Exhibit 10.17
SECURITY AGREEMENT
SECURITY AGREEMENT (this “
Agreement ”), dated as of February 10, 2006, by and
among Basin Water, Inc., a California corporation (“ Basin
Water ”) Bion, a California corporation
(“Bion”), and the secured parties signatory hereto and
their respective endorsees, transferees and assigns (collectively,
the “ Secured Party ”).
WITNESSETH:
WHEREAS, pursuant to a Subordinated
Note with Warrants Purchase Agreement, dated the date hereof,
between Basin Water and the Secured Party (the “ Purchase
Agreement ”), Basin Water has agreed to issue to the
Secured Party and the Secured Party has agreed to purchase from
Basin Water a Senior Subordinated Note in the aggregate original
principal amount of $2,000,000 (the “ Note ”).
In connection therewith, Basin Water shall issue the Secured Party
and the Secured Party shall acquire certain Common Stock purchase
warrants (the “ Warrants ”); and
WHEREAS, in order to induce the
Secured Party to purchase the Note and the Warrants, Company (as
defined below) has agreed to execute and deliver to the Secured
Party this Agreement for the benefit of the Secured Party and to
grant to it a security interest in certain property of Company to
secure the prompt payment, performance and discharge in full of all
of Company’s obligations under the Note and exercise and
discharge in full of Company’s obligations under the
Warrants.
NOW, THEREFORE, in consideration of
the agreements herein contained and for other good and valuable
consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto hereby agree as
follows:
1. Certain Definitions . As
used in this Agreement, the following terms shall have the meanings
set forth in this Section 1. Terms used but not otherwise
defined in this Agreement that are defined in Article 9 of the UCC
shall have the respective meanings given such terms in Article 9 of
the UCC.
(a) “ Collateral
” means the collateral in which the Secured Party is granted
a security interest by this Agreement and which shall include the
following, whether presently owned or existing or hereafter
acquired or coming into existence, and all additions and accessions
thereto and all substitutions and replacements thereof, and all
proceeds, products and accounts thereof, including, without
limitation, all proceeds from the sale or transfer of the
Collateral and of insurance covering the same and of any tort
claims in connection therewith:
(i) All Goods of the Company,
including, without limitations, all machinery, equipment,
computers, motor vehicles, trucks, tanks, boats, ships, appliances,
furniture, special and general tools, fixtures, test and quality
control devices and other equipment of every kind and nature and
wherever situated, together with all documents of title and
documents representing the same, all additions and accessions
thereto, replacements therefor, all parts therefor, and all
substitutes for any of the foregoing and all other items used and
useful in connection with the Company’s businesses and all
improvements thereto; and
(ii) All Inventory of the Company;
and
(iii) All of the Company’s
contract rights and general intangibles, including, without
limitation, all water contracts, partnership interests, stock or
other securities, licenses, distribution and other agreements,
computer software development rights, leases, franchises, customer
lists, quality control procedures, grants and rights, goodwill,
trademarks, service marks, trade styles, trade names, patents,
patent applications, copyrights, trade secrets, deposit accounts,
and income tax refunds; and
(iv) All Accounts of the Company
including all insurance proceeds, and rights to refunds or
indemnification whatsoever owing, together with all instruments,
all documents of title representing any of the foregoing, all
rights in any merchandising, goods, equipment, motor vehicles and
trucks which any of the same may represent, and all right, title,
security and guaranties with respect to each Account, including any
right of stoppage in transit;
(v) All of the Company’s
documents, instruments, chattel paper, investment property, deposit
accounts, letter-of-credit rights, supporting obligations, files,
records, books of account, business papers and computer programs
and the products; and
(vi) To the extent not listed above,
the proceeds of all of the foregoing Collateral set forth in
clauses (i)-(v) above.
(b) “ Company ”
means, collectively, Company and all of the subsidiaries of
Company, a list of which is contained in Exhibit A ,
attached hereto, and those subsidiaries of Company acquired or
created after the date hereof and who are required to execute and
deliver joinders to this Agreement pursuant to Section
X.
(c) “ Financing
Statements ” shall have the meaning set forth in the
Purchase Agreement.
(d) “ Governmental
Authority ” shall have the meaning set forth in the
Purchase Agreement.
(e) “ Knowledge ”
shall have the meaning set forth in the Purchase
Agreement.
(f) “ Subordination and
Intercreditor Agreement ” means the Amended and Restated
Subordination and Intercreditor Agreement, substantially in the
form attached as Exhibit D hereto, to be executed following the
execution and delivery of this Agreement, among the Secured Party,
BWCA I, LLC and certain other parties and acknowledged by the
Company (as heretofore amended, supplemented or otherwise
modified).
(g) “ Liens ”
shall have the meaning set forth in the Purchase
Agreement.
(h) “ Material Adverse
Effect ” shall have the meaning set forth in the Purchase
Agreement.
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(i) “ Obligations
” means all of the Company’s obligations under this
Agreement, the Purchase Agreement and the Note, in each case,
whether now or hereafter existing, voluntary or involuntary, direct
or indirect, absolute or contingent, contractual or otherwise,
arising by operation of law or otherwise, liquidated or
unliquidated, whether or not jointly owed with others, and whether
or not from time to time decreased or extinguished and later
decreased, created or incurred, including but not limited to,
principal, interest, fees, expenses, costs and expenses of
enforcement and attorneys’ fees and expenses, and all or any
portion of such obligations or liabilities that are paid, to the
extent all or any part of such payment is avoided or recovered
directly or indirectly from the Secured Party as a preference,
fraudulent transfer or otherwise as such obligations may be
amended, supplemented, converted, extended or modified from time to
time.
(j) “ Permitted Liens
” shall have the meaning set forth in the Purchase
Agreement.
(k) “ Permitted Sales
” shall have the meaning set forth in the Purchase
Agreement.
(l) “ Person ”
shall have the meaning set forth in the Purchase
Agreement.
(m) “ UCC ” means
the Uniform Commercial Code, as currently in effect in the State of
California.
2. Grant of Security Interest
. As an inducement for the Secured Party to purchase the Note and
to secure the complete and timely payment, performance and
discharge in full, as the case may be, of all of the Obligations,
the Company hereby, pledges, grants and hypothecates to the Secured
Party, a continuing security interest in, a continuing lien upon,
an unqualified right to possession and disposition of and a right
of set-off against, in each case to the fullest extent permitted by
law, all of the Company’s right, title and interest of
whatsoever kind and nature in and to the Collateral (the “
Security Interest ”). The Company shall take all such
actions requested by the Secured Party so as to maintain the
Security Interest as a valid and perfected second priority security
interest in the Collateral in accordance with the terms and
conditions of this Agreement, subject only to the first priority
security interest in the Collateral with respect to indebtedness of
the Company to BWCA I, LLC pursuant to a Business Loan Agreement
dated as of July 1, 2003 and any other credit agreement with
BWCA I, LLC or another lending party, in each case, as the same may
be amended, supplemented, modified, or restated from time to time
and subject to the limitations set forth in the Purchase Agreement
(the “ Senior Security Interest ”) and any
Permitted Liens.
3. Representations, Warranties,
Covenants and Agreements of the Company . The Company
represents and warrants to, and covenants and agrees with, the
Secured Party as follows:
(a) The Company represents and
warrants that it has no place of business or offices where its
respective books of account and records are kept (other than
temporarily at the offices of its attorneys or accountants) or
places where Collateral is stored or located, except as set forth
on Exhibit B attached hereto. The Company conducts no
business under any name or trade name other than its proper
corporate name.
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(b) The Company is the sole owner of
the Collateral, free and clear from Liens, except Permitted Liens
and is fully authorized to grant the Security Interest in and to
pledge the Collateral. Except for financing statements evidencing
Permitted Liens and the Financing Statements filed pursuant to this
Agreement, to the Company’s Knowledge, there is not on file
with any Governmental Authority an effective financing statement,
security agreement, license or transfer or any notice of any of the
foregoing covering or affecting any of the Collateral. So long as
this Agreement shall be in effect, the Company shall not execute
and shall not knowingly permit to be on file in any such office or
agency any such financing statement or other document or
instrument, except to the extent filed or recorded in favor of the
Secured Party pursuant to the terms of this Agreement or filed or
recorded in connection with the Senior Security Interest and any
Permitted Liens.
(c) No part of the Collateral has
been judged invalid or unenforceable. No written claim has been
received that any Collateral or the Company’s use of any
Collateral violates the rights of any third party. There has been
no adverse decision to the Company’s claim of ownership
rights in or exclusive rights to use the Collateral in any
jurisdiction or to the Company’s right to keep and maintain
such Collateral in full force and effect, and there is no
proceeding involving said rights pending or, to the Company’s
Knowledge, threatened before any court, judicial body,
administrative or regulatory agency, arbitrator or other
Governmental Authority.
(d) The Company shall at all times
maintain its books of account and records relating to the
Collateral at its principal place of business and its Collateral at
the locations set forth on Exhibit B attached hereto and may
not relocate such books of account and records or tangible
Collateral (except changes in the location of any Collateral
pursuant to Permitted Sales) unless it delivers to the Secured
Party at least ten (10) days prior to such relocation, written
notice of such relocation and the new location thereof (which must
be within the United States).
(e) The Company shall notify the
Secured Party at least ten (10) days in advance of any change
in the state of incorporation or formation or any change in the
Company’s name(s) and the Company shall provide evidence that
appropriate financing statements and other necessary documents have
been filed and recorded and other steps have been taken to perfect
the Security Interest to create in favor of the Secured Party
valid, perfected and continuing liens in the Collateral, to the
extent the Security Interest in the Collateral can be perfected by
making such filings.
(f) This Agreement creates, and in
the case of after-acquired Collateral this Agreement will create at
the time the Company first has rights in such after-acquired
Collateral, in favor of the Secured Party a valid and enforceable
security interest in the Collateral securing the payment and
performance of the Obligations and, upon making the filings
described in the immediately following sentence which filings have
been filed and are effective as of the date hereof, a perfected
security interest in such Collateral, to the extent the Security
Interest in the Collateral can be perfected by making such filings.
Except for the filing of financing statements on Form UCC-1 under
the UCC with the jurisdictions indicated on Exhibit C ,
attached hereto, no authorization or approval of or filing with or
notice to any
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Governmental Authority is required either
(i) for the grant by the Company of, or the effectiveness of,
the Security Interest granted hereby or for the execution, delivery
and performance of this Agreement by the Company or (ii) for
the perfection of or exercise by the Secured Party of its rights
and remedies hereunder. No current or former employee or consultant
has rights to the Collateral.
(g) The Company shall take all such
actions requested by the Secured Party so as to maintain the liens
and Security Interest provided for hereunder as valid and perfected
liens and security interests in the Collateral in favor of the
Secured Party until this Agreement and the Security Interest
hereunder shall terminate pursuant to Section 11. The Company
hereby agrees to defend the same against any and all persons. The
Company shall safeguard and protect all Collateral for the account
of the Secured Party. At the request of the Secured Party, the
Company will deliver to the Secured Party at any time or from time
to time one or more Financing Statements pursuant to the UCC (or
any other applicable statute) in form reasonably satisfactory to
the Secured Party and will pay the cost of filing the same in all
public offices wherever filing is, or is deemed by the Secured
Party to be, necessary or desirable to effect the rights and
obligations provided for herein. Without limiting the generality of
the foregoing, the Company shall pay all fees, taxes and other
amounts necessary to maintain the Collateral and the Security
Interest hereunder, and the Company shall obtain and furnish to the
Secured Party from time to time, upon demand, such releases and/or
subordinations of claims and liens which may be required to
maintain the priority of the Security Interest hereunder, except
with respect to the Permitted Liens.
(h) The Company hereby authorizes
the Secured Party to file any UCC financing or continuation
statement without the signature of the Company to the extent
permitted by applicable law, including, but not limited to, a
filing of a Form UCC-1 financing statement with an “all
assets” description for the Collateral description. The
Company hereby ratifies any filing by the Secured Party of
financing statements prior to the date hereof with respect to the
Collateral. A carbon, photographic, facsimile or any reproduction
of this Security Agreement shall be sufficient as a financing
statement for filing in any jurisdiction.
(i) The Company will not sell,
lease, assign (by operation of law or otherwise), transfer, or
otherwise dispose of any of the Collateral or any of its rights in
the Collateral or create, incur, assume or suffer to exist any Lien
upon any of the Collateral, except for Permitted Liens, Permitted
Sales and as otherwise permitted under the Purchase Agreement,
without the prior written consent of the Secured Party.
(j) The Company shall keep and
preserve its Goods, Inventory and other tangible Collateral in good
working order and condition in accordance with good business
practices customary in the Company’s industry reasonable wear
and tear excepted and shall not operate or locate any such
Collateral (or cause to be operated or located) in any area
excluded from insurance coverage.
(k) The Company shall, within ten
(10) days of obtaining Knowledge thereof, advise the Secured
Party promptly, in sufficient detail, of any substantial change in
the Collateral, and of the occurrence of any event which would have
a Material Adverse Effect on the value of the Collateral or on the
Secured Party’s security interest therein.
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