Exhibit 10.4

Execution Version

PLEDGE AND SECURITY AGREEMENT

GLOBAL WATER RESOURCES, INC.

THIS PLEDGE AND SECURITY AGREEMENT (this “Agreement”) dated as of June 24, 2016,
by and among GLOBAL WATER RESOURCES, INC., a Delaware corporation, whose address
for notice is 21410 North 19th Avenue, Suite 220, Phoenix, AZ 85027 (“Pledgor”),
is in favor of U.S. Bank National Association, a national banking association,
whose address for notice is 101 North First Avenue, Suite 1600, Phoenix, Arizona
85003, Attention: M. Ambriz-Reyes (Global Water Resources, Inc.), in its
capacity as collateral agent for the benefit of the Note holders (together with
its successors and permitted assigns in such capacity, the “Collateral Agent”)
pursuant to that certain Collateral Agency Agreement dated as of June 24, 2016
between the Collateral Agent, the Purchasers and Global Water Resources, Inc., a
Delaware corporation (the “Company”).

PRELIMINARY STATEMENT

WHEREAS, the Pledgor and the Purchasers are parties to that certain Note
Purchase Agreement, dated as of May 20, 2016 (as the same may be supplemented,
amended, restated or otherwise modified from time to time, the “Note
Agreement”), pursuant to which the Purchasers have committed to purchase Notes
from the Pledgor in the amount of $115,000,000, consisting of $28,750,000
aggregate principal amount of 4.38% Senior Secured Notes, Series A, due June 15,
2028 and $86,250,000 aggregate principal amount of 4.58% Senior Secured Notes,
Series B, due June 15, 2036; and

WHEREAS, pursuant to those certain Guaranty Agreements (the “Guaranty
Agreements”) dated as of June 24, 2016 each of Global Water LLC, a Delaware
limited liability company and West Maricopa Combine, Inc., an Arizona
corporation have guaranteed the obligations of the Company under the Note
Agreement and Notes; and

WHEREAS, the Pledgor is the owner and holder of the shares of stock, limited
liability company interests or other Equity Interests (as defined below) of the
Persons described in Schedule I attached hereto (the “Pledged Companies”); and

WHEREAS, it is a condition precedent to the obligations of the Purchasers to
purchase the Notes under the Note Agreement that the Pledgor shall have executed
and delivered this Agreement to the Collateral Agent for the benefit of the
Secured Parties; and

WHEREAS, the Pledgor desires to execute this Agreement in order to satisfy such
condition precedent and to secure its obligations under the Note Agreement.

NOW THEREFORE, in consideration of the premises and in order to induce the
Purchasers to purchase the Notes, each of the Pledgor and the Collateral Agent
hereby agrees as follows:

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SECTION 1. DEFINED TERMS.

(a) Each capitalized term used herein (including in the introductory paragraph
and recitals hereof) and not defined herein shall have the meaning assigned to
such term in the Note Agreement.

(b) “ACC Regulations” means the applicable regulations, orders and requirements
of the Arizona Corporation Commission and applicable statutes administered by
the Arizona Corporation Commission.

(c) “Applicable Law” means all applicable laws, including all applicable
provisions of constitutions, statutes, rules, ordinances, regulations and orders
of all Governmental Authorities and all orders, rulings, writs and decrees of
all courts, tribunals and arbitrators.

(d) “Equity Interests” means with respect to any Person, all the shares of
capital stock of (or other ownership or profit interests in) such Person, all of
the warrants, options or other rights for the purchase or acquisition from such
Person of shares of capital stock of (or other ownership or profit interests in)
such Person, all of the securities convertible into or exchangeable for shares
of capital stock of (or other ownership or profit interests in) such Person or
warrants, rights or options for the purchase or acquisition from such Person of
such shares (or such other interests), and all of the other ownership or profit
interests in such Person (including partnership, member or trust interests
therein), whether voting or nonvoting, and whether or not such shares, warrants,
options, rights or other interests are outstanding on any date of determination.

(e) “Indemnified Liabilities” means, collectively, any and all liabilities,
obligations, losses, damages, penalties, claims (including claims under
Environmental Laws), actions, judgments, suits, costs (including the reasonable
costs of any investigation, study, sampling, testing, abatement, cleanup,
removal, remediation or other response action necessary to remove, remediate,
clean up or abate any Hazardous Materials), expenses and disbursements of any
kind or nature whatsoever (including the reasonable fees and disbursements of
counsel for Indemnitees in connection with any investigative, administrative or
judicial proceeding or hearing commenced or threatened by any Person, whether or
not any such Indemnitee shall be designated as a party or a potential party
thereto, and any reasonable fees or expenses incurred by Indemnitees in
enforcing this indemnity), whether direct or indirect and whether based on any
Applicable Laws, including Environmental Laws), on common law or equitable cause
or on contract or otherwise, that may be imposed on, incurred by, or asserted
against any such Indemnitee (regardless of whether any Indemnitee is a party
thereof), in any manner relating to or arising out of (i) this Agreement or the
other Note Documents or the transactions contemplated hereby or thereby
(including the use or intended use of the proceeds of the Notes, or any
enforcement of any of the Note Documents (including any sale of, collection
from, or other realization upon any of the Collateral)); or (ii) any claim under
Environmental Laws or any Hazardous Materials liability relating to or arising
from, directly or indirectly, any past or present activity, operation, land
ownership, or practice of the Pledgor or any of its Subsidiaries.

(f) “Pledged Company” has the meaning set forth in the recitals.

 

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(g) “Specified Account” means the segregated account of the Pledgor, maintained
with Wells Fargo Bank, N.A., with the last four digits of such account number
being 5456, established to receive payments of dividends and distributions on
Equity Interests owned by the Pledgor, and any and all replacements or
substitutions for such account established by the Pledgor, whether in the form
of a deposit account or securities account. For the avoidance of doubt, a
“Specified Account” shall not include any “collection account”, deposit account,
securities account or any other account in which the revenues of the regulated
utilities are remitted or consolidated.

(h) The term “UCC” means the Uniform Commercial Code as in effect on the date
hereof in the State of New York; provided that if by mandatory provisions of
law, the perfection or the effect of perfection or non-perfection of the
security interests granted pursuant to Section 2 hereof, as well as all other
security interests created or assigned as additional security for the Secured
Obligations (as defined below in Section 2(c)) pursuant to the provisions of
this Agreement, in any Collateral is governed by the UCC as in effect in any
other jurisdiction other than the State of New York, “UCC” means the UCC as in
effect in such other jurisdiction for purposes of the provisions hereof relating
to such perfection or effect of perfection or non-perfection.

SECTION 2. PLEDGE AND GRANT OF SECURITY INTEREST.

(a) To secure the Secured Obligations (as defined in Section 2(c) below) Pledgor
grants to the Collateral Agent, for the benefit of the Secured Parties, a lien
on and security interest in, and acknowledges and agrees that the Collateral
Agent has and shall continue to have a continuing lien on and security interest
in, all right, title and interest of the Pledgor, whether now owned or existing
or hereafter created, acquired or arising, and regardless of where located, in
and to all of the following, (all of the same, collectively, the “Collateral”):

(i) all Equity Interests, including all shares, ownership, economic and
management interests, and/or partnership interests in any Person owned or held
by Pledgor (ii) any and all payments and distributions of whatever kind or
character, whether in cash or other property, at any time made, owing or payable
to Pledgor in respect of or on account of its present or hereafter acquired
Equity Interests, whether due or to become due and whether representing profits,
distributions pursuant to complete or partial liquidation or dissolution of the
issuer of such Equity Interests, distributions representing the complete or
partial redemption of Pledgor’s Equity Interests in any Person or the complete
or partial withdrawal of Pledgor from any Person, repayment of capital
contributions made to or with respect to any Person in respect of Equity
Interests in such Person held by Pledgor and the right to receive, receipt for,
use, and enjoy all such payments and distributions, and (iii) all other rights
and privileges incident to Pledgor’s interest in such Equity Interests,
provided, that prior to the occurrence of an Event of Default, the Pledgor shall
retain certain rights as described in Section 7 below;

(ii) the Specified Account;

 

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(iii) all interest, dividends, cash, instruments, investment property, general
intangibles and other property from time to time received, receivable or
otherwise payable in respect of, or in exchange for, any or all of the
foregoing;

(iv) supporting evidence and documents relating to any of the above-described
property, including, without limitation, computer programs, disks, tapes,
electronic archives, clouds and related electronic data processing media, and
all rights of the Pledgor to retrieve the same from third parties, written
applications, credit information, account cards, payment records,
correspondence, delivery and installation certificates, invoice copies, delivery
receipts, notes, and other evidences of indebtedness, insurance certificates and
the like, together with all books of account, ledgers, and cabinets in which the
same are reflected or maintained; and

(v) to the extent not covered by clauses (i) through (iii) above, all “proceeds”
(as defined in UCC) of any or all of the foregoing.

(b) The Collateral Agent shall have with respect to the Collateral, in addition
to the rights and remedies set forth herein, in the Notes, the Note Agreement,
the Guaranty Agreements and in the other Note Documents, all of the rights and
remedies available to a secured party under the UCC, as if such rights and
remedies were fully set forth herein.

(c) The lien and security interest herein granted and provided for is made and
given to secure, and shall secure, the payment and performance of (i) any and
all indebtedness, obligations, and liabilities of whatsoever kind and nature of
the Pledgor to the Collateral Agent and the other Secured Parties under the
Notes, the Note Agreement, the Guaranty Agreements and the other Note Documents
(whether arising before or after the filing of a petition in bankruptcy),
whether direct or indirect, absolute or contingent, due or to become due, and
whether now existing or hereafter arising and howsoever held, evidenced, or
acquired, and whether several, joint, or joint and several and (ii) any and all
expenses and charges, legal or otherwise, suffered or incurred by any of the
Secured Parties in collecting or enforcing any of such indebtedness,
obligations, or liabilities or in realizing on or protecting or preserving any
security therefor, including, without limitation, the lien and security interest
granted hereby (all of the foregoing being hereinafter referred to as the
“Secured Obligations”).

(d) For the avoidance of doubt and notwithstanding anything herein, or in the
Note Agreement, the Guaranty Agreements, the Notes or any other Note Documents,
to the contrary, (i) no Subsidiary of the Pledgor that is a regulated utility is
a borrower or guarantor under any Note Document, nor is any such Subsidiary
pledging any of its property or assets as collateral for the Secured
Obligations, and (ii) no regulated utility may declare distributions or
dividends to its equity holders, except in accordance with applicable law
(including ACC Regulations), and subject to each regulated utility’s obligations
to maintain revenues and funds sufficient to fund direct and indirect operating
and maintenance expenses (including general and administrative expenses and
further including all reasonable and necessary costs, fees and expenses for
operation and maintenance of the system utilities), fees and expenses.

 

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SECTION 3. DELIVERY OF CERTIFICATES OR INSTRUMENTS.

All certificates or instruments representing or evidencing the Collateral, if
any, shall be delivered to and held by or on behalf of the Collateral Agent, for
the benefit of the Secured Parties pursuant hereto and shall be in suitable form
for transfer by delivery, or shall be accompanied by duly executed instruments
of transfer or assignment in blank, all in form reasonably satisfactory to the
Collateral Agent and in form and substance reasonably satisfactory to the
Required Holders. Upon the occurrence and during the continuance of any Event of
Default, the Collateral Agent shall have the right, at any time in its sole
discretion and without notice to the Pledgor, to transfer to or to register in
the name of the Collateral Agent or any of its nominees any or all of the
Collateral, subject only to the revocable rights specified in Section 7(a)
hereof and further subject to compliance with the ACC Regulations. In addition,
upon the occurrence and during the continuance of any Event of Default, the
Collateral Agent shall have the right at any time to exchange certificates or
instruments representing or evidencing Collateral for certificates or
instruments of smaller or larger denominations.

SECTION 4. SPECIFIED ACCOUNT COLLATERAL.

(a) The Pledgor has established the Specified Account as a deposit account
(within the meaning of Section 9-102 of the UCC), with Wells Fargo Bank, N.A.
Pledgor shall promptly notify the Collateral Agent of any other Specified
Account opened or maintained by the Pledgor after the date hereof. To the extent
requested by the Collateral Agent following the occurrence and continuation of
any Default or the occurrence of any Event of Default under any Note Document,
Pledgor shall, and shall cause the applicable depository or other institution
to, execute and deliver to the Collateral Agent an account control agreement in
form reasonably satisfactory to the Collateral Agent and in form and substance
reasonably satisfactory to the Required Holders which provides, among other
things, for the depository or other institution’s agreement that it will comply
with: (i) instructions originated by the Collateral Agent directing the
disposition of the funds in each such Designated Account that is a deposit
account or (ii) entitlement orders originated by the Collateral Agent with
respect to each such Specified Account that is a securities account, in each
case, without further consent by such Pledgor. Notwithstanding the foregoing,
any account control agreement which requires the Collateral Agent in its
individual capacity to indemnify the depository or other institution other than
out of the Collateral shall not be deemed to be reasonably satisfactory to the
Collateral Agent.

(b) Subject to Section 2(d) hereof, Pledgor covenants and agrees that upon
declaration and payment of any dividend or distribution by any Subsidiary, it
will cause such dividend or distribution to be paid and segregated into the
Specified Account. Prior to the occurrence and continuance of an Event of
Default, amounts so deposited in the Specified Account may be withdrawn and used
for corporate purposes, including investments in or loans to Subsidiaries
permitted under the Note Agreement.

SECTION 5. REPRESENTATIONS, WARRANTIES AND CERTAIN COVENANTS.

The Pledgor represents, warrants and covenants as follows:

 

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(a) The Equity Interests have been duly authorized and validly issued and are
fully paid and non-assessable. With respect to any Equity Interests constituting
interests in limited liability companies, none of such Equity Interests
constitute or are evidenced by “certificated securities”, unless such
certificates have been delivered to the Collateral Agent.

(b) The Pledgor is the legal and beneficial owner of the Collateral free and
clear of any Lien or other encumbrance except for the Lien created by this
Agreement and Liens created in favor of the Collateral Agent. There is no
existing agreement, option, right or privilege capable of becoming an agreement
or option pursuant to which the Pledgor would be required to sell or otherwise
dispose of any Equity Interest.

(c) Except for the delivery of certificates or instruments representing the
Collateral (if any) to the Collateral Agent pursuant to this Agreement, and the
filing of an appropriate financing statement with the Delaware Secretary of
State, and any control agreement contemplated by Section 4(a) above, no other
action is required to create or maintain the Lien of the Collateral Agent as a
valid and perfected first priority Lien in the Collateral, to secure the Secured
Obligations.

(d) No authorization, approval, or other action by, and no notice to or filing
with, any governmental authority or regulatory body (except as set forth in
paragraph (c) above) is required either (i) for the pledge by the Pledgor of the
Collateral pursuant to this Agreement or for the execution, delivery or
performance of this Agreement by the Pledgor or (ii) for the exercise by the
Collateral Agent of its rights and the rights of the Secured Parties provided
for in this Agreement or the remedies in respect of the Collateral pursuant to
this Agreement (except as may be required in connection with such disposition by
laws affecting the offering and sale of securities generally and except for
compliance with applicable requirements of the ACC regulations as set forth in
Section 7(b) and Section 8 hereof).

(e) The execution, delivery and performance of this Agreement does not and will
not (i) violate any provision of any law, rule, regulation (including, without
limitation, Regulations T, U and X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination or
award applicable to the Pledgor, (ii) result in breach of, or constitute a
default under, any indenture, credit or loan or note agreement or any other
agreement, lease or instrument to which the Pledgor presently is a party or by
which it or its properties may be bound or affected or (iii) result in or
require (other than pursuant to this Agreement) the creation or imposition of,
any mortgage, deed of trust, pledge, lien, security interest or other share or
encumbrance of any nature upon or with respect to any of the properties now
owned or hereafter acquired by the Pledgor. The Pledgor is not in violation of
or in default under any such law, rule or regulation, order, writ, judgment,
injunction, decree, determination or award or any material provision of any such
indenture, agreement, lease or instrument.

(f) Schedule I correctly sets forth the name and notice address of the issuer
and the number of shares (or percentage of Equity Interests) of each Equity
Interest owned by Pledgor.

(g) Except for any such agreements in favor of the Collateral Agent for the
benefit of the Secured Parties, Pledgor shall not enter into any agreement
providing any Person with

 

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“control” (within the meaning of Sections 9-104 or 9-106 of the applicable UCC)
of any Designated Account or any Excluded Account.

(h) Pledgor is a corporation duly formed under the laws of Delaware, and is
validly existing and in good standing under the laws of such jurisdiction and
the State of Arizona. Pledgor has its chief executive office in the State of
Arizona. Pledgor agrees to give the Collateral Agent at least thirty (30) days’
prior written notice before changing the state in which its chief executive
office is located or the state in which it is organized, and prior to the
effectiveness of any such change shall take all steps necessary to maintain the
security interest provided for herein as a first-priority, perfected security
interest, including the filing of additional UCC financing statements or
amendments as may be necessary or as requested by the Collateral Agent.

(i) The Pledgor shall not: (i) sell, assign (by agreement, operation of law or
otherwise) or otherwise dispose of, or grant any option with respect to, any of
the Collateral, or (ii) create or permit to exist any Lien or security interest
upon or with respect to any of the Collateral, except for the Lien created by
this Agreement and any other Lien in favor of the Collateral Agent for the
benefit of the Secured Parties.

(j) The Pledgor agrees that it will not permit or cause to be issued any Equity
Interests (i) in substitution for the existing Equity Interests and (ii) in
addition to the existing Equity Interests, except following notice to the
Collateral Agent and provided that immediately upon its acquisition (directly or
indirectly) of any such substitute or additional shares of stock or other
securities, certificates or instruments, Pledgor will execute such documentation
as is necessary to pledge or evidence the pledge or as may be requested by
Collateral Agent or the Required Holders pledging, and evidencing the pledge
hereunder of, such Equity Interests.

(k) The Pledgor shall, at its cost and expense, protect and defend this
Agreement, all of the rights of the Collateral Agent hereunder, and the
Collateral against all claims and demands of other parties. Pledgor shall pay
all claims and charges that in the reasonable opinion of the Collateral Agent or
the Required Holders might prejudice, imperil or otherwise affect the Collateral
or the security interest therein. Pledgor shall promptly notify the Collateral
Agent of any levy, distraint or other seizure by legal process or otherwise of
any part of the Collateral and of any threatened or filed claims or proceedings
that might in any way affect or impair the terms of this Agreement.

SECTION 6. FURTHER ASSURANCES.

The Pledgor hereby authorizes the Collateral Agent to file any and all financing
statements covering the Collateral or any part thereof as the Collateral Agent
may require. The Pledgor agrees that from time to time, at the expense of the
Pledgor, the Pledgor will promptly execute and deliver all further instruments
and documents, and take all further action that may be necessary or that the
Collateral Agent or the Required Holders may reasonably request, in order to
perfect and protect any security interest granted or purported to be granted
hereby or to enable the Collateral Agent to exercise and enforce its rights and
remedies hereunder with respect to any Collateral. The Pledgor will furnish to
the Collateral Agent from time to time statements and

 

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schedules further identifying and describing the Collateral and such other
reports in connection with the Collateral as the Collateral Agent or the
Required Holders may reasonably request, all in reasonable detail as the
Collateral Agent or the Required Holders may reasonably request. The Pledgor
agrees, and agrees to cause each issuer of Equity Interests included in the
Collateral, to mark its books and records to reflect the lien and security
interest of the Collateral Agent in the Collateral.

SECTION 7. VOTING RIGHTS AND DIVIDENDS.

(a) So long as no Event of Default shall have occurred and be continuing and
neither the Collateral Agent nor the Required Holders have delivered the notice
specified in Section 7(b):

(i) The Pledgor shall be entitled to exercise any and all voting and other
consensual rights pertaining to the Collateral or any part thereof for any
purpose not inconsistent with the terms of this Agreement, the Notes, the Note
Agreement, the Guaranty Agreements or the other Note Documents.

(ii) The Pledgor shall be entitled to receive and retain any and all dividends
or distributions paid in respect of the Collateral; provided, however, except as
expressly permitted by the Note Agreement, that any and all (A) dividends or
distributions paid or payable other than in cash in respect of, and instruments
and other property received, receivable or otherwise distributed in respect of,
or in exchange for, any Collateral, (B) dividends and other distributions paid
or payable in cash in respect of any Collateral in connection with a partial or
total liquidation or dissolution and (C) cash paid, payable or otherwise
distributed in redemption of, or in exchange for, any Collateral, shall be, and
shall be forthwith delivered to the Collateral Agent to hold as Collateral and
shall, if received by the Pledgor, be received in trust for the benefit of the
Collateral Agent, be segregated from the other property or funds of the Pledgor,
and be forthwith delivered to the Collateral Agent as Collateral in the same
form as so received (with any necessary endorsement).

(iii) The Collateral Agent shall execute and deliver (or cause to be executed
and delivered) to the Pledgor all such proxies and other instruments as the
Pledgor may reasonably request for the purpose of enabling the Pledgor to
exercise the voting and other rights which it is entitled to exercise pursuant
to paragraph (i) above and to receive the dividends which it is authorized to
receive and retain pursuant to paragraph (ii) above.

(b) Subject in each case, to any applicable requirements of the ACC Regulations,
upon the occurrence and during the continuation of an Event of Default:

(i) All rights of the Pledgor to exercise the voting and other consensual rights
which it would otherwise be entitled to exercise pursuant to Section 7(a)(i)
shall automatically cease, and the Collateral Agent shall thereupon have the
sole right to exercise such voting and other consensual rights.

 

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(ii) All rights of the Pledgor to receive the distributions and dividends which
it would otherwise be entitled to receive and retain pursuant to
Section 7(a)(ii) shall automatically cease, and the Collateral Agent shall
thereupon have the sole right to receive and hold as Collateral such dividends,
distributions and interest.

(iii) All distributions and dividends which are received by the Pledgor contrary
to the provisions of paragraph (ii) of this Section 7(b) shall be received in
trust for the benefit of the Collateral Agent on behalf of the Secured Parties,
shall be segregated from other funds of the Pledgor and shall be forthwith paid
over to the Collateral Agent on behalf of the Secured Parties as Collateral in
the same form as so received (with any necessary endorsement).

SECTION 8. REMEDIES.

Subject in each case, to any applicable requirements of the ACC Regulations:

(a) The Collateral Agent may exercise in respect of the Collateral, in addition
to other rights and remedies provided for herein or otherwise available to it,
all the rights and remedies of a secured party on default under the UCC (whether
or not the UCC applies to the affected Collateral), and the Collateral Agent may
also, without notice except as specified below, sell the Collateral or any part
thereof in one or more parcels at public or private sale, at any exchange,
broker’s board or at any of the Collateral Agent’s offices or elsewhere, for
cash, on credit or for future delivery, and upon such other terms as the
Collateral Agent may deem commercially reasonable. The Pledgor agrees that at
least ten (10) days’ notice to the Pledgor of the time and place of any public
sale or the time after which any private sale is to be made shall constitute
reasonable notification. The Collateral Agent shall not be obligated to make any
sale of Collateral regardless of notice of sale having been given. The
Collateral Agent may adjourn any public or private sale from time to time by
announcement at the time and place fixed therefor, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.

(b) Any cash held by the Collateral Agent as Collateral and all cash proceeds
received by the Collateral Agent in respect of any sale of, collection from, or
other realization upon all or any part of the Collateral shall be applied by the
Collateral Agent against the Secured Obligations in such order as the Collateral
Agent may elect, subject to the requirements of the Note Agreement and the
Collateral Agency Agreement. Any surplus of such cash or cash proceeds held by
the Collateral Agent and remaining after payment in full of all of the Secured
Obligations shall be paid over to the Pledgor or to whomsoever may be lawfully
entitled to receive such surplus.

(c) All rights and remedies of the Collateral Agent expressed herein are in
addition to all other rights and remedies possessed by the Collateral Agent or
the holders of the Notes in the Notes, the Note Agreement, the Guaranty
Agreements, Note Documents and any other agreement or instrument relating to the
Secured Obligations.

 

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(d) In connection with a public or private sale of the Collateral or any part
thereof, the Collateral Agent may disclose to prospective purchasers any and all
non-public information available to the Collateral Agent which pertains to
(i) the issuer of the Collateral, or (ii) the Pledgor, provided in the case of
the Pledgor, such non-public information is material to said issuer, its
financial condition or the Collateral.

(e) Without in any way limiting the foregoing, upon the occurrence and during
the continuation of any Event of Default, the Collateral Agent shall have the
right, in addition to all other rights provided herein or by law, to direct the
disposition of the funds in any Specified Account that is a deposit account or
(ii) entitlement orders originated by the secured party with respect to each
such Specified Account that is a securities account, in each case, without
further consent by such Pledgor.

(d) If the Collateral Agent exercises its right to take possession of the
Collateral, the Pledgor shall also at its expense perform any and all other
steps requested by the Collateral Agent or the Required Holders to preserve and
protect the security interest hereby granted in the Collateral, such as
maintaining Collateral records and filing UCC financing and continuation
statements.

SECTION 9. WAIVERS; PRIVATE SALES.

(a) Pledgor waives any right to require the Collateral Agent or the Required
Holders to (i) proceed against any Person, including any other guarantor or
pledgor, (ii) proceed against or exhaust any Collateral, or (iii) pursue any
other remedy in Collateral Agent’s or the Required Holders’ power; and waives
any defense arising by reason of any disability of Pledgor or any other Person.
Until the Secured Obligations have been paid in full, Pledgor waives any right
of subrogation, reimbursement, indemnification, and contribution (contractual,
statutory or otherwise), including without limitation, any claim or right of
subrogation under the Bankruptcy Code (Title 11, United States Code) or any
successor statute, arising from the existence or performance of this Agreement,
and Pledgor waives any right to enforce any remedy which the Collateral Agent
now has or may hereafter have against Pledgor or against any other Person, and
waive any benefit of, and any right to participate in, any security now or
hereafter held by the Collateral Agent. Pledgor authorizes the Collateral Agent,
without notice or demand and without affecting Pledgor’s liability hereunder,
from time to time to: (a) renew, compromise, extend, accelerate or otherwise
change the time for payment of, or otherwise change the terms of, the Secured
Obligations or any part thereof, including increase or decrease of the rate of
interest thereon; (b) receive and hold security, other than the Collateral
herein described, for the payment of such Secured Obligations or any part
thereof, and exchange, enforce, waive, release, fail to perfect, sell, or
otherwise dispose of the Collateral herein described or any part thereof or any
such other security; and (c) release or substitute the Pledgor, or any of the
endorsers or guarantors of such Secured Obligations or any part thereof, or any
other parties thereto.

(b) The Pledgor recognizes that the Collateral Agent may be unable to effect a
public sale of any or all of the Collateral by reason of the ACC Regulations
and/or certain prohibitions contained in the laws of any jurisdiction outside
the United States or in the 1933 Act and applicable state securities laws, but
may instead be compelled to resort to one or more private

 

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sales thereof to a restricted group of purchasers who will be obliged to agree,
among other things, to acquire such Collateral for their own account for
investment and not with a view to the distribution or resale thereof, or
otherwise in accordance with the ACC Regulations. The Pledgor acknowledges and
agrees that any such private sale may result in prices and other terms less
favorable to the seller than if such sale were a public sale and,
notwithstanding such circumstances, agrees that any such private sale shall, to
the extent permitted by applicable law, be deemed to have been made in a
commercially reasonable manner. The Collateral Agent shall not be under any
obligation to delay a sale of any of the Collateral for the period of time
necessary to permit the issuer of such securities to register such securities
under the laws of any jurisdiction outside the United States, under the 1933 Act
or under any applicable state securities laws, even if the issuer would agree to
do so. If the Collateral Agent is able to lawfully effect a public sale without
registration of the Collateral under the laws of any jurisdiction outside the
United States, under the 1933 Act or under any applicable state securities laws,
then, subject to any applicable ACC Regulations, the Collateral Agent may, but
shall not be required to, conduct a public sale of the Collateral, rather than a
private sale, if the Collateral Agent reasonably believes that it would realize
a higher sales price in a public sale.

SECTION 10. THE COLLATERAL AGENT’S DUTIES.

(a) The powers conferred on the Collateral Agent hereunder are solely to protect
the interests of the Secured Parties in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for reasonable care in the
custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, the Collateral Agent shall have no duty as to
any Collateral or as to the taking of any necessary steps to preserve rights
against prior parties or any other rights pertaining to any Collateral. The
Collateral Agent shall be deemed to have exercised reasonable care in the
custody and preservation of the Collateral in its possession if the Collateral
is accorded treatment substantially equal to that which the Collateral Agent
accords its own property and collateral held for others in its capacity as a
collateral agent, it being understood that the Collateral Agent shall not have
any responsibility for (a) ascertaining or taking action with respect to calls,
conversions, exchanges, maturities, tenders or other matters relative to any
Collateral, whether or not the Collateral Agent has or is deemed to have
knowledge of such matters, or (b) taking any necessary steps to preserve rights
against any parties with respect to any Collateral.

(b) Upon the appointment of a replacement collateral agent pursuant to the
Collateral Agency Agreement, the Collateral Agent may transfer all of its
interest and liens in or any part of the Collateral and shall be fully
discharged thereafter from all liability and responsibility with respect to such
Collateral so transferred, and the transferee shall be vested with all the
rights and powers of the Collateral Agent hereunder with respect to such
collateral so transferred; but with respect to any of its interest and liens in
Collateral not so transferred, the Collateral Agent shall retain all rights and
powers hereby given.

SECTION 11. OTHER RIGHTS.

(a) The rights, powers and remedies given to the Collateral Agent by this
Agreement shall be in addition to all rights, powers and remedies given to the
Collateral Agent by virtue of

 

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any statute or rule of law. Any forbearance or failure or delay by the
Collateral Agent in exercising any right, power or remedy hereunder shall not be
deemed to be a waiver of such right, power or remedy, and any single or partial
exercise of any right, power or remedy hereunder shall not preclude the further
exercise thereof; and every right, power and remedy of the Collateral Agent
shall continue in full force and effect until such right, power or remedy is
specifically waived by an instrument in writing executed by the Collateral
Agent. The rights and remedies of the Collateral Agent under this Agreement
shall be cumulative and not exclusive of any other right or remedy which the
Collateral Agent or any holder of Notes may have.

(b) This Agreement constitutes an assignment of rights only and not an
assignment of any duties or obligations of the Pledgor in any way related to the
Collateral, and the Collateral Agent shall have no duty or obligation to
discharge any such duty or obligation. The Collateral Agent shall have no
responsibility for taking any necessary steps to preserve rights against any
parties with respect to any Collateral or initiating any action to protect the
Collateral against the possibility of a decline in market value. Neither the
Collateral Agent nor any party acting as attorney for the Collateral Agent shall
be liable for any acts or omissions or for any error of judgment or mistake of
fact or law other than its gross negligence or willful misconduct or negligence
in the handling of funds.

(c) In addition to any other powers of attorney contained herein, the Pledgor
hereby appoints the Collateral Agent, its nominee, and any other person whom the
Collateral Agent may designate, as the Pledgor’s attorney-in-fact, with full
power and authority to sign the Pledgor’s name on verifications of Collateral;
to send requests for verification of Collateral to obligors; to endorse the
Pledgor’s name on any checks, notes, acceptances, money orders, drafts, and any
other forms of payment or security that may come into the Collateral Agent’s
possession or on any assignments, stock powers, or other instruments of transfer
relating to the Collateral or any part thereof; to sign the Pledgor’s name on
claims to enforce collection of any Collateral, on notices to and drafts against
obligors, on schedules and assignments of Collateral, on notices of assignment
and on public records; upon the occurrence and during the continuance of an
Event of Default to notify the post office authorities to change the address for
delivery of the Pledgor’s mail to an address designated by the Collateral Agent;
upon the occurrence and during the continuance of an Event of Default to
receive, open and dispose of all mail addressed to the Pledgor; and to do all
things necessary to carry out this Agreement. The Pledgor hereby ratifies and
approves all acts of any such attorney and agrees that neither the Collateral
Agent nor any such attorney will be liable for any acts or omissions nor for any
error of judgment or mistake of fact or law other than such person’s gross
negligence or willful misconduct or negligence in the handling of funds. The
foregoing powers of attorney, being coupled with an interest, are irrevocable
until the Secured Obligations have been fully paid and satisfied and all
agreements of any Secured Party to extend credit to or for the account of the
Pledgor have expired or otherwise have been terminated.

SECTION 12. INDEMNITY; WAIVER.

(a) The Pledgor agrees to indemnify, pay and hold harmless, the Collateral Agent
and each other Secured Party and any of their Related Parties (each, an
“Indemnitee”), from and against any and all Indemnified Liabilities, IN ALL
CASES, WHETHER OR NOT CAUSED BY OR

 

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ARISING, IN WHOLE OR IN PART, OUT OF THE COMPARATIVE, OR CONTRIBUTORY NEGLIGENCE
OF SUCH INDEMNITEE; provided, the Pledgor shall not have any obligation to any
Indemnitee hereunder with respect to any Indemnified Liabilities to the extent
such Indemnified Liabilities (x) arise from the gross negligence or willful
misconduct, as determined by a court of competent jurisdiction by final and
nonappealable judgment, of that Indemnitee or (y) result from a claim brought by
the Pledgor against an Indemnitee for breach in bad faith of such Indemnitee’s
obligations hereunder or under any other Note Document, as determined by a court
of competent jurisdiction by final and nonappealable judgment. To the extent
that the undertakings to indemnify, pay and hold harmless set forth in this
Section 12 may be unenforceable in whole or in part because they are violative
of any law or public policy, the Pledgor shall contribute the maximum portion
that it is permitted to pay and satisfy under Applicable Laws to the payment and
satisfaction of all Indemnified Liabilities incurred by Indemnitees or any of
them. All amounts due under this clause (a) shall be payable promptly after
demand therefor. For purposes hereof, “Related Parties” means, with respect to
any Person, such Person’s Affiliates and the partners, directors, trustees,
officers, employees or other personnel, counsel, agents and advisors of such
Person and of such Person’s Affiliates.

(b) To the extent not prohibited by applicable law, the Pledgor shall not
assert, and the Pledgor hereby waives, any claim against the Collateral Agent
and its respective Related Parties, on any theory of liability, for special,
indirect, consequential or punitive damages (as opposed to direct or actual
damages) (whether or not the claim therefor is based on contract, tort or duty
imposed by any applicable legal requirement) arising out of, in connection with,
as a result of, or in any way related to, this Agreement or any Note Document or
any agreement or instrument contemplated hereby or thereby or referred to herein
or therein, the transactions contemplated hereby or thereby, or the use of the
proceeds thereof or any act or omission or event occurring in connection
therewith, and the Pledgor hereby waives, releases and agrees not to sue upon
any such claim or any such damages, whether or not accrued and whether or not
known or suspected to exist in its favor. No Indemnitee shall be liable for any
damages arising from the use by unintended recipients of any information or
other materials distributed to it through telecommunications, electronic or
other information transmission systems in connection with this Agreement or the
other Note Documents or the transactions contemplated hereby or thereby. In no
event shall the Collateral Agent be responsible or liable for any failure or
delay in the performance of its obligations hereunder arising out of or caused
by, directly or indirectly, forces beyond its control, including, without
limitation, strikes, work stoppages, accidents, acts of war or terrorism, civil
or military disturbances, nuclear or natural catastrophes or acts of God, and
interruptions, loss or malfunctions of utilities, communications or computer
(software and hardware) services, it being understood that the Collateral Agent
shall use reasonable best efforts which are consistent with accepted practices
in the banking industry to resume performance as soon as practicable under the
circumstances.

SECTION 13. INTERPRETATION.

(a) In this Agreement, unless a clear contrary intention appears:

(i) the singular number includes the plural number and vice versa;

 

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(ii) reference to any gender includes each other gender;

(iii) the words “herein,” “hereof” and “hereunder” and other words of similar
import refer to this Agreement as a whole and not to any particular Article,
Section or other subdivision;

(iv) reference to any Person includes such Person’s successors and assigns but,
if applicable, only if such successors and assigns are permitted by this
Agreement, and reference to a Person in a particular capacity excludes such
Person in any other capacity or individually, provided that nothing in this
clause (iv) is intended to authorize any assignment not otherwise permitted by
this Agreement;

(v) reference to any agreement, document or instrument means such agreement,
document or instrument as amended, supplemented or modified and in effect from
time to time in accordance with the terms thereof and, if applicable, the terms
hereof, and reference to any notes includes any notes issued pursuant to any
Loan Document in extension or renewal thereof and in substitution or replacement
therefor;

(vi) unless the context indicates otherwise, reference to any Article, Section,
Schedule or Exhibit means such Article or Section hereof or such Schedule or
Exhibit hereto;

(vii) the words “including” (and with correlative meaning “include”) means
including, without limiting the generality of any description preceding such
term;

(viii) with respect to the determination of any period of time, the word “from”
means “from and including” and the word “to” means “to but excluding;”

(ix) reference to any law means such as amended, modified, codified or
reenacted, in whole or in part, and in effect from time to time; and

(x) reference to Collateral Agent are to it in its capacity as Collateral Agent
for the Secured Parties under and as defined in the Collateral Agency Agreement.

(b) The Article and Section headings herein are for convenience only and shall
not affect the construction hereof.

(c) No provision of this Agreement shall be interpreted or construed against any
Person solely because that Person or its legal representative drafted such
provision.

SECTION 14. AMENDMENTS.

No amendment or waiver of any provision of this Agreement, nor consent to any
departure by the Pledgor herefrom, shall in any event be effective unless the
same shall be in writing and signed by the Pledgor and the Collateral Agent, and
then such waiver or consent shall be effective only in the specific instance and
for the specific purpose for which given.

 

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SECTION 15. NOTICES.

All notices and communications provided for hereunder shall be in writing and
sent (a) by telecopy, facsimile or electronic mail if the sender on the same day
sends a confirming copy of such notice by a nationally recognized overnight
delivery service (charges prepaid), or (b) by registered or certified mail with
return receipt requested (postage prepaid), or (c) by a nationally recognized
overnight delivery service (with charges prepaid). Any such notice must be sent:

(i) if to any Purchaser or its nominee, to such Purchaser or nominee at the
address specified for such communications in Schedule B to the Note Agreement,
or at such other address as such Purchaser or nominee shall have specified to
the Company in writing,

(ii) if to any other holder of any Note, to such holder at such address as such
other holder shall have specified to the Company in writing,

(iii) if to the Pledgor, to the Pledgor at the following address: 21410 North
19th Avenue, Suite 220, Phoenix, Arizona 95027 to the attention of: Michael J.
Liebman, or at such other address as the Pledgor shall have specified to the
Collateral Agent and each holder of a Note in writing; or

(iv) if to the Collateral Agent, at the following address: 101 North First
Avenue, Suite 1600, Phoenix, Arizona 85003, Attention: M. Ambriz-Reyes (Global
Water Resources, Inc.), E-mail: mary.abrizreyes@usbank.com, or at such other
address as the Collateral Agent shall have specified to the Pledgor in writing.

Notices under this Section 15 will be deemed given only when actually received.

SECTION 16. SEPARABILITY.

Should any clause, sentence, paragraph, subsection or Section of this Agreement
be judicially declared to be invalid, unenforceable or void, such decision will
not have the effect of invalidating or voiding the remainder of this Agreement,
and the parties hereto agree that the part or parts of this Agreement so held to
be invalid, unenforceable or void will be deemed to have been stricken herefrom
by the parties hereto, and the remainder of this Agreement will have the same
force and effectiveness as if such stricken part or parts had never been
included herein.

SECTION 17. EXECUTION IN COUNTERPARTS.

This Agreement may be executed in any number of counterparts and by different
parties hereto in separate counterparts, each of which when so executed shall be
deemed to be an original and all of which taken together shall constitute but
one and the same agreement. Signatures of the parties hereto transmitted by
facsimile or electronic transmission shall be deemed to be their original
signatures for all purposes.

 

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SECTION 18. CONTINUING SECURITY INTEREST; TRANSFER OF NOTES.

This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until payment in full of the Secured
Obligations, (b) be binding upon the Pledgor, its successors and assigns, and
(c) inure to the benefit of the Collateral Agent and the other Secured Parties
and their successors, transferees and assigns. Without limiting the generality
of the foregoing clause (c), any Secured Party may assign or otherwise transfer
all or a portion of its interests, rights and obligations under the Notes held
by it in accordance with the terms of the Note Documents executed in connection
with such Notes. Upon the payment in full of the Secured Obligations, the
Pledgor shall be entitled to the return, upon its request and at its expense, of
such of the Collateral as shall not have been sold or otherwise applied against
the Secured Obligations pursuant to the terms hereof.

SECTION 19. SURVIVAL OF REPRESENTATIONS AND WARRANTIES.

All representations and warranties contained in this Agreement or made in
writing by the Pledgor in connection herewith shall survive the execution and
delivery of this Agreement and repayment of the Secured Obligations. Any
investigation by the Collateral Agent or any other Secured Party shall not
diminish in any respect whatsoever its rights to rely on such representations
and warranties.

SECTION 20. GOVERNING LAW.

THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER SHALL BE
GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE LAWS OF
THE STATE OF NEW YORK WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES THEREOF THAT
WOULD REQUIRE OR PERMIT THE APPLICATION OF THE LAWS OF ANOTHER JURISDICTION
EXCEPT TO THE EXTENT THAT THE PERFECTION OF THE SECURITY INTEREST HEREUNDER, OR
REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF NEW YORK.

SECTION 21. CONSENT TO JURISDICTION AND WAIVER OF JURY TRIAL.

(a) The Pledgor irrevocably submits to the non-exclusive jurisdiction of any New
York State or federal court sitting in the Borough of Manhattan, The City of New
York, over any suit, action or proceeding arising out of or relating to this
Agreement, the Note Agreement, the Guaranty Agreement or the Notes. To the
fullest extent permitted by applicable law, the Pledgor irrevocably waives and
agrees not to assert, by way of motion, as a defense or otherwise, any claim
that it is not subject to the jurisdiction of any such court, any objection that
it may now or hereafter have to the laying of the venue of any such suit, action
or proceeding brought in any such court and any claim that any such suit, action
or proceeding brought in any such court has been brought in an inconvenient
forum.

(b) The Pledgor consents to process being served by or on behalf of the
Collateral Agent or any holder of Notes in any suit, action or proceeding of the
nature referred to in

 

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Section 21(a) by hand delivery, reputable overnight commercial delivery service
or by mailing a copy thereof by registered or certified or express mail (or any
substantially similar form of mail), postage prepaid, return receipt requested,
in each case to it at its address specified in Section 15 or at such other
address of which the Collateral Agent or such holder shall then have been
notified pursuant to said Section. The Pledgor agrees that such service upon
receipt (i) shall be deemed in every respect effective service of process upon
it in any such suit, action or proceeding and (ii) shall, to the fullest extent
permitted by applicable law, be taken and held to be valid personal service upon
and personal delivery to it. Notices hereunder shall be conclusively presumed
received as evidenced by a delivery receipt furnished by the United States
Postal Service or any reputable commercial delivery service.

(c) Nothing in this Section 21 shall affect the right of the Collateral Agent or
any holder of a Note to serve process in any manner permitted by law, or limit
any right that the Collateral Agent or the holders of any of the Notes may have
to bring proceedings against the Pledgor in the courts of any appropriate
jurisdiction or to enforce in any lawful manner a judgment obtained in one
jurisdiction in any other jurisdiction.

(d) THE PARTIES HERETO HEREBY WAIVE TRIAL BY JURY IN ANY ACTION BROUGHT ON OR
WITH RESPECT TO THIS AGREEMENT, THE NOTES, THE NOTE PURCHASE AGREEMENT, THE
GUARANTY AGREEMENTS OR ANY OTHER DOCUMENT EXECUTED IN CONNECTION HEREWITH OR
THEREWITH.

SECTION 22. NOTICE OF FINAL AGREEMENT.

THIS SECURITY AGREEMENT AND ANY OTHER DOCUMENTS EXECUTED IN CONNECTION HEREWITH
REPRESENT THE FINAL AGREEMENT BETWEEN THE PARTIES AND MAY NOT BE CONTRADICTED BY
EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OF THE
PARTIES. THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

SECTION 23. LLC INTERESTS.

The Pledgor will not:

(a) permit any Pledged Company that is a limited liability company to issue any
certificate or other instrument to evidence the Pledgor’s limited liability
company interests in such Pledged Company;

(b) permit any of the limited liability company interests in any such Pledged
Company to be dealt in or traded on any securities exchange or in securities
markets; and

(c) allow the operating agreement of any such Pledged Company to provide that
any limited liability company interest in any such Pledged Company shall be a
security governed by Article 8 of the Uniform Commercial Code.

 

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IN WITNESS WHEREOF, the Pledgor has executed and delivered this Agreement
effective as of the date first above written.

 

PLEDGOR: GLOBAL WATER RESOURCES, INC. By:  

/s/ Michael J. Liebman

  Name: Michael J. Liebman   Title: Senior Vice President,             Chief
Financial Officer and Secretary COLLATERAL AGENT: U.S. BANK NATIONAL
ASSOCIATION, as Collateral Agent By:  

/s/ Mary Ambriz-Reyes

  Name: Mary Ambriz-Reyes   Title: Vice President

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EXHIBIT I

PLEDGED EQUITY INTERESTS

 

ISSUER

  

CLASS OF SHARES /

MEMBERSHIP INTERESTS

  

NO. OF

SHARES

  

PERCENTAGE OF

OUTSTANDING SHARES /

MEMBERSHIP INTERESTS

Global Water, LLC

   Common    N/A    100%