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Exhibit 4.11    
    

 
 

WUC SHAREHOLDER AGREEMENT    
    

        THIS WUC SHAREHOLDER AGREEMENT (this "Agreement") is made as of October 1, 2000 among Southwest Water
Company, a Delaware corporation ("SWC"), SW Utility Company, a Texas corporation ("SWUC"),
RTNT, Inc., a Texas corporation ("RTNT"), Thom W. Farrell ("Farrell") and Windermere Utility
Co., Inc., a Texas corporation (the "Company"). SWUC and RTNT are collectively referred to herein as the
"Shareholders." 

W I T N E S S E T H:  

        WHEREAS, upon the closing of that certain Merger Agreement and Plan of Reorganization of even date herewith (the "Merger
Agreement"), and subsequent contribution of Company Common Stock by SWC to SWUC, SWUC will own 80% of the issued and outstanding capital stock of the Company and RTNT will own
20% of the issued and outstanding capital stock of the Company; 

        WHEREAS,
SWUC is a wholly owned subsidiary of SWC; 

        WHEREAS,
Farrell is the trustee of the Rollingwood Trust, the sole shareholder of RTNT; and 

        WHEREAS,
the Shareholders desire to more particularly set forth in writing their agreements with respect to (i) specific restrictions on the transfer of their interests in the
Company and (ii) the terms under which SWUC may purchase, or may be required to purchase, RTNT's remaining shares of Company Common Stock. 

        NOW,
THEREFORE, in consideration of the premises and undertakings hereinafter set forth, the parties hereto agree as follows: 

ARTICLE 1.

DEFINITIONS AND INTERPRETATION  

        1.1    Definitions.    As used in this Agreement: 

"Affiliate" of a Holder means (a) a Person directly or indirectly (through one or more intermediaries) controlling, controlled by or under common
control with that Holder; (b) an officer, director, partner, shareholder or member of that Holder; or (c) a member of the immediate family of an officer, director, partner, shareholder,
or member of that Holder. For these purposes "control" means the possession, direct or indirect, of the power to direct or cause the direction of the management and policies of a Person, whether
through the ownership of Voting Securities, by contract, or otherwise. 

"Annual Election" means the annual election of Directors held in accordance with the Company's by-laws, including any such election by
written consent. 

"Business Day" means Mondays through Fridays other than days on which the United States Postal Service does not make regularly scheduled deliveries of
first class mail. 

"Board" means the Board of Directors of the Company. 

"Closing Price" means the SWC Market Price calculated as of the Effective Date. 

"Company Common Stock" means the common stock of the Company, $1.00 par value per share. 

"Connection Count" means the total number of new water or wastewater connections per Fiscal Year measured at the date of full and final payment for the
respective individual connection of any particular commitment. A single family residence connecting to both the water and wastewater systems shall be counted as two separate new connections. For
purposes hereof, commercial connections shall be equivalent to the number of single family residential 

 

connections
as set forth in the respective Texas Utilities tariffs from time to time. Any wholesale service connections shall be translated to single family residence connections by calculating the
single family residential connections on the wholesale connections end users using the methodology as set forth above. 

"Director" means a member of the board of directors of the Company. 

"Disposition" has the meaning given to such term in Section 3.1. 

"Effective Date" means the effective (date of this Agreement as first set forth above, which shall also be the closing date of the Merger Agreement. 

"Fiscal Year" means the 365-day period year beginning July 1 in one calendar year and continuing through June 30 of the next
calendar year. 

"Holder" means a record and beneficial owner of any Company Common Stock. 

"Market Price" means the lower of either (a) the average closing share price of the SWC Common Stock for the preceding five (5) business
days prior to the closing date of the relevant transaction or (b) the average daily three (3) month closing share price of the SWC Common Stock prior to the closing date of the relevant
transaction. 

"Permitted Transferee" means (i) SWC or (ii) any Person to whom a Holder has transferred Company Common Stock with the consent of the
other Holder or Holders; provided, however, that in each case the Permitted Transferee has become a party to and has agreed to be bound by this Agreement,
amended as necessary to reflect the transfer of SWUC's shares of Company Common Stock to the Permitted Transferee, as to all shares of Company Common Stock then being transferred to it. "Permitted
Transferee" includes successive transferees in transactions described in this definition. 

"Person" means an individual, partnership, corporation, limited liability company, unincorporated organization or association, trust, government or
department, unit or political subdivision of a government, or other such entity. 

"Reorganization" means (i) any statutory or other form of merger or consolidation of one Person with or into any other Person; (ii) the
sale of a majority of the Voting Securities of a Person; (iii) any recapitalization or reclassification of capital stock or other equity interests of a Person which results in the holders of
Voting Securities prior to the Reorganization not having the power to elect a majority of the issuer's board of directors or other comparable body after the Reorganization; (iv) or any sale of
all or substantially all of the assets of a Person in any one or a series of related transactions. 

"Share Price" means the weighted average closing share price of the SWC Common Stock for each trading day of the thirty (30) day period prior to
the Put Date or Call Date (as applicable). 

"SWC Change of Control" means either of the following events: 

        (a)   A
change in control of SWC of a nature that would be required to be reported in response to Item 6(e) of Schedule 14A, Regulation 240.l4a-101,
promulgated under the Securities Exchange Act of 1934, as amended (the "Exchange Act"), as in effect on the date hereof, or, if Item 6(e) is no longer
in effect, any regulation issued by the Securities and Exchange Commission pursuant to the Exchange Act which serves similar purposes (i.e., a change in the person or persons owning, directly or
indirectly, sufficient Voting Securities to elect the Board of Directors or to take other significant shareholder actions for SWC); 

2

 

provided
that, without limitation, an SWC Change of Control shall be deemed to have occurred if and when: 

        (1)   Any
"person" (as such term is used in 13(d) and 14(d)2 of the Exchange Act) who is not at the date hereof a beneficial owner, directly or indirectly, of securities of
SWC representing fifty percent (50%) or more of the combined voting power of SWC's then outstanding Voting Securities becomes such a beneficial owner, or 

        (2)   During
any period of two (2) consecutive years, individuals who were members of the Board of Directors of SWC at the beginning of such period cease for any reason
(other than death or disability) to constitute at least a majority of thereof unless the election, or the nomination for election by SWC's stockholders, of each new director, was approved by vote of
at least two-thirds of the directors then still in office who were directors at the beginning of such period; or 

        (b)   Consummation
of (A) any reorganization, consolidation, or merger of SWC in which SWC is not the continuing or surviving corporation or pursuant to which shares of
SWC's Common Stock would be converted into cash, securities, or other property, other than a merger of SWC in which the holders of SWC's Common Stock immediately prior to such transaction, immediately
following such transaction, own more than fifty percent (50%) of the combined voting power entitled to vote generally in the election of directors of the reorganized, merged, or consolidated company
or (B) any sale, lease, exchange, or other transfer (in one transaction or a series of related transactions) of all or substantially all of the assets of SWC. 

"SWC Common Stock" means the common stock of SWC, $0.01 par value per share. 

"Voting Securities" means shares of capital stock or equity interests the holders of which are at the time entitled to elect a majority of the issuer's
board of directors or other comparable body. 

Additional
terms are defined where used in this Agreement. 

        1.2    Interpretation.    Each definition in this Agreement includes the singular and the plural, and references to
the neuter gender include the masculine and feminine whenever appropriate. References to any statute mean such statute as amended at the time and include any successor legislation. The words "herein,"
"hereof" and "hereunder" refer to this Agreement as a whole. The headings of the Articles and Sections are for convenience of reference only and shall not affect the meaning or interpretation of this
Agreement. Unless the context otherwise requires, references to Articles, Sections and Subsections mean the Articles, Sections and Subsections of this Agreement. 

        1.3    Changes in Stock.    If during the term of this Agreement the outstanding shares of the Company Common Stock or
the SWC Common Stock shall be changed into a different number of shares or a different class or classes of shares by reason of any Reorganization, split-up, combination, reclassification
or other recapitalization, or if a stock dividend shall be declared on shares of such Common Stock with a record date during such term, the terms of this Agreement (including its definitions) shall be
appropriately modified to give effect to such occurrence. 

ARTICLE 2.

VOTING OF SHARES AND GOVERNANCE  

        2.1    Composition of Board.    From and after the date hereof, so long as this Agreement remains in effect: 

        (a)    Number.    The number of Directors comprising the Board shall initially be four (4), subject to change in
accordance with the Company's Articles of Incorporation and bylaws. 

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        (b)    Election.    Immediately after the Closing and at each Annual Election, SWUC shall nominate three
(3) individuals to stand for election as Directors and RTNT shall nominate Farrell or one other individual to stand for election as Director. At all times during the term of this Agreement,
RTNT shall have the right to nominate and have elected one (l) Director. Each Shareholder shall vote all of its shares (or sign a written consent in lieu thereof) at each Annual Election and at
all other times when required to fill a vacancy on the Board, however arising, and to take all such other action as may be reasonably necessary to elect the Board candidates nominated by SWUC or RTNT. 

        2.2    Officers.    The Board shall, at a minimum, appoint a president, secretary and treasurer of the Company. 

ARTICLE 3.

RESTRICTIONS ON TRANSFERS OF SHARES  

        3.1    No Dispositions.    No Holder shall, directly or indirectly, sell, assign, transfer by operation of law or
otherwise, pledge, hypothecate, grant any security interest or other lien in or otherwise dispose of any of its shares of Company Common Stock (a
"Disposition"), or agree or otherwise become obligated to take any of the foregoing actions; provided, however, that such restrictions shall not apply
to (i) a Disposition to a Permitted Transferee, (ii) the hypothecation or pledge of the SWUC shares of Company Common Stock to a bank or other financial institution or under any
indenture, (iii) the granting of a security interest in or other lien on the SWUC shares of Company Common Stock to a bank or other financial institution or under any indenture, or
(iv) a Disposition pursuant to the Put Rights, Call Right or obligated purchases upon an SWC Change of Control. 

        3.2    Remedies.    

        (a)   In
the event that RTNT transfers its shares of Company Common Stock in violation of Section 3.1, such transfer
shall constitute a breach of this Agreement. In addition to any other remedy available to SWUC at law or in equity, SWUC may exercise its Call Right under  Section 4.2 of this Agreement to buy all
of the shares of Company Common Stock then owned by RTNT unless RTNT rescinds the purported Disposition
within ten (10) business days after written notice of SWUC's intent to exercise this remedy is delivered to RTNT. RTNT shall defend, indemnify and hold the Company, SWC, SWUC and their
Affiliates harmless for any breach by RTNT of this Article 3. 

        (b)   In
the event that SWUC transfers its shares of Company Common Stock in violation of Section 3.1, RTNT may exercise
Put Rights in the manner contemplated by Section 4.1 of this Agreement to sell all of the shares of Company Common Stock then owned by RTNT
unless SWUC rescinds the purported Disposition within ten (10) business days after written notice of RTNT's intent to exercise this remedy is delivered to SWUC. SWUC shall defend, indemnify and
hold the Company, RTNT and their Affiliates harmless for any breach by SWUC of this Article 3. 

        3.3    Legend on Stock Certificates.    

        (a)   All
certificates for shares of Company Common Stock shall bear the following legend: 

The
shares represented by this certificate (the "Shares") have not been registered under the Securities Act of 1933, as amended, and no sale, transfer or other disposition may be made of the Shares
unless they have been so registered or Windermere Utility Co., Inc. (the "Company") has been furnished with a legal opinion from a national law firm satisfactory to it that such registration is
not required. The Shares are also subject to significant restrictions on transfer and requirements as to voting contained in the WUC Shareholder Agreement dated as of September 1, 2000 among
the Company and its shareholders, a copy of which is on file with the Secretary of the Company. 

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        (b)   Upon
the termination of this Agreement, each Holder shall be entitled to receive, in exchange for any certificate for the Company Common Stock bearing the legend set
forth in subsection (a) of this Section 3.3, a certificate bearing a legend containing only the first sentence of such legend, unless the
Company shall have determined (based upon the advice of legal counsel) that such legend is then no longer required. 

        3.4    Other Limitations Regarding the Company Common Stock.    For so long as this Agreement is in effect, RTNT's
percentage ownership cannot be changed without its consent (other than through an exercise of the Call Right in Section 4.2). RTNT will not be required to contribute cash, in any form, to the
Company. All dividends paid by the Company shall be paid on a per share basis on all outstanding shares. 

ARTICLE 4.

PUT-CALL RIGHTS AND PURCHASE OBLIGATIONS  

        4.1    Put Right.    Any time after the fifth anniversary of the Effective Date, RTNT may, at its sole option, require
SWUC to purchase all of RTNT's remaining shares of Company Common Stock (the "Put Right") for that number of shares of SWC Common Stock determined as
follows: 

        (a)   If
the Share Price is less than or equal to $13.33 per share, SWUC shall purchase RTNT's remaining interest for 450,000 shares of SWC Common Stock; 

        (b)   If
the Share Price is greater than $13.33 but less than $25 per share, SWUC shall purchase RTNT's remaining interest for the number of whole shares of SWC Common Stock
calculated by dividing $6 million by the Share Price; or 

        (c)   If
the Share Price is greater than or equal to $25 per share, SWUC shall purchase RTNT's remaining interest for 240,000 shares of SWC Common Stock. 

        4.2    Call Right.    SWUC may, at its sole option, require RTNT to sell all of the shares of Company Common Stock
then held by RTNT ("Call Right") for 240,000 shares of SWC Common Stock at any time that the Share Price exceeds $25 per share. 

        4.3    Obligation to Purchase Upon An SWC Change of Control.    SWUC shall purchase all of RTNT's remaining shares of
Company Common Stock upon an SWC Change of Control as follows: 

        (a)    Change of Control During Year One.    In the event of an SWC Change of Control within the first year after the
Effective Date, SWC would purchase all of RTNT's remaining shares of Company Common
Stock for that number of shares of SWC Common Stock determined by dividing $6 million by the Closing Price discounted as follows: 

        (1)   If
the Connection Count calculated at the most recent date prior to the date of the SWC Change of Control is equal to or greater than the Budgeted Connection Count (as
set forth in Exhibit C) as of that date, the Closing Price will be discounted by Four Dollars ($4.00) per share. 

        (2)   If
the Connection Count is below the Budgeted Connection Count by more than ten percent (10%), the Closing Price will be discounted by Two Dollars and Sixty-Seven Cents
($2.67) per share. 

        (3)   If
the Connection Count is between the Budgeted Connection Count and ten percent (10%) below the Budgeted Connection Count, the Closing Price will be discounted by a
proportionate amount between Four Dollars ($4.00) per share and Two Dollars and Sixty-Seven Cents ($2.67) per share. 

        (b)    Change of Control During Year Two.    In the event of an SWC Change of Control within the second year after the
Effective Date, SWC would purchase all of RTNT's remaining shares of 

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Company
Common Stock for that number of shares of SWC Common Stock determined by dividing $6 million by the Closing Price discounted as follows: 

        (1)   If
the Connection Count calculated at the most recent date prior to the date of the SWC Change of Control is equal to or greater than the Budgeted Connection Count as of
that date, the Closing Price will be discounted by Two Dollars and Sixty-Seven Cents ($2.67) per share. 

        (2)   If
the Connection Count is below the Budgeted Connection Count by more than ten percent (10%), the Closing Price will be discounted by One Dollar and Thirty-Three Cents
($1.33) per share. 

        (3)   If
the Connection Count is between the Budgeted Connection Count and ten percent (10%) below the Budgeted Connection Count, the Closing Price will be discounted by a
proportionate amount between Two Dollars and Sixty-Seven Cents ($2.67) per share and One Dollar and Thirty-Three Cents ($1.33) per share. 

        (c)    Change of Control During Year Three.    In the event of an SWC Change of Control within the third year after
the Effective Date, SWC would purchase all of RTNT's remaining shares of Company
Common Stock for that number of shares of SWC Common Stock determined by dividing $6 million by the Market Price discounted as follows: 

        (1)   If
the Connection Count calculated at the most recent date prior to the date of the SWC Change of Control is equal to or greater than the Budgeted Connection Count as of
that date, the Market Price will be discounted by Two Dollars ($2.00) per share. 

        (2)   If
the Connection Count is below the Budgeted Connection Count by more than ten percent (10%), the Market Price will be discounted by One Dollar ($1.00) per share. 

        (3)   If
the Connection Count is between the Budgeted Connection Count and ten percent (10%) below the Budgeted Connection Count, the Market Price will be discounted by a
proportionate amount between Two Dollars ($2.00) per share and One Dollar ($1.00) per share. 

        (d)    Change of Control After Three Years.    In the event of an SWC Change of Control that occurs beyond three
(3) years after the Effective Date, SWC would purchase all of RTNT's remaining shares of Company Common Stock for that number of shares of SWC Common Stock determined in accordance with  Section 4.1. 

        (e)    Calculation of Discounts.    When calculating the discounts referred to in this  Section 4.3 and in Section 4.5, the Connection Count for the relevant period shall be
calculated on a cumulative basis across the period. 

        (f)    Collar.    In no event shall the number of shares of SWC Common Stock delivered to RTNT to purchase all of
RTNT's remaining shares of Company Common Stock under this Section 4.3 be less than 240,000 nor more than 450,000. 

        (g)    Examples.    Examples of the calculations described in this  Section 4.3 can be found at Exhibit B. 

        4.4    Procedure.    

        (a)   In
the event that RTNT desires to exercise its Put Right the exercising seller shall provide written notice to SWUC (the "Put
Notice"). Unless otherwise agreed in writing by the parties, the purchase and sale of the Company Common Stock subject to the Put Right will close sixty (60) days after
the Put Notice is received by SWUC (the "Put Date"). 

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        (b)   In
the event that SWUC desires to exercise its Call Right, SWUC shall provide written notice to SWUC (the "Call Notice").
Unless otherwise agreed in writing by the parties, the purchase and sale of the Company Common Stock subject to the Call Right will close on the date specified in the Call Notice, which shall not be
earlier than five (5) business days nor later than thirty (30) days after the Call Notice is received by RTNT and any applicable cure period has expired without performance of a cure
reasonably satisfactory to SWUC (the "Call Date"). 

        (c)   In
the event that SWUC is required to purchase RTNT's Company Common Stock upon an SWC Change of Control, SWUC shall provide written notice to RTNT (the
"Change of Control Notice") at least five (5) days prior to the effective date of the SWC Change of Control. Unless otherwise agreed in writing
by the parties, the purchase and sale of the Company Common Stock subject to the SWC Change of Control purchase obligation will close, at SWUC's sole option on or between one business day prior to the
effective date of the SWC Change of Control through one business day after the effective date of the SWC Change of Control (the "Change of Control Purchase
Date"). 

        (d)   On
a Put Date, Call Date or Change of Control Purchase Date, SWUC shall be obligated to deliver to RTNT the number of shares of SWC Common Stock set forth in the
appropriate section above upon surrender of the certificates representing such shares of Company Common Stock. 

        4.5    Modification of Discounts.    As an incentive for Farrell to continue forward with SWC after a presumably
"friendly" SWC Change of Control during the first three (3) years after the Effective Date, RTNT can, at its option, exercise its Put Right at sixty percent (60%) of the applicable discounts
described above so long as Farrell agrees to continue an ongoing relationship with the surviving entity after the SWC Change of Control under the original terms of the payment for any connections
above the SWC Acquisition Forecast set forth in Farrell's Consulting Agreement for the remaining years of such agreement. 

ARTICLE 5.

GENERAL PROVISIONS  

        5.1    Notices.    All notices, requests, demands, claims, and other communications hereunder will only be in writing.
Any notice, request, demand, claim, or other communication hereunder shall only be deemed duly given on the second business day after it is deposited with the United States Postal Service for delivery
by registered or certified mail, return receipt requested, postage prepaid, and addressed to the intended recipient as set forth below: 

If
to the Company, addressed to: 

Windermere
Utility Company

c/o Southwest Water Company

225 North Barranca Avenue, Suite 200

West Covina, California 91791-1605

Attention: Vice President of Finance

Telecopier: (626) 915-1558 

with
a copy to each Holder. 

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If
to SWC, addressed to: 

Southwest
Water Company

225 North Barranca Avenue, Suite 200

West Covina, California 91791-1605

Attention: Vice President of Finance

Telecopier: (626) 915-1558 

If
to SWUC, addressed to: 

SW
Utility Company

c/o Southwest Water Company

225 North Barranca Avenue, Suite 200

West Covina, California 91791-1605

Attention: Vice President of Finance

Telecopier: (626) 915-1558 

with
a copy to: 

Latham &
Watkins

650 Town Center Drive

Costa Mesa, California 92626-1925

Attention: James W. Daniels, Esq.

Telecopier: (714) 755-8290 

If
to RTNT or Farrell, addressed to: 

RTNT, Inc.

3223 Park Hill Drive

Austin, Texas 78746

Attention: Thom Farrell

Telecopier: 

with
a copy to: 

Latius
R. Prikryl

Phillips & Prikryl, L.L.P.

515 Congress Avenue, Suite 2600

PO Box 2143

Austin, Texas 78768-2143

Telecopier: (512) 476-9991 

Any
party may send any notice, request, demand, claim, or other communication hereunder to the intended recipient at the address set forth above using any other means (including personal delivery,
expedited courier, messenger service, telecopy, telex, ordinary mail, or electronic mail), but no such notice, request, demand, claim, or other communication shall be deemed to have been duly given
unless and until it actually is received by the intended recipient as proven by the sender. Any party may change the address to which notices, requests, demands, claims, and other communications
hereunder are to be delivered by giving the other parties notice in the manner set forth above. 

        5.2    Holder List.    The Company shall maintain a list (the "Holder
List") of the name and address of each Holder and the number of shares of Company Common Stock held by it. The initial Holder List is attached hereto as Exhibit A. Each
Holder shall give prompt notice to the Company of any change in the information pertaining to it in the Holder List, but in the absence of such notice the Company and each other Holder may treat the
information reflected in the current Holder List as correct. The Company shall furnish a copy of the Holder List to any Holder upon request. 

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        5.3    Amendments, Waivers and Consents.    This Agreement may be amended only by a document executed (which may be in
counterparts) by the Company and all of the Parties. Any Party may waive the benefit of any provision of this Agreement, either in a specific instance or generally, by delivering to the Company and
each other Party a consent to such waiver. All consents required or permitted by this Agreement shall be in writing and signed by the party to be charged therewith. 

        5.4    Governing Law; Jurisdiction and Venue.    This Agreement shall be governed and construed in accordance with the
laws of the State of Texas excluding any conflicts or choice of law rule or principle that might otherwise refer construction or interpretation of this Agreement to the substantive law of another
jurisdiction. Each of the parties submits to the jurisdiction of any state or federal court sitting in Austin, Texas, in any action or proceeding arising out of or relating to this Agreement and
agrees that all claims in respect of the action or proceeding may only be heard and determined in any such court. These courts shall be the exclusive forum for the determination of any claim or right
arising out of or relating to this Agreement. Each of the parties waives any defense of inconvenient forum to the maintenance of any action or proceeding so brought and waives any bond, surety, or
other security that might be required of any other party with respect thereto. No party will request the court in any such action or proceeding to enter relief (whether for damages or injunctive
relief) until the opposing party has had not less than seven (7) days to respond to the request or motion for relief. Any party may make service on any other party by sending or delivering a
copy of the process to the party to be served at the address and in the manner provided for the giving of notices in this Agreement. Each party hereby waives any and all rights it may have to a trial
by jury. THE PARTIES ACKNOWLEDGE THAT BY EXECUTING THIS AGREEMENT, THEY ARE GIVING UP ALL RIGHTS, IF ANY, TO A TRIAL BY JURY. 

        5.5    Attorneys' Fees.    The fees and costs, including reasonable attorneys' fees, incurred by any party to this
Agreement as a result of any dispute arising under or related to this Agreement shall be awarded to the prevailing party. If there is no prevailing party, fees and costs may be awarded in the
discretion of the court which, in making such award, shall assess the relative good or bad faith of the parties throughout the dispute. 

        5.6    Successors and Assigns.    This Agreement shall inure to the benefit of and be binding upon the permitted
successors and assigns of the Company and each Holder; provided, however, that the Company may not assign this Agreement except by operation of law or to a purchaser of all or substantially all of its
business and assets; and provided further, that no Holder may assign this
Agreement except in connection with a transfer of Company Common Stock by such transferring Holder to a Permitted Transferee which thereupon signs an instrument agreeing to become a Holder with
respect to such shares of Company Common Stock. 

        5.7    Counterparts; Additional Parties.    This Agreement may be executed in counterparts, all of which together
shall constitute a single agreement. Prior to any Disposition of Company Common Stock to a Permitted Transferee, the transferor shall cause such Permitted Transferee to execute and deliver to the
Company and all of the Holders a supplemental agreement to this Agreement, in form and substance reasonably satisfactory to the Company and such other Holders, whereby such Permitted Transferee shall
agree to become a party to and be bound by all of the terms and conditions of this Agreement and confirm that all of the Company Common Stock to be acquired by such Permitted Transferee shall continue
to be subject to this Agreement. As promptly as practicable, the Company shall cause a fully executed counterpart of this Agreement or any supplemental agreement referred to in this Section to be
delivered to each Holder. 

        5.8    Term; Termination.    

        (a)   This
Agreement shall remain in effect for the maximum duration permitted by law and for so long as there is more than one Holder, unless terminated with the written
consent of all the parties. 

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        (b)   The
termination of this Agreement or any provision hereof shall not affect any action taken or agreement entered into prior to such termination or any liability under
any obligation previously incurred under this Agreement, all of which shall survive such termination. 

        5.9    Partial Invalidity.    Each provision of this Agreement shall be interpreted so as to render it valid and
enforceable under applicable law. A finding that any such provision is invalid or unenforceable in any jurisdiction or in any particular circumstance shall not affect its validity or enforceability
under the laws of any other jurisdiction or in any other circumstances, and shall have no effect on the other provisions of this Agreement. 

        5.10    Equitable Remedies.    Each Holder, by becoming a party to this Agreement, acknowledges and agrees that its
breach or nonperformance of any provision of this Agreement in accordance with the specific terms hereof would result in irreparable harm to the Company and to each other Holder for which money
damages would not provide an adequate remedy. Accordingly, each Holder (i) agrees that the Company and each other Holder shall be entitled to specific performance or injunctive or other
equitable relief against such Holder in the event of its breach or other non-performance
of any of the provisions of this Agreement; and (ii) waives any requirement for the securing or posting of any bond in connection with such remedy. 

        5.11    Cumulative Remedies.    Each party shall have and may exercise any or all rights and remedies it may have
available at law, in equity, or otherwise. All of the rights and remedies provided under this Agreement, and those it may have available at law, in equity, or otherwise, shall be cumulative and may be
exercised singularly or concurrently. Election to pursue any one or more remedy shall not exclude pursuit of any other remedy. 

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        IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. 

	SOUTHWEST WATER COMPANY,

a Delaware corporation	 	 
	

    	

 	
 	

 
	/s/  PETER J. MOERBEEK      
	 	 
	By:	    
	 	 
	Its:	CFO
	 	 
	

    	

 	
 	

 
	SW UTILITY COMPANY,

a Texas corporation	 	 
	

    	

 	
 	

 
	/s/  PETER J. MOERBEEK      
	 	 
	By:	    
	 	 
	Its:	President
	 	 
	

    	

 	
 	

 
	RTNT, INC.

a Texas corporation	 	 
	

    	

 	
 	

 
	/s/  THOM W. FARRELL      
	 	 
	By:	Thom W. Farrell
	 	 
	Its:	President
	 	 
	

    	

 	
 	

 
	THOM W. FARRELL	 	 
	

    	

 	
 	

 
	/s/  THOM W. FARRELL      
 Thom W. Farrell	 	 
	

    	

 	
 	

 
	WINDERMERE UTILITY COMPANY, INC.

a Texas corporation	 	 
	

    	

 	
 	

 
	/s/  THOM W. FARRELL      
	 	 
	By:	THOM W. FARRELL
	 	 
	Its:	President
	 	 

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   EXHIBIT A  

 HOLDER LIST  

	Holder
 
	 	Shares

	SW Utility Company

c/o Southwest Water Company

225 North Barranca Avenue, Suite 200

West Covina, California 91791-1605

Attention: Vice President of Finance

Telecopier: (626) 915-1558	 	464
	
RTNT, Inc.

3223 Park Hill Drive

Austin, Texas 78746

Attention: Thom Farrell

Telecopier:	
 	

116

12

 
EXHIBIT B  

 EXAMPLES OF SWC CHANGE OF CONTROL

PURCHASE OBLIGATION CALCULATIONS  

	General Assumptions:	 	Closing Price = $14.40	 	Market Price = $15.00

   

	Example 1.	Change of Control in Year One, annual Connection Count at or above SWC Budgeted Connection Count.
	

The discount to the Closing Price would be four dollars ($4.00) per share. The net share price after subtracting the $4.00 per-share discount would be $10.40. The number of shares of SWC Common Stock to be issued to RTNT for the purchase of RTNT's
116 remaining shares would be $6 million divided by $10.40 or 576,923 shares (rather than the 416,666 shares that would have been issued without the Year 1 discount).
	
Example 2.	

Change of Control in Year Two, annual Connection Count 15% below SWC Budgeted Connection Count.
	

The discount to the Closing Price would be One Dollar and Thirty Three Cents ($1.33) per share. The net share price after subtracting the $1.33 per-share discount would be $13.07. The number of shares of SWC Common Stock to be issued to RTNT for the
purchase of RTNT's 116 remaining shares would be $6 million divided by $13.07 or 459,066 shares.
	
Example 3.	

Change of Control in Year Three, annual Connection Count 5% below SWC Budgeted Connection Count.
	

The discount to the Market Price would be One Dollar and Fifty Cents ($1.50) per share. The net share price after subtracting the $1.50 per-share discount would be $13.50. The number of shares of SWC Common Stock to be issued to RTNT for the purchase
of RTNT's 116 remaining shares would be $6 million divided by $13.50 or 444,444 shares.

13

 
EXHIBIT C  

 BUDGETED CONNECTION COUNT  

14

 
EXHIBIT D  

 CALCULATION OF DISCOUNT

UPON SWC CHANGE OF CONTROL  

15

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Exhibit 4.11

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Exhibit 4.12  

 
 

SHAREHOLDERS AGREEMENT    
    

        This SHAREHOLDERS AGREEMENT, dated as of August 31, 2001 (this "Agreement"), by and among  OPERATIONS
TECHNOLOGIES, INC., a corporation organized under the laws of the State of Georgia (formerly known as OPT Acquisition
Subsidiary, Inc., a corporation organized under the laws of the State of Georgia) (the "Company"), SOUTHWEST WATER COMPANY, a corporation
organized under the laws of the State of Delaware ("Southwest"), and ROBERT W. MONETTE, an individual resident of the State of Georgia ("Monette"). 

STATEMENT OF FACTS:  

        Southwest owns ninety percent (90%), and Monette owns ten percent (10%), of the issued and outstanding common stock of the Company, as a result of the
consummation of the transactions contemplated by that certain Agreement and Plan of Merger, by and among Southwest, OPT Acquisition Subsidiary, Inc., a corporation organized under the laws of
the State of Georgia and predecessor-in-interest to the Company, Operations Technologies, Inc., a corporation organized under the laws of the State of Georgia and
predecessor-in-interest to the Company, Operations Technologies Shareholder Trust, a trust organized under the laws of the State of Georgia, and Monette, dated as of
August 31, 2001. 

        The
Company, Southwest and Monette desire to enter into this Agreement with respect to the ownership by Southwest and Monette of the common stock (the "Common Stock") of the Company. 

AGREEMENT  

        In consideration of the agreements contained herein, the Company, Southwest, and Monette agree as follows: 

        1.    General Transfer Restrictions.

        (a)   Monette
may not, without the consent of Southwest, which consent may be withheld in its sole discretion, sell, transfer, assign, pledge, hypothecate, or otherwise
dispose of any Common Stock or any interest (including beneficial interest) therein except as expressly permitted under this Agreement. 

        (b)   Southwest
may, at any time in its sole discretion, sell, transfer, assign, pledge or otherwise dispose of any Common Stock or any interest (including beneficial
interest) therein. 

        2.    Call Option.

        (a)   Southwest
may, at its sole option, at any time after the fifth (5th) anniversary of the date hereof, require Monette (and his successors or assigns) to
sell to Southwest all, but not less than all, of the Common Stock owned by Monette (and his successors or assigns). 

        (b)   Without
limiting in any way the rights of Southwest set forth in Section 2(a) above, Southwest may, at its sole option, at any time upon, and for a period of five
(5) years after (i) the termination for any reason of Monette's employment with the Southwest or any of its affiliates, (ii) a four (4) month continuous period of physical
or mental illness of Monette during which time Monette is disabled, (iii) the commencement of bankruptcy or insolvency proceedings by Monette individually, or (iv) Monette's death,
require Monette and his successors and assigns to sell to Southwest all, but not less than all, of the Common Stock owned by Monette and his successors and assigns. 

        (c)   Calculation
of Consideration. 

        (i)    If
Southwest exercises its call option pursuant to this Section 2 prior to the completion of four (4) consecutive fiscal quarters of the Company (the first
of such fiscal 

 

quarters
shall commence on October 1, 2001), the purchase price for the Common Stock owned by Monette pursuant to the provisions of this Section 2 shall be $1,000,000.00. If Southwest
exercises its call option pursuant to this Section 2 at or following the completion of four (4) consecutive fiscal quarters of the Company (the first of such fiscal quarters shall
commence on October 1, 2001), the purchase price for the Common Stock owned by Monette shall be the greater of (i) $1,000,000.00, or (ii) the product of (x) Company EBITA  multiplied by five, multiplied by (y) 0.1. As used herein, "Company EBITA" shall mean the net
income of the Company during the four (4) completed fiscal quarters immediately preceding the exercise of the call option by Southwest pursuant to this Section 2, plus to the extent such
charges are deducted in determining net income, (i) any interest on Indebtedness attributable to the Company, (ii) all income Taxes attributable to the Company, and (iii) any
amortization of goodwill and other intangibles attributable to the Company, all as calculated and determined in accordance with United States generally accepted accounting principles, consistently
applied ("GAAP"), and to the extent consistent with GAAP, in a manner consistent with the past accounting practices of Southwest. Prior to the sale, transfer, or delivery by Southwest to the Company
of any executory contracts by and between ECO Resources, Inc., a wholly-owned subsidiary of Southwest, and certain unrelated third parties (each, an "ECO Contract"), each of the Company and
Monette shall agree in writing as to the amount of the target EBITA with respect to the ECO Contract (the "Target EBITA"). To the extent that any Company EBITA is attributable to any ECO Contract,
there shall be deducted from the calculation of Company EBITA that amount of the Target EBITA with respect to each such ECO Contract. Any calculation of Company EBITA shall be performed and completed
by Southwest and the Company, and the results of such calculation shall be delivered to Monette. If Monette does not object in writing to Southwest and the Company to the results of such calculation
within ten (10) days of such delivery to Monette, the results of such calculation shall be final and binding upon Monette. In the event that Monette does object to the results of the
calculation of Company EBITA, then the parties shall resolve their dispute in accordance with Section 9(n) below. As used herein, "Indebtedness" shall mean (i) all indebtedness for
borrowed money or for the deferred purchase price of property or services (including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and
bankers' acceptances, whether or not matured), including the current portion of such indebtedness, and (ii) all obligations evidenced by notes, bonds, debentures or similar instruments. As used
herein, "Taxes" shall mean all tax (including income tax, capital gains tax, value added tax, sales tax, property tax, gift tax or estate tax), levy assessment, tariff, duty (including customs duty),
deficiency or other fee and any related charge or amount (including fine, penalty and interest) imposed, assessed or collected by or under the authority of any governmental or regulatory body. 

        (ii)   For
the purposes of determining Company EBITA, Company EBITA shall include a deduction for an amount equal to fifty percent (50%) of any amount paid to Monette by the
Company in accordance with the management performance award program of Southwest, as defined in and pursuant to the terms of that certain Employment Agreement by and between Southwest and Monette
dated as of August 31, 2001. 

        (iii)  For
the purposes of determining Company EBITA, Company EBITA may include a reasonable deduction for any direct or indirect allocations from Southwest with respect to
the Company. Direct allocations from Southwest with respect to the Company would be for expenses that were paid, or reimbursed, by Southwest on behalf of the Company (examples include, but are not
limited to, medical insurance payments, comprehensive liability insurance payments, direct reimbursements for payroll processing services, and payments for legal and accounting expenses relating to
Company operations). Indirect allocations from Southwest with respect to the Company would be for Southwest expenses that benefit Southwest that 

2

 

may
benefit the Company and the other subsidiaries of Southwest (examples include, but are not limited to, public company expenses, and expenses associated with corporate offices). For purposes of
determining Company EBITA, any indirect allocations of Southwest relating to the Company will be reasonably made on the same basis as any indirect allocation of Southwest relating to ECO
Resources, Inc., a Texas corporation and subsidiary of Southwest. 

        (d)   If
Southwest exercises its call option to purchase the Company Stock owned by Monette (and his successors or assigns) pursuant to this Section 2, Southwest shall
deliver written notice (the "Call Notice") to Monette (or his successors or assigns). The Call Notice shall set forth the number of shares of Common Stock to be acquired from Monette (and his
successors or assigns), the aggregate consideration to be paid for such shares, and the time and place for the closing of the transaction. Southwest will be entitled to receive customary
representations and warranties from Monette (and his successors and assigns) regarding the good title to such Common Stock, free from any liens, encumbrances or restrictions on sale. 

        (e)   The
closing of the call option set forth in this Section 2 shall take place on the date designated by Southwest in the Call Notice, which date shall not be more
than thirty (30) days and not less than ten (10) days after the delivery of the Call Notice. Southwest (or its assignee(s)) shall pay for the Common Stock owned by Monette (or his
successors and assigns) by delivery of cash or other immediately available funds in an amount equal to the purchase price of the Common Stock being acquired; provided that Southwest shall, at the
direction of Monette, pay up to one hundred percent (100%) of the purchase price for the Common Stock purchased by Southwest by delivery of a promissory note on terms mutually agreed upon by Southwest
and Monette, or in shares of common stock of Southwest. 

        (f)    In
the event that the Common Stock owned by Monette (and his successors and assigns) is purchased by Southwest pursuant to this Section 2, each of Southwest,
Monette, and their successors and assigns, will take all steps necessary and desirable to obtain all required third-party, governmental and regulatory consents and approvals and take all other actions
necessary and desirable to facilitate the consummation of such purchase in a timely manner. 

        3.    Put Option.

        (a)   Monette
may, at his sole option, at any time after the second (2nd) anniversary of the date hereof, require Southwest (and its successors or assigns) to
purchase from Monette all, but not less than all, of the Common Stock owned by Monette (and his successors or assigns). 

        (b)   Calculation of Consideration.

        (i)    The
purchase price for the Common Stock owned by Monette upon exercise by Monette of his put option pursuant to this Section 3 shall be the greater of
(i) $1,000,000.00 or (ii) the product of (x) Company EBITA multiplied by five, multiplied
by (y) 0.1. As used herein, "Company EBITA" shall mean the net income of the Company during the four (4) completed fiscal quarters immediately preceding the
exercise of the put option by Monette pursuant to this Section 3, plus to the extent such charges are deducted in determining net income, (i) any interest on Indebtedness attributable to
the Company, (ii) all income Taxes attributable to the Company, and (iii) any amortization of goodwill and other intangibles attributable to the Company, all as calculated and determined
in accordance with United States generally accepted accounting principles, consistently applied ("GAAP"), and to the extent consistent with GAAP, in a manner consistent with the past accounting
practices of Southwest. Prior to the sale, transfer, or delivery by Southwest to the Company of any executory contracts by and between ECO Resources, Inc., a wholly-owned subsidiary of
Southwest, and certain unrelated third parties (each, an "ECO Contract"), each of the Company and Monette shall agree in writing as to the amount of the target EBITA with 

3

 

respect
to the ECO Contract (the "Target EBITA"). To the extent that any Company EBITA is attributable to any ECO Contract, there shall be deducted from the calculation of Company EBITA that amount of
the Target EBITA with respect to each such ECO Contract. Any calculation of Company EBITA shall be performed and completed by Southwest and the Company, and the results of such calculation shall be
delivered to Monette. If Monette does not object in writing to Southwest and the Company to the results of such calculation within ten (10) days of such delivery to Monette, the results of such
calculation shall be final and binding upon Monette. In the event that Monette does object to the results of the calculation of Company EBITA, then the parties shall resolve their dispute in
accordance with Section 9(n) below. As used herein, "Indebtedness" shall mean (i) all indebtedness for borrowed money or for the deferred purchase price of property or services
(including, without limitation, reimbursement and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured), including the current portion
of such indebtedness, and (ii) all obligations evidenced by notes, bonds, debentures or similar instruments. As used herein, "Taxes" shall mean all tax (including income tax, capital gains tax,
value added tax, sales tax, property tax, gift tax or estate tax), levy assessment, tariff, duty (including customs duty), deficiency or other fee and any related charge or amount (including fine,
penalty and interest) imposed, assessed or collected by or under the authority of any governmental or regulatory body. 

        (ii)   For
the purposes of determining Company EBITA, Company EBITA shall include a deduction for an amount equal to fifty percent (50%) of any amount paid to Monette by the
Company in accordance with the management performance award program of Southwest, as defined in and pursuant to the
terms of that certain Employment Agreement by and between Southwest and Monette dated as of August 31, 2001. 

        (iii)  For
the purposes of determining Company EBITA, Company EBITA may include a reasonable deduction for any direct or indirect allocations from Southwest with respect to
the Company. Direct allocations from Southwest with respect to the Company would be for expenses that were paid, or reimbursed, by Southwest on behalf of the Company (examples include, but are not
limited to, medical insurance payments, comprehensive liability insurance payments, direct reimbursements for payroll processing services, and payments for legal and accounting expenses relating to
Company operations). Indirect allocations from Southwest with respect to the Company would be for Southwest expenses that benefit Southwest that may benefit the Company and the other subsidiaries of
Southwest (examples include, but are not limited to, public company expenses, and expenses associated with corporate offices). For purposes of determining Company EBITA, any indirect allocations of
Southwest relating to the Company will be reasonably made on the same basis as any indirect allocation of Southwest relating to ECO Resources, Inc., a Texas corporation and subsidiary of
Southwest. 

        (c)   If
Monette exercises his put option to cause Southwest to purchase the Company Stock owned by Monette (and his successors or assigns) pursuant to this Section 3,
Monette shall deliver written notice (the "Put Notice") to Southwest (or its successors or assigns). The Put Notice shall set forth the number of shares of Common Stock to be acquired from Monette
(and his successors or assigns), a request that the Company and Southwest complete the Company EBITA calculations described in Section 3(b) above, and the proposed time and place for the
closing of the transaction. Southwest will be entitled to receive customary representations and warranties from Monette (and his successors and assigns) regarding the good title to such Common Stock,
free from any liens, encumbrances or restrictions on sale. 

        (d)   The
closing of the put option set forth in this Section 3 shall take place on the date designated by Monette in the Put Notice, which date shall not be more than
thirty (30) days and not less than ten (10) days after the delivery of the Put Notice. Southwest (or its assignee(s)) shall 

4

 

pay
for the Common Stock owned by Monette (or his successors and assigns) by delivery of cash or other immediately available funds in an amount equal to the purchase price of the Common Stock being
acquired; provided that Southwest shall, at the direction of Monette, pay up to one hundred percent (100%) of the purchase price for the Common Stock purchased by Southwest by delivery of a promissory
note on terms mutually agreed upon by Southwest and Monette, or in shares of common stock of Southwest. 

        (e)   In
the event that the Common Stock owned by Monette (and his successors and assigns) is purchased by Southwest pursuant to this Section 3, each of Southwest,
Monette, and their successors and assigns, will take all steps necessary and desirable to obtain all required third-party, governmental
and regulatory consents and approvals and take all other actions necessary and desirable to facilitate the consummation of such purchase in a timely manner. 

        4.    Mutual Put/Call Option.

        (a)   In
the event (i) of a Change of Control of Southwest prior to the second (2nd) anniversary of the date hereof, (ii) of Monette's death,
(iii) Monette, due to physical or mental illness, shall become disabled (as defined in and pursuant to the terms of that certain Employment Agreement by and between Southwest and Monette dated
as of August 31, 2001) for a continuous period of four (4) months, or (iv) Monette is terminated from his employment with Southwest for "cause" (as defined in that certain
Employment Agreement by and between Southwest and Monette dated as of August 31, 2001), either (A) Southwest may, at its sole option, require Monette (and his successors or assigns) to
sell to Southwest all, but not less than all, of the Common Stock owned by Monette (and his successors or assigns), or (B) Monette may, at his sole option, require Southwest (and its successors
or assigns) to purchase from Monette all, but not less than all, of the Common Stock owned by Monette (and his successors or assigns). 

        (b)   As
used in this Section 4: 

        (i)    "Change
of Control of Southwest" shall mean (i) the sale of all, or substantially all, of Southwest's consolidated assets in any single transaction or series of
related transactions, (ii) the sale or issuance, or series of related sales or issuances, of capital stock possessing the ordinary voting power (on a fully-diluted basis) to elect a majority of
the Board of Directors of Southwest to an Independent Third Party or a group of affiliated Independent Third Parties, or (iii) any merger or consolidation of Southwest with or into another
corporation (regardless of which entity is the surviving corporation) if, after giving effect to such merger or consolidation the holders of Southwest's voting securities (on a fully-diluted basis)
immediately prior to the merger or consolidation own voting securities of the surviving or resulting corporation representing less than a majority of the ordinary voting power to elect directors of
the surviving or resulting corporation (on a fully-diluted basis). 

        (ii)   "Independent
Third Party" means any Person who, immediately prior to the contemplated transaction, does not own in excess of five percent (5%) of the capital stock of
Southwest on a fully-diluted basis, who is not controlling, controlled by or under common control with any such five percent (5%) owner of the capital stock of Southwest and who is not the spouse,
ancestor or descendant (by birth or adoption) of any such five percent (5%) owner of the capital stock of Southwest. 

        (iii)  "Person"
means an individual, a partnership, a corporation, a limited liability company, an association, a joint stock company, a trust, a joint venture, an
unincorporated organization or a governmental entity (or any department, agency or political subdivision thereof). 

        (c)   Calculation of Consideration.

5

 

        (i)    If
a Change of Control of Southwest is consummated prior to the completion of four (4) consecutive fiscal quarters of the Company (the first of such fiscal
quarters shall commence on October 1, 2001), the purchase price for the Common Stock owned by Monette pursuant to the provisions of this Section 4 shall be $1,000,000.00. If a Change of
Control of Southwest is consummated at or following the completion of four (4) consecutive fiscal quarters of the Company (the first of such fiscal quarters shall commence on October 1,
2001), the purchase price for the Common Stock owned by Monette pursuant to the provisions of this Section 4 shall be the greater of (i) $1,000,000.00, or (ii) the product of
(x) Company EBITA multiplied by five, multiplied by (y) 0.1. As used herein, "Company
EBITA" shall mean the net income of the Company during the four (4) completed fiscal quarters immediately preceding the exercise of the call option by Southwest, or put option by Monette, as
the case may be, pursuant to this Section 4, plus to the extent such charges are deducted in determining net income, (i) any interest on Indebtedness attributable to the Company,
(ii) all income Taxes attributable to the Company, and (iii) any amortization of goodwill and other intangibles attributable to the Company, all as calculated and determined in
accordance with United States generally accepted accounting principles, consistently applied ("GAAP"), and to the extent consistent with GAAP, in a manner consistent with the past accounting practices
of Southwest. Prior to the sale, transfer, or delivery by Southwest to the Company of any executory contracts by and between ECO Resources, Inc., a wholly-owned subsidiary of Southwest, and
certain unrelated third parties (each, an "ECO Contract"), each of the Company and Monette shall agree in writing as to the amount of the target EBITA with respect to the ECO Contract (the "Target
EBITA"). To the extent that any Company EBITA is attributable to any ECO Contract, there shall be deducted from the calculation of Company EBITA that amount of the Target EBITA with respect to each
such ECO Contract. Any calculation of Company EBITA shall be performed and completed by Southwest and the Company, and the results of such calculation shall be delivered to Monette. If Monette does
not object in writing to Southwest and the Company to the results of such calculation within ten (10) days of such delivery to Monette, the results of such calculation shall be final and
binding upon Monette. In the event that Monette does object to the results of the calculation of Company EBITA, then the parties shall resolve their dispute in accordance with Section 9(n)
below. As used herein, "Indebtedness" shall mean (i) all indebtedness for borrowed money or for the deferred purchase price of property or services (including, without limitation, reimbursement
and all other obligations with respect to surety bonds, letters of credit and bankers' acceptances, whether or not matured), including the current portion of such indebtedness, and (ii) all
obligations evidenced by notes, bonds, debentures or similar instruments. As used herein, "Taxes" shall mean all tax (including income tax, capital gains tax, value added tax, sales tax, property tax,
gift tax or estate tax), levy assessment, tariff, duty (including customs duty), deficiency or other fee and any related charge or amount (including fine, penalty and interest) imposed, assessed or
collected by or under the authority of any governmental or regulatory body. 

        (ii)   For
the purposes of determining Company EBITA, Company EBITA shall include a deduction for an amount equal to fifty percent (50%) of any amount paid to Monette by the
Company in accordance with the management performance award program of Southwest, as defined in and pursuant to the terms of that certain Employment Agreement by and between Southwest and Monette
dated as of August 31, 2001. 

        (iii)  For
the purposes of determining Company EBITA, Company EBITA may include a reasonable deduction for any direct or indirect allocations from Southwest with respect to
the Company. Direct allocations from Southwest with respect to the Company would be for expenses that were paid, or reimbursed, by Southwest on behalf of the Company (examples include, but are not
limited to, medical insurance payments, comprehensive liability insurance 

6

 

payments,
direct reimbursements for payroll processing services, and payments for legal and accounting expenses relating to Company operations). Indirect allocations from Southwest with respect to the
Company would be for Southwest expenses that benefit Southwest that may benefit the Company and the other subsidiaries of Southwest (examples include, but are not limited to, public company expenses,
and expenses associated with corporate offices). For purposes of determining Company EBITA, any indirect allocations of Southwest relating to the Company will be reasonably made on the same basis as
any indirect allocation of Southwest relating to ECO Resources, Inc., a Texas corporation and subsidiary of Southwest. 

        (d)   If
Monette exercises his option to cause Southwest to purchase the Company Stock owned by Monette (and his successors or assigns), or Southwest exercises its option to
purchase the Company Stock owned by Monette (and his successors or assigns), pursuant to Section 4, either Southwest or Monette, as the case may be, shall deliver written notice (the "Change of
Control Purchase Notice") to the other (or its successors or assigns). The Change of Control Purchase Notice shall set forth (i) the number of shares of Common Stock to be acquired from Monette
(and his successors or assigns), (ii) (x) if delivered by Monette, a request that the Company and Southwest complete the Company EBITA calculations described in Section 4(c)
above, or (y) if delivered by Southwest, the aggregate consideration to be paid for such shares, and (iii) the proposed time and place for the closing of the transaction. Southwest will
be entitled to receive customary representations and warranties from Monette (and his successors and assigns) regarding the good title to such Common Stock, free from any liens, encumbrances or
restrictions on sale. 

        (e)   The
closing of the purchase option set forth in this Section 4 shall take place on the date designated in the Change of Control Purchase Notice, which date shall
not be more than sixty (60) days prior to, and not more than sixty (60) days after, the date upon which the Change of Control of Southwest is intended to occur, or in fact occurs, as the
case may be. Southwest (or its assignee(s)) shall pay for the Common Stock owned by Monette (or his successors and assigns) by delivery of cash or other immediately available funds in an amount equal
to the purchase price of the Common Stock being acquired; provided that Southwest shall, at the direction of Monette, pay up to one hundred percent (100%) of the purchase price for the Common Stock
purchased by Southwest by delivery of a promissory note on terms mutually agreed upon by Southwest and Monette, or in shares of common stock of Southwest. 

        (f)    In
the event that the Common Stock owned by Monette (and his successors and assigns) is purchased by Southwest pursuant to this Section 4, each of Southwest,
Monette, and their successors and assigns, will take all steps necessary and desirable to obtain all required third-party, governmental
and regulatory consents and approvals and take all other actions necessary and desirable to facilitate the consummation of such purchase in a timely manner. 

        5.    Shareholders' Representations and Warranties, and Covenants.

        (a)   Each
of Southwest and Monette represents and warrants to the other that he or it is not a party to any agreement with respect to the voting or transfer of the Common
Stock, other than this Agreement, and that he or it is the beneficial owner of the Common Stock as set forth on Annex I hereto. 

        (b)   For
so long as Monette is a holder of ten percent (10%) of the Common Stock of the Company, each of Southwest and Monette agree to vote their shares of Common Stock to
elect Monette a Director of the Company. 

        6.    Dividends.

        Holders
of the Common Stock of the Company shall be entitled to receive dividends, when and as declared by the Board of Directors, but only out of funds that are legally available
therefor. Each of 

7

 

Southwest
and Monette expressly acknowledge and agree that the Board of Directors of the Company shall not be required to declare dividends on any of the Common Stock. 

        7.    Legend.

        The
Company, Southwest and Monette agree that each certificate representing the Common Stock now or hereafter held by a holder of Common Stock shall be endorsed with a legend in
substantially the following form: 

"The
shares represented by this certificate are subject to a certain Shareholders Agreement, dated as of August 31, 2001, which provides, among other things, for certain restrictions on the
transfer of such shares. A copy of such Agreement is on file at the principal offices of Operations Technologies, Inc. and will be furnished upon request to any holder of the shares represented
by this certificate." 

        8.    Specific Enforcement.

        Each
party shall be entitled to specific enforcement of its rights under this Agreement. The parties acknowledge that money damages would be an inadequate remedy for a breach of this
Agreement and consent to an action for specific performance or other injunctive relief in the event of any such breach without the posting of any bond or providing any additional security. 

        9.    Miscellaneous.

        (a)   Notices. All notices, consents, requests, demands and other communications hereunder are to be in writing, and are deemed
to have been duly given or made: (a) when delivered in person; (b) ten (10) days after deposited by mail, first class postage prepaid; (c) in the case of telegraph or
express courier services, three (3) business days after delivery to the telegraph company or overnight courier service with payment provided for; or (d) in the case of telex or telecopy,
when sent, verification received, in each case addressed as follows: 

If
to the Company: 

Operations
Technologies, Inc.

c/o Southwest Water Company

225 North Barranca Avenue

Suite 200

West Covina, California 91791-1605 

and
in the case of Southwest or Monette, to the address of such party appearing under his or its name on Annex I hereto (or to such other address
as may be designated in writing by any such party to each of the others of such parties given in accordance with this Section 10(a)). A document signed and transmitted by facsimile machine or
telecopier shall be deemed sufficient notice. The signature of any party thereon, for purposes hereof, is to be considered as an original signature, and the document transmitted is to be considered to
have the same binding effect as an original signature on an original document. At the request of any party, any facsimile or telecopy document is to be re-executed in original form by the
parties who executed the facsimile or telecopy document. No party may raise the use of a facsimile machine or telecopier or the fact that any signature was transmitted through the use of a facsimile
or telecopier machine as a defense to the enforcement of this Agreement or any notice required thereof. 

        (b)   Complete Agreement. This Agreement constitutes the complete understanding of the parties with respect to its subject
matter and supersedes any other agreement or understanding relating thereto. 

8

 

        (c)   Amendment. No amendment, change or modification of this Agreement shall be valid, binding or enforceable, unless the same
shall be in writing and signed by the Company and the holders of at least ninety-one percent (91%) of the Common Stock. 

        (d)   Termination. This Agreement may be terminated at any time by an instrument in writing signed by the Company and the
holders of at least ninety-one percent (91%) of the Common Stock. 

        (e)   Waiver. No failure or delay on the part of Southwest, Monette, or the Company or any of them in exercising any right,
power or privilege hereunder, and no course of dealing between Southwest, Monette, or the Company, shall operate as a waiver thereof nor shall any single or partial exercise of any right, power or
privilege hereunder preclude the simultaneous or later exercise of any other right, power or privilege. The rights and remedies herein expressly provided are cumulative and not exclusive of any rights
and remedies which Southwest, Monette, or the Company would otherwise have. 

        (f)    Counterparts. This Agreement may be executed in counterparts, each of which shall be deemed to be an original, but all of
which together shall constitute but one and the same instrument. 

        (g)   Governing Law. This Agreement will be governed by the laws of the State of Georgia without regard to conflicts of laws
principles. 

        (h)   Jurisdiction; Service of Process. Subject to the provisions of Section 9(n) below, any action or proceeding
seeking to enforce any provision of, or based on any right arising out of, this Agreement may be brought against any of the parties in the courts of the State of Georgia, City of Atlanta, or, if it
has or can acquire jurisdiction, in the United States District Court for the Northern District of Georgia, and each of the parties consents to the jurisdiction of such courts (and of the appropriate
appellate courts) in any such action or proceeding and waives any objection to venue laid therein. Process in any action or proceeding referred to in the preceding sentence may be served on any party
anywhere in the world. 

        (i)    Specific Performance. Each of the parties acknowledges and agrees that the other party would be damaged irreparably in
the event any of the provisions of this Agreement are not performed in
accordance with their specific terms or otherwise are breached. Accordingly, each of the parties agrees that the other party shall be entitled to an injunction or injunctions to prevent breaches of
the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court of the United States or any state thereof having,
in accordance with the terms of this Agreement, jurisdiction over the parties and the matter, in addition to any other remedy to which it may be entitled, at law or in equity. 

        (j)    Benefit and Binding Effect. All of the terms and provisions of this Agreement shall inure to the benefit of and be
binding upon the parties hereto and their respective successors and assigns. 

        (k)   Severability. Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective
and valid under applicable law, but if any provision of this Agreement is 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 this Agreement. 

        (l)    After-Acquired Shares. All of the provisions of this Agreement shall apply to all of the shares of Common Stock of the
Company now owned or which may be issued to or acquired by Southwest or Monette in consequence of any additional issuance (including, without limitation, by exercise of an option or any warrant),
purchase, exchange, conversion or reclassification of stock, 

9

 

corporate
reorganization, or any other form of recapitalization, consolidation, merger, stock split or stock dividend, or which are acquired by Southwest or Monette in any other manner. 

        (m)  Approvals and Consents. Southwest and Monette hereby agree, for themselves, their successors, heirs and legal
representatives, to vote at shareholders' and directors' meetings of the Company (as the case may be), to prepare, execute and deliver or cause to be prepared, executed and delivered such further
instruments and documents, to take such other actions and to adopt such provisions of the Articles of Incorporation and Bylaws of the Company as may be reasonably required to more effectively carry
out the intent and purposes of this Agreement and the transactions contemplated hereby. They further agree to cause the Company to do the same. 

        (n)   Arbitration. Except as otherwise set forth in this Agreement, all disputes arising out of or under this Agreement shall
be settled by arbitration in a location in the city of Atlanta, Georgia mutually acceptable to the parties before a single arbitrator pursuant to the rules of the American Arbitration Association.
Arbitration may be commenced at any time by any of the parties by giving written notice to each other than such dispute has been referred to arbitration under this Section 9(n). The arbitrator
shall be selected by the joint agreement of the parties, but if they do not so agree within twenty (20) days after the date of receipt of the notice referred to above, the selection shall be
made pursuant to the rules from the panels of arbitrators maintained by the American Arbitration Association. In any such arbitration, the Georgia Rules of Evidence and the Georgia Rules of Civil
Procedure shall apply.
Any award rendered by the arbitrator shall be conclusive and binding upon the parties hereto; provided, however, that any such award shall be accompanied by a written opinion of the arbitrator giving
the reason for the award. This provision for arbitration shall be specifically enforceable by the parties and the decision of the arbitrator in accordance herewith shall be final and binding and there
shall be no right of appeal therefrom. The arbitrator shall assess, as part of his award to the prevailing party, all or such part as the arbitrator deems proper of the arbitration expenses of the
prevailing party (including reasonable attorneys' fees) and of the arbitrator against the party that is unsuccessful in such claim, defense or objection. The parties shall have the right to seek
enforcement of any such award provided pursuant to this Section 9(n) pursuant to Section 9(h) and Section 9(i) of this Agreement. 

10

 

IN
WITNESS WHEREOF, the parties hereto have executed this Agreement as of the day and year first above written. 

	

 	

 	

 
	 	Company:
	

 	

 	

 
	 	Operations Technologies, Inc.
	

 	

 	

 
	 	By:	/s/  PETER J. MOERBEEK       
 Peter J. Moerbeek

President
	

 	

 	

 
	 	Monette:
	

 	

 	

 
	 	/s/  ROBERT W. MONETTE       
 Robert W. Monette
	

 	

 	

 
	 	Southwest:
	

 	

 	

 
	 	Southwest Water Company
	

 	

 	

 
	 	By:	/s/  ANTON C. GARNIER       
 Anton C. Garnier

President and Chief Executive Officer

 
 
 

ANNEX I    
    

	Shareholders
	 	Class of Securities
	 	Number of Shares

	Southwest Water Company

225 North Barranca Avenue

Suite 200

West Covina, California 91791-1605	 	Common Stock	 	900
	

 	
 	

 	
 	

 
	Robert W. Monette

1536 Dunwoody Village Parkway

Suite 245

Atlanta, Georgia 30338	 	Common Stock	 	100

QuickLinks

SHAREHOLDERS AGREEMENT

ANNEX I

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