ARTICLE VIII

Board of Directors

Section 1.  The business of the Corporation shall be conducted under the authority and direction of the Board of Directors.  The Board shall consist of seven (7) directors, a majority of whom shall constitute a quorum.  The term of the directors shall be three years with staggered terms such that two, two and three rotate off in successive years.  The directors shall be elected by the members of the Corporation at the annual membership meeting according to a process provided for in Article XI of the By-Laws.

Section 2.  A director does not necessarily need to be a member of the Corporation.  However, he/she must be a resident within the Certificated Area.  Not more than one (1) non-Member may serve of the Board of Directors at any one time.

Section 3.  The directors shall serve without pay, but may be compensated for actual out-of-pocket expenses approved by the President.

Section 4.  Upon the death, resignation, or removal of a director, a successor shall be elected by a majority of the remaining directors to serve until the next regular or special Membership meeting, at which time the general Membership shall elect a successor for the remaining balance of the previously vacated term.

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Section 5.  The Board of Directors shall, within 10 days following the annual membership meeting, meet and elect the officers of the Board.  These officers shall be the President, the Vice-President, and the Secretary/Treasurer.

Section 6.  Removal of Director.  A Director or Officer may be removed from office in the following manner, except as otherwise provided in Article___:  Any Member, Officer, or Director may present charges against a Director or Officer by filing such charges in writing with the Secretary/Treasurer of the Corporation.  If presented by a Member, the charges must be accompanied by a petition signed by at least ten (10) percent of the Members of the Corporation.  Such removal shall be voted on at the next regular or special meeting of the Membership and shall be effective if approved by a vote of 2/3 majority of those voting if a quorum is present.  The Director(s) or Officer(s) against whom such charges have been presented shall be informed in writing of such charges at least twenty (20) days prior to the meeting, and shall have the opportunity at such meeting to be heard in person or by counsel and to present witnesses; and the person or persons presenting charges shall have the same opportunity.  If the removal of a Director(s) is approved, such action shall also vacate any other office(s) held by the removed Director(s) in the Corporation.  A vacancy in the Board thus created shall immediately be filled by a qualified person other than the removed Director upon a vote of a majority of the Members present and voting at such meeting, in accordance with the written annual or special meetings procedures as adopted by the Board.  A vacancy in any office thus

created shall be filled by the Board of Directors from among their number so constituted after the vacancy in the Board has been filled.

Section 7.  Removal of Director/Officer (continued)

The President of the Board, or Vice-President, shall preside at any meeting of the Members convened to consider removal of an Officer or Director as provided under Section 7, unless the President is the subject of charges, in which event the Vice-President shall preside.  In the event both the President and the Vice-President are the subject of charges, those Directors who are not the subject of any charges shall appoint one of their number to preside over the meeting.  Any meeting convened to consider the removal of an Officer or Director shall be conducted in accordance with the procedures prescribed by the Board.  The fact that the President, Vice-President, or any other Officer or Director has been made the subject of charges does not otherwise prevent such individual from continuing to act in the capacity as an Officer or Director of the Corporation.  Any Director that has been removed under the provisions of this Article shall not be precluded from subsequent election to a position on the Board of Directors.

Section 8.  The Board of Directors shall adopt and maintain a conflict of interest policy designed to promote the business of the Corporation and serve the interests of the Membership.  Such policy, at a minimum, shall be in conformance with the provisions of the Texas Non Profit Corporation Act pertaining to the duties and responsibilities of the Board of Directors

                                                        ARTICLE VIII

Board Meetings

Section 1.  Regular monthly meetings of the Board shall normally be held on the third Thursday of the month, as needed, at a time and place convenient to the Board members.  Notice of the meeting, including the agenda, will be filed at least 72 hours prior to the meeting with the County Clerk’s Office and in public places in the town of Chappell Hill, according to the requirements of the Texas Open Meetings Act.  No further notice to the directors of such regular meetings shall be required.

Section 2.  A majority of the full Board is required in order to conduct the business of the Board.

Section 3.  The agenda of the Board meetings shall include an opportunity for public questions on items on the agenda either before or after the Board meeting.  The public will not enter into the deliberations of the Board.  The Board meeting will be conducted in accord with the Texas Open Meetings Act and Roberts Rules of Order.  Should there be any conflict between the two, the requirements of the Texas Open Meetings Act shall prevail.

Section 4.  Emergency meetings of the Board may be held with reasonable notice to Board members, either written or oral, and at least a 2-hour posted notice on local bulletin boards.  In no event shall emergency Board meetings be convened when the business of such meeting could be practically considered at a regular meeting of the Directors.

Section 5.  The act of the majority of the directors present at a meeting at which a quorum is present shall be the act of the Board of Directors.

Section 6.  Any Director failing to attend two (2) consecutive meetings may be given written notice by the balance of the Board of Directors that failure by said Director to attend a third consecutive meeting, without justifiable cause acceptable to the balance of the Board of Directors, shall give rise to removal of said Director from the Board.  A successor shall be appointed by a majority vote of the Directors remaining to serve until the next regular or special Membership meeting, at which time the general Membership shall elect a successor the the balance of the term.

Section 7.  Directors’ Good Faith Obligations.  In conducting their duties as members of the Board, Directors:  (1) shall be entitled to rely, in good faith and with ordinary care, on information, opinions, reports, or statements, including financial statements and other financial data, concerning the Corporation or the Corporation’s affairs that have been prepared or presented by one or more officers or employees of the Corporation, or by legal counsel, public accountants, or other persons retained by the Corporation for the development of professional advice and information falling within such person’s professional or expert competence; (2) may believe, in good faith and with ordinary care, that the assets of the Corporation are at least that of their book value; and (3) in determining whether the Corporation has made adequate provision for the discharge of its liabilities and obligations, may rely in good faith and with ordinary care, on the financial statements of, or other information concerning, any person or entity obligated to pay, satisfy or discharge some or all of the Corporation’s

liabilities or obligations; and may rely in good faith on information, opinions, reports, or statements, including financial statements and other financial data, prepared or presented by one or more Officers or employees of the Corporation, legal counsel, public accountants, or other person’s professional or expert competence.  Nevertheless, Directors must disclose any knowledge they may have concerning a matter in question that makes reliance otherwise provided herein to be unwarranted.

ARTICLE IX

Membership Meeting

Section 1.  There shall be a regular meeting of the members annually on the third Tuesday of April to transact all business that may properly be brought before the membership, including election of directors, passing upon financial reports covering the previous fiscal year, and transacting such other business as may be on the agenda.  The Secretary/Treasurer shall give at least fifteen (15) days written notice of such annual meeting to the Membership indicating the time, place and purpose of such meeting, and shall address and mail the notice to each Member at the address last known to the Corporation.  Failure to hold or call an annual or special meeting in accordance with these ByLaws shall give each Member rights to compel the Board of Directors to properly hold an annual or special meeting of the Membership.  Voting by proxy shall be permitted.  Members holding ten percent (10%) of the votes entitled to be cast, represented in erson or by proxy, shall constitute a qauorum for the transaction of business.

Section 2.  The Board of Directors shall adopt, and from time to time may revise, written procedures for conducting annual or special Membership meetings, including the proxy and/or ballot form which shall be the official proxy and/or ballot for such meetings; procedures for proper notification of the Membership of such meetings and delivery of the Corporation’s official proxy and/or ballot forms to the Membership; procedures to determine, qualify and register the eligible voters for such meetings; and procedures for canvassing all votes and recording the results of all elections at such meetings of the Membership. Such procedures are described in the policy document  titled “Conducting the Annual Membership Meeting”.  A copy of this policy is available at the offices of the Corporation.

Section 3.  Persons eligible to vote at the annual membership meeting include all owners of the membership certificate (Members) and those occupants who have been assigned a proxy by the owner of the property.  Only one vote per Membership is allowed.  No member or occupant may vote if that person is delinquent in his/her water account (i.e. outstanding balance over 60 days).

ARTICLE X

Special Meetings

Section 1.  A special meeting of the Members or Directors may be called by the President, or by demand by a majority of the board members or one-third (1/3) of the Members.  Such special meetings shall be held upon giving notice as required by the Texas Open Meetings Act.

Section 2.  Prior to convening any special meeting of the Members, the President shall request in writing that the Secretary/Treasurer give at least ten (10) days prior notice to the Members, and that such special meeting is otherwise noticed, as required under Article 1396-2.11, Texas Revised Civil Statute, and as provided under Article VIII of these ByLaws.  Such notice shall specify the time, place and purpose of the meeting, and shall be addressed and mailed to each of the Members at their address last known to the Corporation, personally delivered to each Member, or sent by facsimile to each Member.

ARTICLE VIII

Members

Section 1.  The Corporation shall have Members as defined by the Texas Water Code.  All customers of the Corporation must hold a Membership or obtain their service through a Membership.  A person or entity that holds an interest in property solely as security for the performance of an obligation or that only builds on or develops the property for sale to others is not required to hold a Membership as a condition to receive service on a limited basis.  Every person (which includes any legal entity) owning or having a legal right to the control, possession or occupancy of property served, or which may reasonably be served by the Corporation, shall have the right to become a Member of the Corporation upon payment of the Membership fee hereinafter provided and upon compliance with the Corporation’s conditions of water service as provided for in its published charges, rates and conditions of service..  Only one membership shall be granted for each connection. 

Section 2.  Membership will not be denied because of the applicant’s race, color, religion, sex, age, marital status, familiar status, handicap, income from Public Assistance, disability or national origin.  It is the intent of the Corporation to provide service on a non-discriminatory basis to all persons who otherwise qualify for membership. 

Section 3.  If the property is occupied by a renter, the member (i.e. owner) may assign his/her proxy to the renter to vote in the annual membership meeting.  This assignment of proxy must be done in writing to the Corporation business office prior to the deadline for receiving proxy ballots.  

The Member is ultimately responsible for any water bills assigned to or generated by the meter on their property.

Section 4.  A person may own more than one Membership, but each Member shall be entitled to only one vote regardless of the number of Memberships owned.  No more than one vote per connection will be allowed.

Section 5.  Membership in the Corporation requires the payment of a membership fee which is set by the Board and published in the Water Utility Tariff of the Corporation.

Section 6.  The Membership fee shall be as determined by the Board of Directors.  Payment of the Membership fee or transfer of Membership shall entitle an applicant to further qualify for service to an existing connection to the system by meeting the conditions for water service as provided in the Corporation’s published rates, charges, and conditions of service. 

The Membership fee may be revised by the Board of Directors as the Board may determine to be appropriate.  In determining the amount of the Membership fee, however, the Board shall ensure that the fee is sufficient to establish the potential Member as being legitimately interested in securing water service from the Corporation for such potential Member’s own needs.  Furthermore, the Board shall determine and administer such fee in a manner or in an amount which does not unreasonably deny service to financially deprived potential Members.  In no event, however, shall the Membership fee exceed an amount equal to the sum of twelve (12) charges of the Corporation’s minimum monthly water rate unless previously approved by USDA Rural Development, RUS.  Membership fees will be refundable.

ARTICLE IX

Dividends

Section 1.  The Corporation shall conduct its business on a non-profit basis, and no dividends shall ever be paid upon the Memberships of such Corporation.  All profits arising from the operation of such business shall be annually paid out to the persons who have, during the past year, transacted business with the Corporation, in direct proportion to the amount of business transacted, provided that no such dividends shall ever be paid while any indebtedness of the Corporation remains unpaid and, provided also, that the Directors of the Corporation may allocate to a sinking fund(s) and reserve accounts such amount of profits as they deem necessary for maintenance, operation, capital improvements, expansions and replacements of all facility components, as provided by Section 67.008(d) of the Texas Water Code.  Funds allocated by the Board to a sinking fund for replacement, amortization of debts, and the payment of interest that are not required to be spent in the year in which deposited shall be invested in accordance with the provisions of Section 67.014(b) of the Texas Water Code.

ARTICLE X

Reserves Account

Section 1.  The Directors of the Corporation shall establish and maintain, so long as the Corporation is indebted to any Government or any other lending agency, in an institution insured by the State or Federal Government, or invested in readily marketable securities backed by the full faith and credit of the United States of America, a reserve account separate and apart from other fund accounts of the Corporation.  Securities so purchased shall be deemed at all times to be part of the reserve fund account.  There shall be deposited in such fund the sum as required by a total of all loan resolutions executed by the Corporation.  Such deposits shall be made monthly and shall continue until the total amount deposited equals the sum as required by the executed loan resolutions, provided, however, that after any withdrawals, such deposits shall be resumed until the amount accumulated in the fund is restored to the sum as required by the executed loan resolutions.

Section 2.  Withdrawals may be made from this fund only upon prior written approval from the relevant lending agency or its successors.  Approval shall be sought only for emergency repairs, obsolescence of equipment, improvements to facility, and for making up any deficiencies in revenue for loan payments.

ARTICLE XIV

Transfer of Membership

Section 1.  In order to ensure that business done by the Corporation shall continue within the capacity of its facilities and to prevent undue financial burden on the Members of the Corporation, Membership in the Corporation shall be transferred in accordance with the following:

(a) Except as herein provided, Membership in the Corporation shall be deemed personal estate and a person or entity that owns any stock of, is a Member of, or has some other right of participation in the Corporation may not sell or transfer that stock, Membership, or other right of participation to another person or entity except:  (1) by will to a transferee who is a person related to the testator within the second degree by consanguinity; (2) by transfer without compensation to a transferee who is a person related to the owner of the stock or other interest within the second degree by consanguinity; or (3) by transfer without compensation or by sale to the Corporation.

the Membership; however, no gain or profit shall ever be realized         from the sale or transfer of a Membership.

     B.   A Membership will not be transferred if there is a balance owed on  

          the account of the transferor.

C.     The transfer of Membership under this section does not entitle the         transferee to water service unless each condition for water service is met as provided in the Corporation’s published rates, charges, and conditions of service.  Water service provided by the Corporation as a result of Membership may be conditioned on ownership of the real estate designated to receive service and from which the Membership or other right of participation arose.

                                                        ARTICLE XV

                 Fees, Service Applications, Service Extension Policy, And Drought Contingency Plan

Section 1.  All Corporation Fees, Service Applications, the Service Extension Policy, Non-Standard Service Agreement and the Drought Contingency Plan as approved and adopted by the Board are presented in the Tariff of the Corporation, which may be modified from time to time.  The Tariff may be viewed at the Offices of the Corporation.

ARTICLE XVI

Dissolution of the Corporation

Section 1.  Upon discontinuance of the Corporation by dissolution or otherwise, all assets of the Corporation shall be distributed among the Members and former Members in direct proportion to the amount of their patronage with the Corporation insofar as practicable.  Any indebtedness due the Corporation by a member for water service or otherwise shall be deducted from such member’s share prior to final distribution.  By application for and acceptance of membership in the Corporation, each member agrees that, upon the discontinuance of the Corporation by dissolution or otherwise, all assets of the Corporation transferred to that member shall be in turn immediately transferred by the individual member to an entity that provides a water supply or wastewater service, or both, that is exempt from ad valorem taxation.  By application for and acceptance of membership in the Corporation, each Member grants the Corporation’s Board of Directors that Member’s permission to execute all instruments and documents necessary to effectuate such transfers in order to preserve the Corporation’s statutory rights to exemption from income and ad valorem taxation.

   ARTICLE XVII

  Fiscal Year

Section 1.  The fiscal year of the Corporation shall run from January 1 through December 31 of each calendar year.

      Insurance

Section 1.  For as long as the Corporation is indebted for a loan or loans made to it by the United States of America through the USDA Rural Development, the Corporation shall insure with a reputable insurance company such of its properties and in such amounts as is required by the State Director of the USDA Rural Development for the State of Texas.

ARTICLE XIX

                     Assessments

Section 1. If at the end of the fiscal year, or in the event of emergency repairs, the Board of Directors determines the total amount derived from the collection of water charges to be insufficient for the payment of all costs incident to the operation of the Corporation’s system during the year in which such charges are collected, the Board shall make and levy an assessment against each Member of the Corporation as the Board may determine or as may be required by USDA Rural Development, RUS, so that the sum of such assessments and the amount collected from water charges is sufficient to fully pay all costs of operation, maintenance, replacement and repayment on indebtedness for the year’s operations, but this provision shall not operate for the benefit of any third party creditor other that USDA Rural Development, RUS, without a favorable vote of the majority of the Members.  Any assessments levied to make up operations deficits in any year shall be levied against Members in proportion to their patronage with the Corporation.

Section 2.  In the event a Member should surrender their Membership certificate properly endorsed by the Secretary/Treasurer of the Corporation, the obligation to pay such assessments shall be limited to assessments made and levied prior to the date of surrender of the Membership certificate provided, however, that this paragraph and the second sentence of Article __ shall not apply to relieve a Member of their obligation under special

arrangements covering Multiple Membership certificates held by one Member which may have been required or approved by the USDA Rural Development, RUS.

                      ARTICLE XX

                       Amendments

Section 1.  These By-Laws may be altered, amended or repealed by a vote of a majority of the Members present, whether in person or by proxy, at any regular meeting of the Members, or at any special meeting of the Members called for that purpose, except that the Members shall not have the power to change the purpose of the Corporation so as to decrease its rights and powers under the laws of the State, or to waive any requirements of bond or other provisions for the safety and security of the property and funds of the Corporation or its Members, or to deprive any Member of rights and privileges then existing, or so to amend the By-Laws as to effect a fundamental change in the intends and purposes of the Corporation.  Notice of any amendment to be made at a special meeting of the Members must be given at least ten (10) days before such meeting and must set forth the amendments to be considered. 

Section 2.  For as long as the Corporation is indebted for a loan or loans made to it by the United States of America through the USDA Rural Development, RUS, or its successor agencies, these By-Laws shall not be altered, amended, or repealed without the prior written consent of the State Director of the USDA Rural Development, RUS, for the State of Texas.

ARTICLE XXI

Seal

Section 1.  The seal of the Corporation shall consist of a circle within which shall be inscribed “CHAPPELL HILL WATER SUPPLY CORPORATION.”

ARTICLE XXII

Section 1.  The Corporation pledges its assets for use in performing the functions of the corporation as provided by law and the Corporation’s Articles of Incorporation.

ARTICLE XXIII

Section 1.  The above Bylaws were unanimously adopted by the Board of Directors of the CHAPPELL HILL WATER SUPPLY CORPORATION, at a meeting in the Rock Store, Chappell Hill, Texas on the  23^rd day of October in the year 2008.

_________________________________________

President

Attest:  ___________________________________

            Secretary/Treasurer