1. (a) Item 20(iii):

   1. (1) A statement of the purposes of the company indicating the scope and variety of its proposed operations.
   2. (2) A description of the service area in which the mutual water company proposes to deliver water, and a representation that the mutual water company contacted the Public Utilities Commission (PUC) and the county local agency formation commission (LAFCO) to determine if the proposed service area will overlap an existing water service area or if an existing water service area could more appropriately serve the subdivision. In the case of a proposed subdivision, contact with the PUC and the LAFCO should be made at the time of initial contact with the local planning department. If a water company is reorganizing to become a mutual water company, contact with the PUC and the LAFCO should be made at the time initial contact with the local or state department of health.

   3. (3) A description of the method by which the company is to acquire the water supply, distribution and fire protection system. If a mutual water company being formed in connection with subdivided lands or a subdivision of land is to acquire its water supply, distribution and fire protection system from the subdivider, copies of the contract and other documents relating to the acquisition of the system must be filed. These contracts and documents must evidence the mutual water company's title to the water supply, distribution and fire protection system. For example: a bill of sale transferring all personal property used and usable in the operation of the mutual water company; a copy of the recorded deed to the wells and water tanks to be used by the mutual water company in the supply, distribution and fire protection system; copies of recorded deeds granting easements for construction, repair, maintenance and improvements of the water supply, distribution and fire protection system.

      1. (A) take all necessary action to apply for subsequent permits from the Department of Business Oversight, provided the subdivider agrees to pay all expenses of the mutual water company associated with obtaining the permit, and provided further the extension of the water supply, distribution and fire protection system is to a contiguous subdivision and is completely integrated into the present system so that there exists, in effect, one water supply, distribution and fire protection system which will not create conflicts between present and future users;
      2. (B) sell and issue securities to purchasers of remaining lots in the subdivision on the same terms (except for price, if the difference is justified) for the initial purchasers;
      3. (C) cooperate with the subdivider in the operation, maintenance, and improvement of the present and contemplated water supply, distribution and fire protection system; and
      4. (D) contract with the subdivider or a successor in interest, if a reasonable request is made to do so, for the management of the mutual water company for as long as lots in the subdivision remain unsold, provided at all times the board of directors of the mutual water company shall approve or disapprove the terms of the contract including compensation to the subdivider or successor in interest, if any.

      Additionally, the subdivider must file a copy of an executed written contract entered into with the mutual water company whereby the subdivider agrees with the mutual water company to pay monthly a proportional part of the repair and replacement fund (as required by Rule 260.140.71.2(b)(3)) according to the following ratio: number of lots owned or controlled by the subdivider to total number of lots in the subdivision. The written contract may also provide that, in consideration of transfer by the subdivider to the mutual water company of the water supply, distribution and fire protection system, the mutual water company agrees to:

   4. (4) An engineer's report prepared as required by Section 260.150 and Sections 260.504.2-260.504.2.4.
   5. (5) If the company proposes to distribute water for human consumption, a copy of the certificate of the Director of Public Health as required by Sections 4010-4024 of the Health and Safety Code must be filed.
   6. (6) If a mutual water company is being formed in connection with subdivided lands or a subdivision of land, as defined in Sections 11000, 11000.1, 11000.5, and 11004.5 of the Business and Professions Code, the application must state that the securities will be sold or issued only to purchasers of lots in the subdivision, or to successors in interest of purchasers of lots in the subdivision, and not sold or issued to the subdivider or to the successor in interest of the subdivider. Moreover, the application must state that the securities will be sold or issued only after a public report for the subdivision has been issued by the Department of Real Estate. The mutual water company must file one additional copy of the application to be referred for comment to the Commissioner of Real Estate.
   7. (7) A statement undertaking to comply with the requirements of Corporations Code Section 14300 for making the security issued by the mutual water company appurtenant to the land.
   8. (8) If the water supply and distribution system will be completed prior to the issuance of a permit by the Commissioner, the application should include either a statement of the engineer preparing the engineer's report submitted with the application, or of a person employed or acting on behalf of a public agency or other independent qualified person, that the system has been examined and tested and that the system operates in accordance with the design standards of the system described in the application.

2. (b) Item 21.A: The articles of incorporation or bylaws of the mutual water company must contain the following:

   1. (1) A statement to the effect that the mutual water company shall provide water to all members or shareholders.
   2. (2) A general description of any activities other than the delivery of water in which the water company may engage. The appropriateness of these other activities will be determined by the commissioner upon a consideration of the circumstances in each particular case.
   3. (3) A proviso directing the board of directors to establish a rate structure which will result in the accumulation and maintenance of a fund for the repair and replacement of the water supply, distribution and fire protection system (the “repair and replacement fund”). The rate charged, moreover, must bear a reasonable relationship to the cost of furnishing water. Unimproved lots included within the area to be served must bear a proportionate share of the cost of repair and replacement of the water supply, distribution and fire protection system, as well as a proportionate share of the cost of maintaining the repair and replacement fund.
   4. (4) A reasonable relationship between each unit of the securities to be issued and each unit of the area to be served; e.g., one share of common stock issued for each subdivided lot purchased.
   5. (5) A statement prohibiting the issuance of fractional shares or securities.
   6. (6) Adequate provision must be provided for transfer of the securities, voting rights of the security holders, inspection of books and records by security holders, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision, where applicable, of the area to be served.
   7. (7) A reasonable limitation on the salaries paid to the persons operating, or employed by, the mutual water company including officers and directors.
   8. (8) A provision for annual meetings of the security holders accompanied by a provision for adequate notice.
   9. (9) A provision for distributing to each security holder annually fiscal year-end financial statements within 105 days of the close of the fiscal year.
   10. (10) In the case of a mutual water company purchasing water for distribution from a public utility, municipal water company or water district, a provision for charging all security holders a pro rata amount of the cost of water supplied to an entity providing fire protection service.

3. (c) Item 21.F: A mutual water company must prepare an offering circular to be used in an offer and sale of its securities. This offering circular must include, among other things: a discussion of the water supply, distribution and fire protection system; a summary of the opinion of the engineer along with the engineer's consent as required by Sections 260.504.2-260.504.2.4; the area in which the mutual water company intends to provide water service; whether activities other than delivery of water are contemplated by the mutual water company; a discussion of the rights and duties of the security holders of the mutual water company as set forth in its articles of incorporation and bylaws, including the consequence of failure to pay for water or assessments; the fact that the articles of incorporation provide that the shares or securities of the mutual water company may not be sold separately from the right to water evidenced by the security of the mutual water company; prohibition of issuance of fractional shares or securities of the mutual water company; a discussion of the certificate issued by the Director of Public Health certifying that the water is fit for human consumption; the limitation imposed on salaries to be paid to personnel operating, or employed by, the mutual water company including officers and directors; a discussion of the transferability of the securities, the voting rights of the security holders, access to books and records, necessary or contemplated expansion of the facilities of the mutual water company, and further subdivision of the area to be served, if applicable; a discussion of the subdivider's duties with respect to maintenance and repair or replacement of the water supply, distribution or fire protection system; and a discussion of the establishment and maintenance of the repair and replacement fund.

   Additionally, the following exhibits shall be attached to the offering circular: a copy of the articles of incorporation and bylaws of the mutual water company; and a copy of financial statements of the mutual water company (if the mutual water company has not yet commenced operations, a detailed operating budget for the first six months of operations should be included as an exhibit to the offering circular; the operating budget must include estimated monthly fees to be charged to the water users).

An application for qualification by permit of the offer and sale of securities proposed to be issued by a mutual water company must contain the information required by Sections 260.110 and 260.113 of the Commissioner's Rules.

In addition, the following information must be filed as an exhibit to the application in response to the items of Rule 260.113 found below:

Note: Authority cited: Section 25610, Corporations Code. Reference: Section 25140, Corporations Code.

History

1. Change without regulatory effect amending section filed 9-25-2002 pursuant to section 100, title 1, California Code of Regulations (Register 2002, No. 39).

2. New subsection (a)(7) and subsection renumbering filed 9-23-2009; operative 10-23-2009 (Register 2009, No. 39).

3. Change without regulatory effect amending subsection (a)(3)(A) filed 8-13-2014 pursuant to section 100, title 1, California Code of Regulations (Register 2014, No. 33).