SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

Exhibit 10.7

SECOND AMENDMENT TO EMPLOYMENT AGREEMENT

This Second Amendment to Employment Agreement (“Second Amendment”), dated as of June 27, 2005 (“Second Amendment Effective Date”), is made by and between Basin Water, Inc., a California corporation (“Company”), and Tom Tekulve (“Employee”) (the Company and Employee sometimes hereinafter are referred to collectively as the “Parties” and individually as a “Party”), with respect to the following facts:

RECITALS

A. The Parties previously entered into that certain Employment Agreement, dated August 27, 2004 (the “Employment Agreement”). Thereafter, the Parties amended the Employment Agreement pursuant to the terms of that certain First Amendment to Employment Agreement, dated January 31, 2005 (the “First Amendment”). The Employment Agreement and the First Amendment sometimes hereinafter are referred to collectively as the “Agreement.” Capitalized terms that are used herein without definition and that are defined in the Agreement are used herein as so defined.

B. The Parties now desire to amend the Agreement, subject to the following terms and conditions.

NOW, THEREFORE, in consideration of Employee’s continued employment by the Company, in consideration of the mutual covenants and conditions herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

OPERATIVE PROVISIONS

1. Section 2.2 of Article 2 of the Employment Agreement is hereby deleted, and the following is inserted into its place and stead:

2.2 Additional Options In Lieu of Private or Public Placement Bonus . To encourage the successful growth of the Company, the Company hereby agrees to grant Employee the following stock options in lieu of a bonus that would have been paid for a private or public placement of the Company’s equity securities during the Term, and the Employee hereby agrees to accept such grant of stock options in lieu of such bonus. Accordingly, in addition to the grant of Options contained in Section 2.4 hereof, the Company shall grant to the Employee options (the “Additional Options”) to purchase an additional sixty thousand (60,000) shares of the Company’s common stock at an exercise price of Five Dollars ($5.00) per share. This grant of Additional Options shall be submitted for ratification by the Company’s Board of Directors at the meeting of the Company’s Board of Directors next following the Second Amendment Effective Date. One-third (1/3) of the Additional Options shall vest on the first anniversary of the

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Second Amendment Effective Date, one-third (1/3) of the Additional Options shall vest on the second anniversary of the Second Amendment Effective Date, and one-third (1/3) of the Additional Options shall vest on the third anniversary of the Second Amendment Effective Date; provided, however, that notwithstanding the foregoing, all Additional Options shall immediately vest and become exercisable: (a) in accordance with Section 8 of the Plan, upon any merger or consolidation in which the Company is not the surviving corporation, upon the sale of all or substantially all of the assets or stock of the Company, or upon a change in control of the Company; or (b) if there is an initial public offering (“IPO”) of the Company’s securities. Notwithstanding the foregoing, the Additional Options shall be granted pursuant to the Plan and shall in all respects limited by and subject to the express terms and provisions of that Plan, as it may be amended from time to time and construed by the Board of Directors of the Company.

2. Except as amended by this Second Amendment, all of the terms and conditions of the Agreement shall remain unmodified, in full force and effect.

IN WITNESS WHEREOF, this Amendment is executed as of the Second Amendment Effective Date.

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FIRST AMENDMENT TO EMPLOYMENT AGREEMENT

This First Amendment to Employment Agreement (“Amendment”), dated as of January 31, 2005, is made by and between Basin Water, Inc., a California corporation (“Company”), and Tom Tekulve (“Employee”) (the Company and Employee sometimes hereinafter are referred to collectively as the “Parties” and individually as a “Party”), with respect to the following facts:

RECITALS

A. The Parties previously entered into that certain Employment Agreement, dated August 27, 2004 (the “Agreement”). Capitalized terms that are used herein without definition and that are defined in the Agreement are used herein as so defined.

B. The Parties now desire to amend the Agreement, subject to the following terms and conditions.

NOW, THEREFORE, in consideration of Employee’s continued employment by the Company, in consideration of the mutual covenants and conditions herein contained, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the Parties hereby agree as follows:

OPERATIVE PROVISIONS

1. Paragraph 2.4 of Article 2 of the Agreement is hereby deleted, and the following is inserted into its place and instead:

2.4 Stock Options . The Company has established that certain Basin Water Technology Group, Inc. 2001 Stock Option Plan (the “Plan”), pursuant to which stock options may be authorized and granted to the executive officers, directors, employees and key consultants of the Company. On or before its next annual meeting of its Board of Directors, the Company shall grant Employee options (the “Options”) to purchase one hundred ten thousand (110,000) shares of the Company’s common stock. One-third (1/3) of the Options shall vest on the first anniversary of the Effective Date, one-third (1/3) of the Options shall vest on the second anniversary of the Effective Date, and one-third (1/3) of the Options shall vest on the third anniversary of the Effective Date; provided, however, that notwithstanding the foregoing, all Options shall immediately vest and become exercisable: (a) in accordance with Section 8 of the Plan, upon any merger or consolidation in which the Company is not the surviving corporation, upon the sale of all or substantially all of the assets or stock of the Company, or upon a change in control of the Company; or (b) if there is an IPO of the Company’s securities. The exercise price for the Options

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shall be Four Dollars ($4.00) per share. Notwithstanding the foregoing, the Options shall be granted pursuant to the Plan and shall in all respects limited by and subject to the express terms and provisions of that Plan, as it may be amended from time to time and construed by the Board of Directors of the Company.

2. Paragraph 2.5 of Article 2 of the Agreement is hereby deleted, and the following is inserted into its place and stead:

2.5 BION Stock Options . The parties acknowledge: (a) the Company is considering forming a wholly-owned subsidiary, BION, to develop a process for removing and destroying perchlorate from saturated resin; (b) once BION is formed, the Company intends to offer a portion of BION’s equity securities for sale in an initial private placement to accredited investors; and (c) in the future, BION may establish a management stock option plan, pursuant to which stock options may be authorized and granted to the executive officers, directors, employees and key consultants of BION. If BION prepares and adopts such management stock option plan, then, provided there are at least ten million (10,000,000) shares of common stock of BION issued and outstanding, the Company agrees to cause BION to issue to Employee options (the “BION Options”) to purchase one hundred fifty thousand (150,000) shares of BION’s common stock. If granted, one-third (1/3) of the BION Options shall vest on the first anniversary of the date of grant, one-third (1/3) of the BION Options shall vest on the second anniversary of the date of grant, and one-third (1/3) of the BION Options shall vest on the third anniversary of the date of grant; provided, however, that notwithstanding the foregoing, all BION Options shall immediately vest and become exercisable: (a) upon any merger or consolidation in which BION is not the surviving corporation, upon the sale of all or substantially all of the assets or stock of BION, or upon a change in control of BION; or (b) if there is an IPO of BION’s securities. The exercise price for the BION Options shall be the same price per share as the BION common stock offered for sale to accredited investors in the initial private placement described above. Notwithstanding the foregoing, the BION Options shall be granted pursuant to the BION management stock option plan and shall in all respects limited by and subject to the express terms and provisions of that plan, as it may be amended from time to time and construed by the Board of Directors of BION.

3. Except as amended by this Amendment, all of the terms and conditions of the Agreement shall remain unmodified, in full force and effect.

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IN WITNESS WHEREOF, this Amendment is executed as of the last date below set forth.

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EMPLOYMENT AGREEMENT

THIS EMPLOYMENT AGREEMENT (the “Agreement”) dated as of August 27, 2004, is entered into by and between Basin Water, Inc., a California corporation (the “Company”), and Tom Tekulve (the “Employee”), with respect to the following facts.

R E C I T A L S

A. The Company is in the business of designing and building equipment to produce potable water from contaminated wells.

B. The Employee has special knowledge and expertise in the business conducted by the Company and by this Agreement is being employed on a full-time basis as the chief financial officer and vice president of the Company.

NOW, THEREFORE in consideration of the mutual promises and conditions hereinafter set forth, and for other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, the parties, intending to be legally bound, do hereby agree as follows:

ARTICLE 1

EMPLOYMENT AND TERM

1.1 Employment/Duties . The Company hereby agrees to employ the Employee and the Employee hereby accepts employment as the chief financial officer of the Company under the terms and conditions set forth in this Agreement. Employee shall be responsible to Peter L. Jensen, the President of the Company, for the performance of his duties. Employee shall have responsibility for such duties as are customarily associated with the position of a chief financial officer and such other duties and responsibilities as may be assigned by the President of the Company. During the Term, Employee shall devote all of his working time, attention and skill to the business affairs of the Company.

1.2 Effective Date . This Agreement shall become effective on September 20, 2004, or such earlier date agreed to in writing by the Parties (the “Effective Date”).

1.3 Term . This Agreement is effective from the Effective Date and shall continue for a period of three (3) years thereafter, unless earlier terminated as provided in ARTICLE 6 (the “Term”).

ARTICLE 2

COMPENSATION

2.1 Base Salary . The Employee shall be paid a monthly base salary of Ten Thousand Four Hundred Sixteen Dollars and Sixty-seven Cents ($10,416.66), payable in two (2) equal monthly installments on the 1st and 15th day of each month. The Company shall withhold and deduct from the Salary payments all taxes required by federal and state laws and any other

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authorized deductions. The Company shall review Employee’s salary at least annually and may, in its sole discretion, increase Employee’s Salary. As used in this Agreement, the term “Salary” shall mean the amount payable to Employee pursuant to, and if applicable as adjusted in accordance with, this Section 2.1.

2.2 Bonus . If during the Term the Company either (a) successfully completes a private placement of equity securities in an amount at least equal to Five Million Dollars ($5,000,000.00) (the “Private Placement”), or (b) there is an initial public offering (“IPO”) of the Company’s securities, then in addition to the Salary and on the first to occur of either the Private Placement or the IPO, the Company shall pay Employee a bonus payment (the “Bonus”) in the amount below set forth. In the event the Private Placement first occurs, the Company shall pay Employee a Bonus of Thirty Thousand Dollars ($30,000.00) upon completion of such Private Placement. In the event the IPO first occurs, the Company shall pay Employee a Bonus of Fifty Thousand Dollars ($50,000.00) upon the effectiveness of the registration statement for such IPO. Employee acknowledges that, pursuant to this Section 2.2, he is entitled to only one Bonus, payable upon the first to occur of either the Private Placement or the IPO, and that, unless the parties otherwise agree, Employee will not be entitled to a second Bonus if both a Private Placement and an IPO occur during the Term.

2.3 Benefits . The Company currently offers health insurance coverage and a Section 529 Flex Plan for all employees. Employee will be eligible to participate in the Company’s health and Flex plans on the same terms and conditions available to other employees of the Company. The Company currently offers no other benefits to its employees. If the Company in the future decides to offer benefits during the Term, the Company shall provide the Employee with benefits comparable to those provided to its other employees, provided that provision of such benefits by the Company is legal and is not unreasonably burdensome to the Company. Participation shall be subject to the terms of the applicable plan documents. The Company may alter, modify, add to or delete its employee benefit plans as they apply to the Company’s employees at such times and in such manner as the Company determines appropriate, without recourse by Employee.

2.4 Stock Options . The Company has established that certain Basin Water Technology Group, Inc. 2001 Stock Option Plan (the “Plan”), pursuant to which stock options may be authorized and granted to the executive officers, directors, employees and key consultants of the Company. On or before its next annual meeting of its Board of Directors, the Company shall grant Employee options (the “Options”) to purchase one hundred ten thousand (110,000) shares of the Company’s common stock. One-third (1/3) of the Options shall vest on the first anniversary of the Effective Date, one-third (1/3) of the Options shall vest on the second anniversary of the Effective Date, and one-third (1/3) of the Options shall vest on the third anniversary of the Effective Date. The exercise price for the Options shall be Four Dollars ($4.00) per share. Notwithstanding the foregoing, the Options shall be granted pursuant to the Plan and shall in all respects limited by and subject to the express terms and provisions of that Plan, as it may be amended from time to time and construed by the Board of Directors of the Company.

2.5 BION Stock Options . The parties acknowledge: (a) the Company is considering forming a wholly-owned subsidiary, BION, to develop a process for removing and destroying perchlorate from saturated resin; (b) once BION is formed, the Company intends to offer a

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portion of BION’s equity securities for sale in an initial private placement to accredited investors; and (c) in the future, BION may establish a management stock option plan, pursuant to which stock options may be authorized and granted to the executive officers, directors, employees and key consultants of BION. If BION prepares and adopts such management stock option plan, then, provided there are at least ten million (10,000,000) shares of common stock of BION issued and outstanding, the Company agrees to cause BION to issue to Employee options (the “BION Options”) to purchase one hundred fifty thousand (150,000) shares of BION’s common stock. If granted, one-third (1/3) of the BION Options shall vest on the first anniversary of the date of grant, one-third (1/3) of the BION Options shall vest on the second anniversary of the date of grant, and one-third (1/3) of the BION Options shall vest on the third anniversary of the date of grant. The exercise price for the BION Options shall be the same price per share as the BION common stock offered for sale to accredited investors in the initial private placement described above. Notwithstanding the foregoing, the BION Options shall be granted pursuant to the BION management stock option plan and shall in all respects limited by and subject to the express terms and provisions of that plan, as it may be amended from time to time and construed by the Board of Directors of BION.

2.6 Vacation . During each year of the Term of this Agreement, Employee shall accrue fifteen (15) days (i.e., 2.3077 hours per forty (40) hour week, or one hundred (120) hours) of vacation time. Payments for vacation time shall be calculated based on Employee’s Salary. Any accrued but unused vacation time shall accumulate and carry forward during subsequent years of the Term; provided, however, that no more than one hundred twenty (120) hours of vacation time shall carry forward to subsequent years of the Term; provided further, however, that in no event shall Employee accrue more than one hundred sixty (160) hours of unused vacation time, and if Employee accrues a total of one hundred sixty (160) hours of unused vacation time, Employee shall cease accruing vacation time until Employee’s accrued but unused vacation time again drops below one hundred sixty (160) hours. Employee agrees to seek approval of the Company prior to scheduling any vacation days, and agrees that any s