Company Lots Served

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company Proving of water rights • Change application on right 35 -5791 filed June 11, 1992 – Original Place of Use: SW¼ Sec. 30 T 5 NR 2 E – Use Changed to: N ½ of SE ¼ Sec. 25 T 5 NR 1 E, S½ NW, W½ of SW Sec. 30 T 5 NR 2 E • Purpose: – Applying for additional water for use in Wilkinson Water Company’s Culinary System

Cottonwood Mutual Water Company T 5 NR 1 E 25 T 5 NR 2 E 30 SW 1/4

Cottonwood Mutual Water Company T 5 NR 1 E 25 T 5 NR 2 E 30 S ½ NW, W ½ of SW N ½ of SE ¼

Cottonwood Mutual Water Company 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

Cottonwood Mutual Water Company Wilkinson Proposal • Retain the 50 acre-feet of water. – Require water company to acquire and maintain water right to supply Wilkinson development (Rosehill).

Cottonwood Mutual Water Company position • Require the transfer of the 50 acre feet, water right 35 -5791

Cottonwood Mutual Water Company Proposed Water Company Action • Cancel all will serves for Remaining Wilkinson Land • Will not offer new Will Serves until all issues resolved

Cottonwood Mutual Water Company Proposed Compromise • Give Credit for Wilkinson’s 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.

Cottonwood Mutual 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.

Cottonwood Mutual Water Company 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)

Cottonwood Mutual Water Company Summary of Wilkinson Proposal • Class C shares are gone!! – Legal issues resolved – Full control given to community