Exhibit 10.34
SECURITY AGREEMENT
SECURITY AGREEMENT (this “
Security Agreement ”), dated as of September 14,
2007 and effective as of June 30, 2007, by and between Basin
Water, Inc., a Delaware corporation (the “ Secured
Party ”) and VL Capital LLC, a Delaware limited liability
Company (the “Borrower”).
W I T N E S S E T H:
WHEREAS, pursuant to a Term Loan
Agreement, dated the date hereof, between Borrower and the Secured
Party (the “ Loan Agreement ”), Borrower has
agreed to issue to the Secured Party and the Secured Party has
agreed to accept from Borrower the Loan (as defined in the Loan
Agreement) in the aggregate original principal amount of
$4,500,000; and
WHEREAS, in order to induce the
Secured Party to enter into the Loan Agreement and the Agreement to
Sell and Purchase between Basin Water, Inc. and VL Capital LLC
dated the date hereof (the “ Purchase Agreement
”), Borrower has agreed to execute and deliver to the Secured
Party this Security Agreement for the benefit of the Secured Party
and to grant to it a security interest in the Property (as defined
in the Purchase Agreement) to secure the prompt payment,
performance and discharge in full of all of Borrower’s
obligations under the Loan.
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 Security Agreement, the following terms shall have the
meanings set forth in this Section 1. Terms used but not
otherwise defined in this Security 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 Security Agreement and which shall
include the following so long as they are part of the Property,
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 Borrower,
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 Borrower’s businesses and all
improvements thereto; and
(ii) All of the Borrower’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
(iii) All Accounts of the Borrower
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;
(iv) All of the Borrower’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
(v) To the extent not listed above,
the proceeds of all of the foregoing Collateral set forth in
clauses (i)-(v) above.
(b) “ Borrower ”
has the meaning set forth in the recitals.
(c) “ Financing
Statements ” means all UCC financing statements (or
comparable documents now or hereafter filed in accordance with the
UCC or comparable law) authorized by the Borrower to be filed in
favor of the Secured Party in connection with the transactions
contemplated hereby.
(d) “ Governmental
Authority ” means any nation or government, any state or
other political subdivision thereof and any entity exercising
executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government.
(e) “ Liens ”
shall have the meaning set forth in the Loan Agreement.
(f) “ Obligations
” means all of the Borrower’s obligations under this
Security Agreement, the Loan Agreement and the Loan, in each case,
whether now or hereafter 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.
(g) “ Party ”
shall have the meaning set forth in the Loan Agreement.
(h) “ Permitted Liens
” shall have the meaning set forth in the Loan
Agreement.
(i) “ Person ”
shall have the meaning set forth in the Loan Agreement.
(j) “ Subsidiary
” shall have the meaning set forth in the Loan
Agreement.
(k) “ 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 enter into the Loan
Agreement and issue the Loan and to secure the complete and timely
payment, performance and discharge in full, as the case may be, of
all of the Obligations, the Borrower hereby, pledges, grants and
hypothecates to the Secured Party, a continuing first priority
security interest in, a continuing first priority 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 Borrower’s right, title and interest of
whatsoever kind and nature in and to the Collateral (the “
Security Interest ”).
3. Representations, Warranties,
Covenants and Agreements of the Borrower . The Borrower
represents and warrants to, and covenants and agrees with, the
Secured Party as follows:
(a) The Borrower 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 A attached hereto.
(b) The Borrower is the sole owner
of the Collateral, free and clear from encumbrances, 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 Security Agreement, 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 Security Agreement shall be in effect, the Borrower 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 Security Agreement or
filed or recorded in connection with any Permitted
Liens.
(c) No part of the Collateral has
been judged invalid or enforceable. No written claim has been
received that any Collateral or the Borrower’s use of any
Collateral violates the rights of any third party. There has been
no adverse decision to the Borrower’s claim of ownership
rights in or exclusive rights to use the Collateral in any
jurisdiction or to the Borrower’s right to keep and maintain
such Collateral in full force and effect, and there is no
proceeding involving said rights pending or threatened before any
court, judicial body, administrative or regulatory agency,
arbitrator or other Governmental Authority.
(d) The Borrower 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 A attached hereto and
may not relocate such books of account and records or tangible
Collateral unless it notifies Secured Party of such intent to
relocate and the place of relocation and it obtains prior written
consent of the Secured Party prior to such relocation.
(e) The Borrower 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
Borrower’s name(s) and the Borrower 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.
(f) This Agreement creates in favor
of the Secured Party a valid first priority 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 first priority security
interest in such Collateral. Except for the filing of financing
statements on Form UCC-1 under the UCC with the jurisdictions
indicated on Exhibit B , 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 Borrower of,
or the effectiveness of, the Security Interest granted hereby or
for the execution, delivery and performance of this Security
Agreement by the Borrower of (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 Borrower 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 Security Agreement and the Security
Interest hereunder shall terminate pursuant to Section 11. The
Borrower hereby agrees to defend the same against any and all
persons. The Borrower shall safeguard and protect all Collateral
for the account of the Secured Party. At the request of the Secured
Party, the Borrower 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 Borrower shall pay all fees, taxes
and other amounts necessary to maintain the Collateral and the
Security Interest hereunder, and the Borrower 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 Borrower hereby authorizes
the Secured Party to file any UCC financing or continuation
statement without the signature of the Borrower to the extent
permitted by applicable law, including, but not limited to, a
filing of a Form UCC-1 financing statement with an appropriate
description for the Collateral. The Borrower 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.
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(i) The Borrower 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 and as otherwise permitted
under the Loan Agreement, without the prior written consent of the
Secured Party.
(j) The Borrower 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.
(k) The Borrower 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, other than as stated therein, shall be subject to all
of the terms and conditions hereof. Where Collateral is in the
possession of a third party, the Borrower 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 Borrower will use reasonable efforts to
cooperate with the Secured Party in obtaining control with respect
to Collateral consisting of (i) deposit accounts; (ii) investment
property; (iii) letter-of-credit rights; and (iv) electronic
chattel paper.
(l) The Borrower shall permit the
Secured Party and its employees and agents to inspect the
Collateral during regular business hours, and to make copies of
records pertaining to the Collateral, all in accordance with the
Loan Agreement.
(m) The Borrower shall promptly, and
in any case, in no less than five (5) days, notify the Secured
Party in sufficient detail upon becoming aware of any attachment,
garnishment, execution or other legal process levied against any
Collateral and of any other information received by the Borrower
that may have a material adverse effect on the Collateral, the
Security Interest or the rights and remedies of the Secured Party
hereunder.
(n) All information heretofore,
herein or hereafter supplied to the Secured Party by or on behalf
of the Borrower with respect to the Collateral is accurate and
complete in all material respects as of the date
furnished.
(o) The Borrower shall notify the
Secured Party as soon as practicable after acquiring or creating a
new Subsidiary, and cause such new Subsidiary to execute and
deliver to the Secured Party joinders to this Security Agreement,
and any other documents as may be reasonably requested by the
Secured Party in form and substance satisfactory to the Borrower to
which such Subsidiary shall grant a security interest to the
Secured Party in its assets that constitute Property as additional
Collateral for the Obligations.
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4. Defaults . The following
events shall be “ Events of Default
”:
(a) The occurrence of an Event of
Default as defined in and under the Loan Agreement;
(b) Any representation or warranty
of the Borrower in this Security Agreement shall prove to have been
materially incorrect and the subject of that breach of
representation or warranty is material on or as the date made or
deemed made; and
(c) The failure by the Borrower to
observe or perform any of its obligations hereunder for fifteen
(15) days after receipt by the Borrower of notice of such
failure from the Secured Party.
5. Duty To Hold In Trust .
Upon the occurrence of any Event of Default and at any time
thereafter, the Borrower shall, upon receipt by it of any revenue,
income or other sums subject to the Security Interest, whether
payable pursuant to
