Exhibit 10.13
SECURITY AGREEMENT
SECURITY AGREEMENT (this “
Agreement ”), dated as of October 14, 2005, by
and among Basin Water, Inc., a California corporation (“
Basin Water ”) Bion, a California corporation
(“Bion” and together with Basin Water, the
“Company”), and the secured parties signatory hereto
and their respective endorsees, transferees and assigns
(collectively, the “ Secured Party
”).
W I T N E S S E T H:
WHEREAS, pursuant to a Subordinated
Note With Warrants Purchase Agreement, dated the date hereof,
between Company and the Secured Party (the “ Purchase
Agreement ”), Company has agreed to issue to the Secured
Party and the Secured Party has agreed to purchase from Company the
Senior Subordinated Notes in the aggregate original principal
amount of $5,000,000 (the “Notes”). In connection
therewith, Company 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 Notes and the Warrants, Company 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, 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.
(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 Subordination and
Intercreditor Agreement dated as of October 14, 2005, among
the Secured Party and BWCA I, LLC 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.
(i) “ Obligations
” means all of the Company’s obligations under this
Agreement, the Purchase Agreement and the Notes, in each case,
whether now or hereafter
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existing, voluntary or involuntary, direct or
indirect, absolute or contingent, 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, 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.
(1) “ 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, in each case, as the same may be
amended, supplemented, modified, or restated from time to time (the
“BWCA 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.
(b) The Company is the sole owner of
the Collateral, free and clear from encumbrances, except Permitted
Liens and is free from any other Liens which would have a Material
Adverse Effect 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
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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 BWCA
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 in favor
of the Secured Party a valid security interest in the Collateral
securing the payment and performance of the Obligations and, upon
making the filings described in the immediately following sentence,
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 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 to the extent such rights and remedies with
respect to the Collateral can be perfected by making such
filings.
(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
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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, transfer, or otherwise dispose of any of 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.
(l) The Company shall promptly
execute and deliver to the Secured Party such further deeds,
mortgages, assignments, security agreements, financing statements
or other instruments, documents, certificates and assurances and
take such further action as the Secured Party may from time to time
reasonably request and may in its sole discretion deem necessary to
perfect, protect or enforce its security interest in the Collateral
including, without limitation, the execution and delivery of a
separate security agreement with respect to the Company’s
intellectual property (“ Intellectual Property Security
Agreement ”) in which the Secured Party has been granted
a security interest hereunder, substantially in a form acceptable
to the Secured Party, which Intellectual Property Security
Agreement, other than as stated therein, shall be
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subject to all of the terms and conditions
hereof. Where Collateral is in the possession of a third party, the
Company will join with the Secured Party in notifying the third
party of the Secured Party’s security interest and obtaining
an acknowledgement from the third party that it is holding the
Collateral for the benefit of the Secured Party as may be
reasonably requested by the Secured Party. The Company will use
reasonable efforts to cooperate with the Secured Party in
obtaining
