Morningstar® Document Research℠ FORM 10-KCADIZ INC - CDZIFiled: March 31, 2005 (period: March 31, 2005)Annual report with a comprehensive overview of the companyThe information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The userassumes all risks for any damages or losses arising from any use of this information, except to the extent such damages or losses cannot belimited or excluded by applicable law. Past financial performance is no guarantee of future results. UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D. C. 20549 FORM 10-K FOR ANNUAL AND TRANSITION REPORTS PURSUANT TO SECTIONS 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934(Mark One) [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal year ended December 31, 2004 OR [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the transition period from .. to ... COMMISSION FILE NUMBER 0-12114 CADIZ INC. (EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER) DELAWARE 77-0313235(State or other jurisdiction of (I.R.S. Employerincorporation or organization) Identification No.)777 S. FIGUEROA STREET, SUITE 4250 LOS ANGELES, CA 90017(Address of principal executive offices) (Zip Code) (213) 271-1600 (Registrant's telephone number, including area code) --------------------------- Securities Registered Pursuant to Section 12(b) of the Act: Title of Each Class Name of Each Exchange on Which Registered -------------------- ----------------------------------------- None None Securities Registered Pursuant to Section 12(g) of the Act: COMMON STOCK, PAR VALUE $0.01 PER SHARE (Title of Class)Indicate by check mark whether the registrant: (1) has filed allreports required to be filed by Section 13 or 15(d) of theSecurities Exchange Act of 1934 during the preceding 12 months(or for such shorter period that the registrant was required tofile such reports), and (2) has been subject to such filingrequirements for the past 90 days. YES NO X --- ---Indicate by check mark if disclosure of delinquent filerspursuant to Item 405 of Regulation S-K (220.405 of this chapter)is not contained herein, and will not be contained to the best ofregistrant's knowledge, in definitive proxy or informationstatements incorporated by reference in Part III of this Form 10-K or any amendment of this Form 10-K. Indicate by check mark whether the Registrant is an acceleratedfiler (as defined in Exchange Act Rule 12b-2).Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. YES NO X --- ---As of Feb 28, 2005, the Registrant had 10,326,339 shares ofcommon stock outstanding. The aggregate market value of thecommon stock held by nonaffiliates as of June 30, 2004 wasapproximately $41,050,122 based on 4,773,270 shares of commonstock outstanding held by nonaffiliates and the closing price onthat date. Shares of common stock held by each executive officerand director and by each entity that owns more than 5% of theoutstanding common stock have been excluded in that such personsmay be deemed to be affiliates. This determination of affiliatestatus is not necessarily a conclusive determination for otherpurposes.DOCUMENTS INCORPORATED BY REFERENCEThe Registrant is not incorporating by reference any otherdocuments within this Annual Report on Form 10-K except thosefootnoted in Part IV under the heading "Item 15. Exhibits,Financial Statement Schedules, and Reports on Form 8-K". TABLE OF CONTENTS PART I------Item 1. Business . . . . . . . . . . . . . . . . . . . . . . . 1Item 2. Properties . . . . . . . . . . . . . . . . . . . . . . 8Item 3. Legal Proceedings . . . . . . . . . . . . . . . . . .10 Item 4. Submission of Matters to a Vote of Security Holders . 10 PART II-------Item 5. Market for Registrant's Common Equity and Related Stockholder Matters . . . . . . . . . . . . . . . .. 11 Item 6. Selected Financial Data . . . . . . . . . . . . . . .12 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations . . . . . . . . .13Item 7A. Quantitative and Qualitative Disclosures about Market Risk . . . . . . . . . . . . . . . . . . . . . . . . .26 Item 8. Financial Statements and Supplementary Data . . . . . 26 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . .27Item 9A. Controls and Procedures . . . . . . . . . . . . . . 27Item 9B. Other Information . . . . . . . . . . . . . . . . . .27 PART III--------Item 10. Directors and Executive Officers of the Registrant . 28 Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Item 11. Executive Compensation . . . . . . . . . . . . . . .31 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters . . . . .36 Item 13. Certain Relationships and Related Transactions . . . 40Item 14. Principal Accountant Fees and Services . . . . . . . 40 PART IV-------Item 15. Exhibits, Financial Statements and Reports of Form 8-K . . . . . . . . . . . . . . . . . . . . . . . . .42 Page i PART I ITEM 1. BUSINESS This Form 10-K presents forward-looking statements withregard to financial projections, proposed transactions such asthose concerning the further development of our land and waterassets, information or expectations about our businessstrategies, results of operations, products or markets, orotherwise makes statements about future events. Such forward-looking statements can be identified by the use of words such as"intends", "anticipates", "believes", "estimates", "projects","forecasts", "expects", "plans" and "proposes". Although webelieve that the expectations reflected in these forward-lookingstatements are based on reasonable assumptions, there are anumber of risks and uncertainties that could cause actual resultsto differ materially from these forward-looking statements.These include, among others, the cautionary statements under thecaption "Certain Trends and Uncertainties", as well as othercautionary language contained in this Form 10-K. Thesecautionary statements identify important factors that could causeactual results to differ materially from those described in theforward-looking statements. When considering forward-lookingstatements in this Form 10-K, you should keep in mind thecautionary statements described above.OVERVIEW Our primary asset consists of three separate properties,each of which consists of largely contiguous land in eastern SanBernardino County, California. This land position totalsapproximately 45,000 acres. Virtually all of this land isunderlain by high-quality groundwater resources with demonstratedpotential for various applications, including water storage andsupply programs and agricultural, municipal, recreational, andindustrial development. Two of the three properties are locatedin proximity to the Colorado River Aqueduct, the major source ofimported water for southern California. The third property islocated near the Colorado River. The value of these assets derives from a combination ofpopulation increases and limited water supplies throughoutsouthern California. In addition, most of the major populationcenters in southern California are not located where significantprecipitation occurs, requiring the importation of water fromother parts of the state. We therefore believe that acompetitive advantage exists for those companies that possess orcan provide high quality, reliable, and affordable water to majorpopulation centers.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. To this end, in 1997 we commenced discussions with theMetropolitan Water District of Southern California("Metropolitan") in order to develop a long-term agreement for ajoint venture groundwater storage and supply program on our landin the Cadiz and Fenner valleys of eastern San Bernardino County(the "Cadiz Program"). Under the Cadiz Program, surplus waterfrom the Colorado River would be stored in the aquifer systemunderlying our land during wet years. When needed, the storedwater, together with indigenous groundwater, would be returned tothe Colorado River Aqueduct for distribution to Metropolitan'smember agencies throughout six southern California counties. During the next several years, we engaged in extensivenegotiations with Metropolitan concerning the Cadiz Program andactively pursued and received substantially all of the variouspermits required to construct and operate the project. However,in October 2002, Metropolitan's Board voted to not proceed withthe Cadiz Program. Notwithstanding Metropolitan's actions in 2002, we expect tobe able to use our land assets and related water resources toparticipate in a broad variety of water storage and supply, Page 1exchange, and conservation programs with public agencies andother parties. Southern California's need for water storage andsupply programs has not abated. We believe there are manydifferent scenarios to maximize the value of this water resource,all of which are under current evaluation. See "Water ResourceDevelopment", below. We expect that these alternative scenarios will havedifferent capital requirements and implementation periods thanthose previously established for the Cadiz Program. Therefore,following Metropolitan's actions in 2002, we have entered into aseries of agreements with our senior secured lender, ING CapitalLLC ("ING") pursuant to which we reduced our debt to ING to $25million and extended the maturity date of the ING debt untilMarch 31, 2010, conditioned upon a further principal reduction of$10 million on or before March 31, 2008. In addition, we haveraised approximately $35 million in equity through privateplacements completed in 2003 and 2004. Further, in February 2005, our wholly owned subsidiary SunWorld International, Inc. ("Sun World") completed the sale ofsubstantially all of its assets. See "General Development ofBusiness", below. Sun World had entered bankruptcy proceedingsin January 30, 2003, following which the financial statements ofSun World are no longer consolidated with ours. With the implementation of these steps, we have been able toretain ownership of all of our assets relating to our waterprograms and to obtain working capital needed to continue ourefforts to develop our water programs, albeit with thedivestiture of our interests in Sun World's assets. Because manyof our pre-existing common stockholders have participated in the2003 and 2004 private placements, our base of common stockholdersremains largely the same as before these placements. We remain committed to our water programs and we continue toexplore all opportunities for development of these assets. Wecannot predict with certainty which of these variousopportunities will ultimately be utilized.(A) GENERAL DEVELOPMENT OF BUSINESS -------------------------------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We are a Delaware corporation formed in 1992 to act as thesurviving corporation in a Delaware reincorporation mergerbetween us and our predecessor, Pacific Agricultural Holdings,Inc., a California corporation formed in 1983. As part of our historical business strategy, we haveconducted our land acquisition, water development activities,agricultural operations and search for international water andagricultural opportunities for the purpose of enhancing the long-term appreciation of our properties and future prospects. See"Narrative Description of Business" below. The focus of our water development activities has been theCadiz Program. The actions of Metropolitan in late 2002 have, ata minimum, delayed implementation of the Cadiz Program. In 2004,our business development activities consisted largely ofcontinued adjustments to our capital structure by way ofamendments to our lending agreements and equity issuances. See"Overview", above. Our primary goal in this process has been tomaintain ownership of our San Bernardino County properties and tocreate a capital structure that would allow us to continue ourdevelopment of the Cadiz Program. We believe that we havesucceeded in achieving this goal. Subsequent to Metropolitan'sactions in 2002, we have paid down our debt facility with ING to$25 million, and have obtained a maturity date extension andinterest rate reduction with respect to such debt. We haveobtained an additional equity infusion of approximately $35million through the issuance of common stock. Substantially allof the assets of Sun World have Page 2been sold. These transactions are described in more detail in Item 7, "Management's Discussion and Analysis of Financial Condition and Results of Operation." We acquired all of the outstanding capital stock of SunWorld in 1996. Since that time, until late 2002, we provided toSun World various management and administrative services andfacilities, and supplemented Sun World's annual working capitalrequirements. In late 2002, it became apparent that we would notbe able to continue to provide such ongoing financial support toSun World. In order to obtain the new financing needed toprovide working capital for its 2003-2004 growing seasons, onJanuary 30, 2003 (the "Petition Date") Sun World and three of itswholly owned subsidiaries filed voluntary petitions under Chapter11 of the Bankruptcy Code. As of the Petition Date, thefinancial statements of Sun World are no longer consolidated withthose of ours, but instead we account for our investment in SunWorld on the cost basis of accounting. See Consolidated FinancialStatements - Note 2 - Summary of Significant Accounting Policies- Principals of Consolidation. In December 2003 we entered into a global settlementagreement with Sun World and with the holders of a majority, andsubsequently all, of Sun World's First Mortgage Notes (the"Bondholders"). This global settlement agreement provided for thegrant by Sun World to us of an unsecured claim against Sun Worldof $13.5 million in full and final settlement of all claims andcauses of action between us. This unsecured claim was thentransferred to a trust controlled by the Bondholders. TheBondholders, in turn, waived any right of recovery from us onaccount of our previously issued guarantee of Sun World'sobligations under the First Mortgage Notes. In order to maximize Sun World's ability to make payments tothe holders of the Series B First Mortgage Notes ("First MortgageSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Notes") and other creditors, Sun World, with Bankruptcy Courtapproval, pursued the sale of substantially all of its assets byway of auction. As a result of this auction, which was conductedin January 2005, Sun World sold substantially all of its assetsin exchange for cash and credit consideration of $127.8 million,plus payment and assumption of certain liabilities totaling anestimated $14 million, including the trade claims, whichapproximates net book value as of December 31, 2004 of the assetssold. Sun World plans to file an amended Plan to distribute theremaining consideration left in Sun World (estimated atapproximately $50 million after interim distributions/credits tothe holders of First Mortgage Notes of approximately $78 millionupon closing as authorized by the Court) and the distributionwill be sufficient to enable Sun World to repay all holders ofthe First Mortgage Notes.(B) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS --------------------------------------------- During the year ended December 31, 2004 we continued todevelop the water resource segment of our business. Theoperations of our agricultural resources segment werediscontinued with the deconsolidation of Sun World upon SunWorld's January 30, 2003 bankruptcy filing. See ConsolidatedFinancial Statements. See also Item 7, "Management's Discussionand Analysis of Financial Condition and Results of Operations".(C) NARRATIVE DESCRIPTION OF BUSINESS --------------------------------- Our business strategy is the development of our holdings fortheir highest and best uses. At present, our developmentactivities are focused on water resource development at our SanBernardino County properties. Page 3WATER RESOURCE DEVELOPMENT Our portfolio of water resources, located in proximity toeither the Colorado River or the Colorado River Aqueduct, theprincipal source of imported water for Southern California,provides us with the opportunity to participate in a variety ofwater storage and supply programs, exchanges and conservationprograms with public agencies and other partners.(a) CADIZ GROUNDWATER STORAGE AND DRY-YEAR SUPPLY PROGRAM. ----------------------------------------------------- We own approximately 35,000 acres of land and related high-quality groundwater resources in the Cadiz and Fenner valleys ofeastern San Bernardino County. The aquifer system underlyingthis property is naturally recharged by precipitation (both rainand snow) within a watershed of approximately 1,300 square miles.See Item 2, "Properties - The Cadiz/Fenner Property". In 1997 we commended discussions with Metropolitan in orderto develop principles and terms for a long-term agreement for ajoint venture groundwater storage and supply program on this land(the "Cadiz Program"). The Cadiz Program would provideMetropolitan with a valuable increase in water supply duringperiods of drought or other emergencies, as well as greaterreliability and flexibility in operation of its Colorado RiverAqueduct. During wet years, surplus water from the Colorado Riverwould be stored in the aquifer system that underlies the Cadizproperty. When needed, the stored water and indigenousSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. groundwater would be returned to the Colorado River Aqueduct fordistribution to Metropolitan's member agencies throughout sixsouthern California counties. Metropolitan provides supplementalwater to approximately 17 million people. In addition, temporary withdrawals of indigenous groundwaterwould also be available from the Cadiz Program duringemergencies, in full compliance with the GROUNDWATER MONITORING &MANAGEMENT PLAN approved by the U.S. Department of the Interiorin its RECORD OF DECISION. With this provision of the MANAGEMENTPLAN the effective long-term storage capacity of the CadizProgram may exceed two million acre-feet. Following extensive negotiations with us, in April 2001Metropolitan's Board of Directors approved definitive economicterms and responsibilities, which were to serve as the basis fora final agreement to be executed between us, subject to the then-ongoing environmental review process. Pursuant to thesedefinitive terms, during storage operations, Metropolitan wouldpay a $50 fee per acre-foot for put of Colorado River water intostorage, and a $40 fee per acre-foot for return of Colorado Riverwater from storage, or a total of $90 per acre-foot to cyclewater into and out of the Cadiz Program facilities. On thetransfer of indigenous water, Metropolitan would pay a base rateof $230 per acre-foot, which would be adjusted according to afair market value adjustment procedure. Metropolitan would committo minimum levels of utilization of the Cadiz Program for bothstorage of Colorado River Aqueduct water (900,000 acre-feet) andtransfer of indigenous groundwater (up to 1,500,000 acre-feet).In addition, the definitive terms provided for the grant to us ofthe option to sell a portion of the indigenous groundwater(30,000 acre-feet per year for 25 years or a total of 750,000acre-feet) to outside third parties within Metropolitan's servicearea at fair market value. Cadiz Program facilities would include, among other things: * Spreading basins, which are shallow ponds that percolate water from the ground surface to the water table; Page 4 * High yield extraction wells designed to extract stored Colorado River water and indigenous groundwater from beneath the Cadiz Program area; * A 35-mile conveyance pipeline to connect the spreading basins and wellfield to the Colorado River Aqueduct near the Iron Mountain pumping plant; and * A pumping plant to pump water through the conveyance pipeline from the Colorado River Aqueduct near the Iron Mountain pumping plant to the Cadiz Program spreading basins. The expected cost of these facilities was estimated atapproximately $150 million, which was to be jointly shared. The definitive terms for the Cadiz Program also call for theestablishment of a comprehensive GROUNDWATER MONITORING ANDMANAGEMENT PLAN to ensure long-term protection of the aquifersystem and related environmental resources in and surrounding thearea in which the Cadiz Program is located. In October 2001, the environmental report was issued byMetropolitan and the U.S. Bureau of Land Management, incollaboration with the U.S. Geological Survey and the NationalSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Park Service. On August 29, 2002, the U.S. Department ofInterior approved the Final Environmental Impact Statement forthe Cadiz Program and issued its Record of Decision, the finalstep in the federal environmental review process for the CadizProgram. The Record of Decision amended the California DesertConservation Area Plan for an exception to the utility corridorelement and offered to Metropolitan a right-of-way grantnecessary for the construction and operation of the CadizProgram. On October 8, 2002, Metropolitan's Board consideredacceptance of the terms and conditions of the right-of-way grantpursuant to the published Record of Decision. The Board votednot to adopt Metropolitan staff's recommendation to approve theterms and conditions of the right-of-way grant issued by theDepartment of the Interior for the Cadiz Program by a vote of47.11% in favor and 47.36% against the recommendation. Instead,the Board voted for an alternative motion to reject the terms andconditions of the right-of-way grant and to not proceed with theCadiz Program by a vote of 50.25% in favor and 44.22% against. Subsequent to Metropolitan's actions, negotiations toward afinal agreement for the Cadiz Program on the basis of thepreviously approved definitive terms have ceased. With Metropolitan's actions, we have not been able tocomplete the environmental review phase of the Cadiz Program. Itis our position that Metropolitan's actions of October 2002breached various contractual and fiduciary obligations ofMetropolitan to us, and interfered with the economic advantage wewould have obtained from the Cadiz Program. Therefore, in April2003 we filed a claim against Metropolitan seeking compensatoryand punitive damages. See Item 3 - "Legal Proceedings". Irrespective of Metropolitan's actions, the need for newwater storage and supply programs in the southwestern UnitedStates has not diminished. Over the five years preceding the2004 - 2005 winter season, the Colorado River watershed hasexperienced a prolonged drought that continues to present majorchallenges to the economies of California, Nevada, and Arizona.As population continues to grow at record rates, these states arefaced with the very real possibility that current and futuresupplies of water will not be able to meet demand. Page 5 We believe there are a variety of scenarios under which thevalue of the Cadiz Program may be realized. Exploratorydiscussions have been initiated with representatives ofgovernmental organizations, water agencies, and private waterusers with regard to their expressed interest in implementationof the Cadiz Program. Several such discussions have been heldwith water agencies that are independently seeking reliability ofsupply. Other discussions have focused on the possibility ofexchanging water stored at the Cadiz Program with watercontractors in other regions in California. In addition, thedrought within the Colorado River watershed has served as animpetus to cooperative discussions between states, with the goalthat interstate exchanges and transfers may also become feasiblein the future. Because of our long-term relationship with Metropolitan, wealso intend to pursue discussions with the agency in an effort todetermine whether there are terms acceptable to both partiesunder which the Cadiz Program could be implemented. With therecent finalization of the Quantification Settlement Agreement(QSA), an agreement involving the Secretary of the Interior, theState of California, Metropolitan and three other southernSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. California water agencies quantifying the amount of waterCalifornia's Colorado River users could expect on an annualbasis, Metropolitan's Colorado River supplies are now specifiedand limited only by the variable volume of flow on the river. Tomeet the growing needs of its service area, Metropolitan musttake advantage of all opportunities to store available ColoradoRiver water during periods of surplus. With virtually allenvironmental permits and approvals in place for the CadizProgram, except for those dependent upon Metropolitan'scertification of the Environmental Impact Report (EIR), webelieve a partnership with Metropolitan could be renewed in atimely manner if terms acceptable to both parties were to benegotiated. In the absence of a negotiated resolution, we would continueto seek an administrative resolution of our claim againstMetropolitan. In April 2003 we filed an administrative notice ofclaim with Metropolitan asserting the breach by Metropolitan ofvarious obligations specified in the PRINCIPLES OF AGREEMENT. Webelieve that by failing to complete the environmental reviewprocess, as specified in the PRINCIPLES OF AGREEMENT,Metropolitan violated this contract, breached its fiduciaryduties to us and interfered with our prospective economicadvantages. In discussions following presentation of this claim,we and Metropolitan agreed to evaluate alternative approaches toimplementation of the Cadiz Program. Metropolitan has not todate responded to the claim and we have until October 2005 tofile a lawsuit against the agency.(b) OTHER EASTERN MOJAVE PROPERTIES ------------------------------- Our second largest landholding is approximately 9,000 acresin the Piute Valley of eastern San Bernardino County. Thislandholding is located approximately 15 miles from the resortcommunity of Laughlin, Nevada, and about 12 miles from theColorado River town of Needles, California. Extensivehydrological studies, including the drilling and testing of afull-scale production well, have demonstrated that thislandholding is underlain by high-quality groundwater. The aquifersystem underlying this property is naturally recharged byprecipitation (both rain and snow) within a watershed ofapproximately 975 square miles. Discussions with potentialpartners have commenced with the objective of developing ourPiute Valley assets. Additionally, we own additional acreage located near DanbyDry Lake, approximately 30 miles southeast of our landholdings inCadiz and Fenner valleys. Our Danby Lake property is locatedapproximately 10 miles north of the Colorado River Aqueduct.Initial hydrological studies indicate that it has excellentpotential for a groundwater storage and supply project. Page 6AGRICULTURAL OPERATIONS We are no longer engaged in agricultural operations.Historically, we have leased our Cadiz Valley farming property toSun World and other third parties. In the fourth quarter of 2004,the lease with Sun World expired. We continue to lease to a thirdparty approximately 1,000 acres of juice grape vineyards andcitrus orchards at our Cadiz Valley property. The lease isrenewable on a year to year basis with annual revenues ofapproximately $50,000. On January 30, 2003, Sun World filed voluntary petitionsunder Chapter 11 of the Bankruptcy Code. In February 2005, withSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Bankruptcy Court approval, Sun World sold substantially all ofits assets. See "General Development of Business", above.Following the filing date and until the sale of its assets, SunWorld operated its business and managed its affairs as debtor anddebtor in possession. As of the filing date the financialstatements of Sun World are no longer consolidated with those ofours, but instead, we account for our investment in Sun World onthe cost basis of accounting. As a result of changing to thecost basis of accounting on January 31, 2003, we had a netinvestment in Sun World of approximately $195 thousand consistingof loans and other amounts due from Sun World of $13,500,000 lesslosses in excess of investment in Sun World of $13,305,000. Wewrote off the net investment in Sun World of $195 thousand at theChapter 11 filing date because we do not anticipate being able torecover our investment.SEASONALITY Our water resource development activities are not seasonalin nature. With our divestiture of Sun World our operations will nolonger be subject to the general seasonal trends that arecharacteristic of the agricultural industry.COMPETITION We face competition for the acquisition, development andsale of our properties from a number of competitors. We may alsoface competition in the development of water resources associatedwith our properties. Since California has scarce water resourcesand an increasing demand for available water, we believe thatlocation, price and reliability of delivery are the principalcompetitive factors affecting transfers of water in California.EMPLOYEES As of December 31, 2004, we employed 5 full-time employees(i.e. those individuals working more than 1,000 hours per year).We believe that our employee relations are good.REGULATION Our operations are subject to varying degrees of federal,state and local laws and regulations. As we proceed with thedevelopment of our properties, including the Cadiz Program, wewill be required to satisfy various regulatory authorities thatwe are in compliance with the laws, regulations and policiesenforced by such authorities. Groundwater development, and theexport of surplus groundwater for sale to single entities such aspublic water agencies, is not subject to regulation by existingstatutes other than general environmental statutes applicable toall development projects. Additionally, we must obtain a varietyof approvals and permits from state and federal governments withrespect to issues that may include Page 7environmental issues, issues related to special status species, issues related to the public trust, and others. Because of the discretionary nature of these approvals and concerns which may be raised by various governmental officials, public interest groups and other interested parties during both the development and approval process, our ability to develop properties and realize income from our projects, including the Cadiz Program, could be delayed, reduced or eliminated.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ITEM 2. PROPERTIESThe following is a description of our significant properties.THE CADIZ/FENNER PROPERTY In 1984, we conducted investigations of the feasibility ofagricultural development of land located in the Cadiz and Fennervalleys of eastern San Bernardino County, California. Theseinvestigations confirmed the availability of high-quality waterin commercial quantities appropriate for agriculturaldevelopment. Since 1985, we have acquired approximately 35,000acres of largely contiguous land in this area, which is locatedapproximately 30 miles north of the Colorado River Aqueduct. Additional numerous independent geotechnical and engineeringstudies conducted since 1985 have confirmed that the Cadiz/Fennerproperty overlies a natural groundwater aquifer system that isideally suited for the underground water storage and dry yeartransfers as contemplated in the Cadiz Program. See Item 1,"Business - Narrative Description of Business - Water ResourceDevelopment". In November 1993, the San Bernardino County Board ofSupervisors unanimously approved a General Plan Amendmentestablishing an agricultural land use designation for 9,600 acresin the Cadiz Valley for which approximately 1,600 acres have beendeveloped for agriculture. This action also approved permits toconstruct infrastructure and facilities to house as many as 1,150seasonal workers and 170 permanent residents (employees and theirfamilies) and allows for the withdrawal of more than 1,000,000acre-feet of groundwater from the aquifer system underlying ourproperty.OTHER EASTERN MOJAVE PROPERTIES We also own approximately 10,900 additional acres in theeastern Mojave Desert, including the Piute and Danby Lakeproperties. Our second largest property consists of approximately 9,000acres in the Piute Valley of eastern San Bernardino County. Thislandholding is located approximately 15 miles from the resortcommunity of Laughlin, Nevada, and about 12 miles from theColorado River town of Needles, California. Extensivehydrological studies, including the drilling and testing of afull-scale production well, have demonstrated that thislandholding is underlain by high-quality groundwater. Theaquifer system underlying this property is naturally recharged byprecipitation (both rain and snow) within a watershed ofapproximately 975 square miles. Discussions with potentialpartners have commenced with the objective of developing ourPiute Valley assets. Additionally, we own or control additional acreage locatednear Danby Dry Lake, approximately 30 miles southeast of ourlandholdings in the Cadiz and Fenner valleys. Our Danby Lakeproperty is located approximately 10 miles north of the ColoradoRiver Aqueduct. Page 8Initial hydrological studies indicate that it has excellent potential for a groundwater storage and supply project.FARM PROPERTY Approximately 1,600 acres of our Cadiz Valley property hasSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. been developed for agricultural use. We are currently leasing toa third party approximately 1,000 acres of this property,consisting of juice grape vineyards, and until the fourth quarterof 2004 were leasing approximately 300 acres of this property,consisting of citrus orchards, to Sun World. The lease providesfor the lessee to be responsible for all costs associated withgrowing crops on the leased property. The lease with the thirdparty is renewable on a year to year basis with annual revenuesof approximately $50,000.EXECUTIVE OFFICES We currently lease our executive offices in Los Angeles,California, which consist of approximately 4,770 square feet,pursuant to a sublease that expires on June 14, 2006. Currentbase rent under the lease is approximately $8,350 per month.CADIZ REAL ESTATE In December 2003, we transferred substantially all of ourassets (with the exception of our office sublease, certain officefurniture and equipment and any Sun World related assets) toCadiz Real Estate LLC, a Delaware limited liability company("Cadiz Real Estate"). We hold 100% of the equity interests ofCadiz Real Estate, and therefore we continue to hold 100%beneficial ownership of the properties that we transferred toCadiz Real Estate. Cadiz Real Estate was created at the behestof our senior secured lender, ING. The Board of Managers ofCadiz Real Estate consists of two managers appointed by us andone independent manager named by ING. Cadiz Real Estate is a co-obligor under our creditfacilities with ING, for which assets of Cadiz Real Estate havebeen pledged as security. Because the transfer of our properties to Cadiz Real Estatehas no effect on our ultimate beneficial ownership of theseproperties, we refer throughout this Report to properties ownedof record either by Cadiz Real Estate or by us as "our"properties.DEBT SECURED BY PROPERTIES Our outstanding debt at December 31, 2004 of $25 millionrepresents loans secured by our properties (including propertiesheld of record by Cadiz Real Estate). Information regardinginterest rates and principal maturities is provided in Note 7 tothe consolidated financial statements. Page 9ITEM 3. LEGAL PROCEEDINGSCLAIM AGAINST METROPOLITAN On April 7, 2003 we filed an administrative claim againstThe Metropolitan Water District of California ("Metropolitan"),asserting the breach by Metropolitan of various obligationsspecified in our Principles of Agreement with Metropolitan. Webelieve that by failing to complete the environmental reviewprocess for the Cadiz Program, as specified in the Principles ofAgreement, Metropolitan violated this contract, breached itsfiduciary duties to us and interfered with our prospectiveeconomic advantages. See Item 1, "Business - NarrativeDescription of Business - Water Resource Development". Thefiling was made with the Executive Secretary of Metropolitan. Weare seeking recovery of compensatory and punitive damages. Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In discussions following presentation of this claim, we havecontinued to evaluate alternative approaches to implementation ofthe Cadiz Program. Metropolitan has not to date responded to theclaim and we have until October 2005 to file a lawsuit againstthe agency. SUN WORLD BANKRUPTCY FILING On January 30, 2003, (the "Petition Date") Sun World andthree of its wholly owned subsidiaries (Sun Desert, Inc.,Coachella Growers and Sun World/Rayo) filed voluntary petitionsunder Chapter 11 of the Bankruptcy Code in the United StatesBankruptcy Court, Central District of California, RiversideDivision (Case Nos: RS 03-11370 DN, RS 03-11369 DN, RS 03-11371DN, RS 03-11374 DN). See Item 1, "Business - General Developmentof Business".OTHER PROCEEDINGS There are no other material pending legal proceedings towhich we are a party or of which any of our property is thesubject.ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of our stockholdersduring the fourth quarter of 2004. Page 10 PART IIITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS Our common stock is currently traded over the counter on theOTC Bulletin Board under the symbol "CDZI". Prior to March 27,2003, the Company's common stock was listed on the NasdaqNational Market (Nasdaq). On March 27, 2003, the Company's commonstock was delisted from Nasdaq, and thereafter traded on the OTCBulletin Board until May 23, 2003, at which time our common stockwas removed from the Bulletin Board and began trading on the OTCU.S. Market, often referred to as the "Pink Sheets". On November11, 2004 our stock resumed trading on the OTC Bulletin Board. Thefollowing table reflects actual sales transactions for the datesthat the Company was trading on Nasdaq, and high and low bidinformation for dates subsequent. The OTC Bulletin Board and PinkSheet market quotations reflect inter-dealer prices, withoutretail mark-up, mark-down or commission and may not necessarilyrepresent actual transactions. The high and low ranges of thecommon stock for the dates indicated have been provided byBloomberg LP. Please note that all stock prices listed throughoutthis annual report on Form 10K have been adjusted for the one for25 reverse stock split that took place in December 2003. HIGH LOW QUARTER ENDED SALES PRICE SALES PRICE ------------- ----------- ----------- 2003: March 31 $ 20.25 $ 2.625 June 30 $ 4.75 $ 2.425 September 30 $ 4.00 $ 1.425 December 31 $ 5.90 $ 3.375 2004: March 31 $ 7.60 $ 4.80 June 30 $ 8.75 $ 7.10Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. September 30 $ 15.50 $ 8.50 December 31 $ 17.00 $ 11.70 On February 28, 2005, the high, low and last sales pricesfor the shares, as reported by Bloomberg, were $15.00, $14.50,and $15.00, respectively. We also have an authorized class of 100,000 shares ofpreferred stock. There is one series of preferred stock (SeriesF) authorized for issuance. All 100,000 authorized shares ofSeries F Preferred Stock were issued in December 2003. EffectiveNovember 30, 2004, 99,000 shares of Series F Preferred Stock wereconverted to 1,711,665 shares of our common stock leaving 1,000shares of Series F Preferred Stock issued and outstanding. On May 10, 1999 we adopted a Stockholders' Rights Plan. Inconnection with the Rights Plan, and as further described in theRights Plan, we declared a dividend of one preferred sharepurchase right for each outstanding share of our common stockoutstanding at the close of business on June 1, 1999, and filed aCertificate of Designations designating for issuance 40,259shares of Series A Junior Participating Preferred Stock. Noshares of Series A Participating Preferred Stock were everissued. The Rights Plan was amended and terminated by our Boardof Directors on March 25, 2004. On March 26, 2004, Cadiz filed acertificate of elimination which eliminated this series ofpreferred stock. Page 11 As of February 28, 2005, the number of stockholders ofrecord of our common stock was 245 and the estimated number ofbeneficial owners was approximately 2,268. To date, we have not paid a cash dividend on our commonstock and we do not anticipate paying any cash dividends in theforeseeable future. Our ability to pay such dividends is subjectto covenants pursuant to agreements with our primary lender thatprohibits the payment of dividends. All equity securities sold by us during the quarter endedDecember 31, 2004 that were not registered under the SecuritiesAct were previously reported in our Current Report on Form 8-Kdated November 30, 2004. All other securities sold by us duringthe three years ended December 31, 2004 which were not registeredunder the Securities Act have previously been reported in ourAnnual and Quarterly Reports on Forms 10K and 10-Q.ITEM 6. SELECTED FINANCIAL DATA The following selected financial data insofar as it relatesto the years ended December 31, 2004, 2003, 2002, 2001 and 2000has been derived from our audited financial statements. Theinformation that follows should be read in conjunction with theaudited consolidated financial statements and notes thereto foreach of the three years in the period ended December 31, 2004included in Part IV of this Form 10-K. See also Item 7,"Management's Discussion and Analysis of Financial Condition andResults of Operations".($ in thousands, except for per share data) YEAR ENDED DECEMBER 31, -------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ---- ---- ----Statement of Operations Data:Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Total revenues $ 47 $ 3,162 $114,250 $ 92,402 $107,745 Net loss (16,037) (11,536) (22,225) (25,722) (22,458) Less: Preferred stock dividends - 918 1,125 591 - Imputed dividend on preferred stock - 1,600 984 441 - -------- -------- -------- -------- -------- Net loss applicable to common stock $(16,037) $(14,054) $(24,334) $(26,754) $(22,458) ======== ======== ======== ======== ========Per share: Net loss (basic and diluted) $ (2.32) $ (6.39) $ (16.76) $ (18.66) $ (15.89) ======== ======== ======== ======== ========Weighted-average common shares outstanding 6,911 2,200 1,452 1,434 1,414 ======== ======== ======== ======== ======== DECEMBER 31, -------------------------------------------- 2004 2003 2002 2001 2000 ---- ---- ---- ---- ----Balance Sheet Data: Total assets $ 51,071 $ 49,526 $ 191,883 $ 198,275 $ 203,617 Long-term debt $ 25,000 $ 30,253 $ 115,447 $ 141,429 $ 145,610 Redeemable preferred stock $ - $ - $ 10,942 $ 9,958 $ 3,950 Preferred stock, common stock and additional paid-in capital $ 209,718 $ 185,040 $ 156,166 $ 152,765 $ 143,063 Accumulated deficit $(184,860)$(168,823)$(157,287)$(135,062)$(109,340) Stockholders' equity $ 24,858 $ 16,217 $ (1,121)$ 17,703 $ 33,723 Page 12ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION AND RESULTS OF OPERATIONS In connection with the "safe harbor" provisions of thePrivate Securities Litigation Reform Act of 1995, the followingdiscussion contains trend analysis and other forward-lookingstatements. Forward-looking statements can be identified by theuse of words such as "intends", "anticipates", "believes","estimates", "projects", "forecasts", "expects", "plans" and"proposes". Although we believe that the expectations reflectedin these forward-looking statements are based on reasonableassumptions, there are a number of risks and uncertainties thatcould cause actual results to differ materially from theseforward-looking statements. These include, among others, ourability to maximize value from our Cadiz, California land andwater resources and our ability to obtain new financings asneeded to meet our ongoing working capital needs. See additionaldiscussion under the heading "Certain Trends and Uncertainties"below.OVERVIEW As discussed in further detail below, as of January 30,2003 the financial statements of our Sun World subsidiary are nolonger being consolidated with ours. Presently, our operations(and, accordingly, our working capital requirements) relateSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. primarily to our water development activities and, morespecifically, to the Cadiz Groundwater Storage and Dry-YearSupply Program. Our results of operations for periods subsequentto January 2003 have been, and in future fiscal periods will be,largely reflective of the operations of our water developmentactivities. In 1997 we commenced discussions with the MetropolitanWater District of Southern California ("Metropolitan") in orderto develop a long-term agreement for a joint venture groundwaterstorage and supply program on our land in the Cadiz and Fennervalleys of eastern San Bernardino County (the "Cadiz Program").Under the Cadiz Program, surplus water from the Colorado Riverwould be stored in the aquifer system underlying our land duringwet years. When needed, the stored water, together withindigenous groundwater, would be returned to the Colorado RiverAqueduct for distribution to Metropolitan's member agenciesthroughout six southern California counties. During the next several years, we engaged in extensivenegotiations with Metropolitan concerning the Cadiz Program andactively pursued and received substantially all of the variouspermits required to construct and operate the project. However,in October 2002, Metropolitan's Board voted to not proceed withthe Cadiz Program. Notwithstanding Metropolitan's actions in 2002, we expect tobe able to use our land assets and related water resources toparticipate in a broad variety of water storage and supply,exchange, and conservation programs with public agencies andother parties. Southern California's need for water storage andsupply programs has not abated. We believe there are manydifferent scenarios to maximize the value of this water resource,all of which are under current evaluation. See "Item 1. WaterResource Development", above. We expect that these alternative scenarios will havedifferent capital requirements and implementation periods thanthose previously established for the Cadiz Program. Therefore,following Metropolitan's actions in 2002, we have entered into aseries of agreements with our senior secured lender, ING CapitalLLC ("ING") pursuant to which we reduced our debt to ING to $25million and extended the maturity date of the ING debt untilMarch 31, 2010, conditioned upon a further principal reduction of$10 million on or before March 31, 2008. In addition, we Page 13have raised approximately $35 million in equity through privateplacements completed in 2003 and 2004. Most recently, onNovember 30, 2004, we completed a private placement of 400,000Units at the price of $60.00 per Unit. Each Unit consisted offive (5) shares of the Company's common stock and one (1) commonstock purchase warrant. Each Warrant will entitle the holder topurchase, commencing 180 days from the date of issuance, one (1)share of common stock at an exercise price of $15.00 per share.Each Warrant will have a term of three (3) years, but will becallable by us commencing twelve months following completion ofthe placement if the closing market price of our common stockexceeds $18.75 for 10 consecutive trading days. We used approximately half of the proceeds of the placementto reduce our senior debt to ING. The balance of the proceedsare being used by the Company for working capital. Further, in February 2005, Sun World completed the sale ofsubstantially all of its assets in exchange for cash and creditconsideration of $127.8 million, plus payment and assumption ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. certain liabilities totaling an estimated $14 million, includingthe trade claims, which approximates net book value as ofDecember 31, 2004 of the assets sold. Sun World plans to file anamended Plan to distribute the remaining consideration left inSun World (estimated at approximately $50 million after interimdistributions/credits to the holders of First Mortgage Notes ofapproximately $78 million upon closing as authorized by theCourt). See "Item 1. General Development of Business", above.Sun World had entered bankruptcy proceedings in January 30, 2003,following which the financial statements of Sun World are nolonger consolidated with ours. With the implementation of these steps, we have been able toretain ownership of all of our assets relating to our waterprograms and to obtain working capital needed to continue ourefforts to develop our water programs, albeit with thedivestiture of our interests in Sun World's assets. Because manyof our pre-existing common stockholders have participated in the2003 and 2004 private placements, our base of common stockholdersremains largely the same as before these placements.RESULTS OF OPERATIONS On January 30, 2003, Sun World filed a voluntary petitionfor Chapter 11 bankruptcy protection. As of that date due to theCompany's loss of control over the operations of Sun World, thefinancial statements of Sun World are no longer consolidated withours, but instead, we are accounting for our investment in SunWorld on the cost basis of accounting. As a result of changingto the cost basis of accounting on January 31, 2003, we had a netinvestment in Sun World of approximately $195 thousand consistingof loans and other amounts due from Sun World of $13,500,000 lesslosses in excess of investment in Sun World of $13,305,000. As aresult, the Company wrote off its net investment in Sun World of$195 thousand at the Chapter 11 filing date because it does notanticipate being able to recover its investment. Our consolidated financial statements for the year endedDecember 31, 2003 include the results of operations for Sun Worldonly for the period January 1, 2003 through January 30, 2003.The results of operations of Sun World subsequent to January 30,2003 are not included in these consolidated financial statements.As a result of the foregoing, direct comparisons of ourconsolidated results of operations for year ended December 31,2004 with results for the year ended December 31, 2003 do not, inour view, prove meaningful. For this reason, we believe that material trends anddevelopments with respect to our results of operations fromperiod to period are more readily identifiable by comparing the Page 14unconsolidated results of Cadiz Inc. for the year ended December31, 2003, which do not include the January 2003 operations of SunWorld, rather than our consolidated results of operations, whichinclude the January 2003 operations of Sun World. Tables which disclose the results of Cadiz Inc. separatefrom its consolidated subsidiary Sun World for the year endedDecember 31, 2003, and from which the numbers used in thefollowing discussion are derived, can be found in Note 7 to theConsolidated Financial Statements.(A) YEAR ENDED DECEMBER 31, 2004 COMPARED TO YEAR ENDED DECEMBER 31, 2003 ---------------------------------------------------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. We have not received significant revenues from our waterresource activity to date. As a result, we continue to incur anet loss from operations. We had revenues of $47 thousand forthe year ended December 31, 2004 and $3.2 million for the yearended December 31, 2003, including $3.0 million from Sun Worldfor the month ended January 30, 2003. Our net loss totaled $16.0million for the year ended December 31, 2004 compared to $11.5million for the year ended December 31, 2003 which included a$2.5 million loss from Sun World for the period ended January 30,2003. The increase for the 2004 period resulted from the writeoff of permanent and developing crops in the amount of $3.4million, a $2.8 million increase in interest cost resulting fromamortization of deferred borrowing costs, and write offs ofunamortized deferred borrowing costs of $1.4 million. General andadministrative costs declined by $2.2 million in 2004. Our primary expenses are our ongoing overhead costs (i.e.general and administrative expense) and our interest expense. Inaddition, during the upcoming years ending December 31, 2005 and2006 we expect that we will incur an additional significant non-cash expense in connection with the issuance of shares andoptions under our Management Equity Incentive Plan, whichprovides for the issuance of up to 1,472,051 shares of our commonstock. See Item 12 "Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters -Management Equity Incentive Plan," below. The issuance of theseshares, or options to purchase these shares, will result in acharge to our earnings based on the value of our common stock atthe time of issue and the valuation of options at the time oftheir award and will be recorded over the vesting period inproportion to the quantities vested. The value of our commonstock at the time of issue and the valuation of options at thetime of their award will be added to additional paid-in capitalwith the result that there will not be a net reduction toshareholders' equity as a result of the issuances. REVENUES Revenue totaled $47 thousand during the year endedDecember 31, 2004 compared to $3.2 million the preceding year.The $3.2 million in 2003 includes $0.3 million attributable toCadiz with the remainder attributable to Sun World for the periodending January 30, 2003. The Cadiz decrease from $0.3 million to$47 thousand is primarily due to discontinuation of themanagement fee and other fees payable to Cadiz by Sun World as ofJanuary 30, 2003 due to Sun World's Chapter 11 filing. Therevenue during the year ended December 31, 2004 was derivedprimarily from the lease of farming property to a third party. Norevenue was derived from the lease to Sun World during the yearended December 31, 2004 as such revenue was contingent onprofitability of the harvest, which profitability was notachieved, under the terms of the lease. GENERAL AND ADMINISTRATIVE EXPENSES. General andadministrative expenses during the year ended December 31, 2004totaled $3.1 million compared to $5.2 million for the year endedDecember 31, 2003. Excluding Sun World, Cadiz general Page 15and administrative expenses during the year ended December 31, 2003 were $4.7 million. The decrease in Cadiz' general and administrative expenses in 2004 is primarily due to reductions in salaries which included a contract termination payment to the Company's CEO (see Item 11) of $0.8 million in 2003 and increased professional fees in 2003 related to transactions with our secured lender, our equity raising activities, and the Sun World bankruptcy. WRITE OFF OF INVESTMENT IN SUBSIDIARY On January 30, 2003,Sun World and certain of its subsidiaries filed voluntarySource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. petitions for relief under Chapter 11 of the Bankruptcy Code. Asof that date, due to the Company's loss of control over theoperations of Sun World, the financial statements of Sun Worldare no longer consolidated with those of Cadiz, but instead Cadizaccounts for its investment in Sun World on the cost basis ofaccounting. As a result of changing to the cost basis ofaccounting and because the Company does not believe it will beable to recover its investment, the Company wrote off itsinvestment in Sun World of $195,000 in 2003. There was no similarexpense in 2004. REORGANIZATION COSTS Reorganization costs totaled $0.7million during 2003. These costs were incurred by Sun Worldduring January 2003 related to the Chapter 11 bankruptcy filing.No such costs occurred during 2004. WRITE OFF OF PERMANENT CROPS AND DEVELOPING CROPS In thelast quarter of the year ended December 31, 2004, the long-standing lease for a portion of our Cadiz Valley farming propertyto Sun World expired and the crops have not been leased toanother party. The remaining property, which is leased to anindependent third party, on a year to year basis, does notgenerate a significant amount of revenue. Based on theuncertainty as to possible recovery of the carrying value of thepermanent crops and developing crops on this property, during thelast quarter of 2004 we wrote off our investment in permanent anddeveloping crops at this property in the amount of $3.4 million,net of depreciation. See Note 2 to our Consolidated FinancialStatements. No such write offs occurred during 2003. DEPRECIATION AND AMORTIZATION Depreciation and amortizationfor Cadiz totaled $0.5 million for the year ended December 31,2004 compared to $0.7 million for the 2003 year. The reduction indepreciation and amortization is due to certain assets becomingfully depreciated during 2004 and $0.2 million attributable toSun World included in the period ended January 30, 2003 which didnot exist in 2004. INTEREST EXPENSE, NET. Net interest expense totaled $9.1million during the year ended December 31, 2004, compared to $4.9million during 2003, of which $3.6 million was attributable toCadiz excluding Sun World. The following table summarizes thecomponents of Cadiz net interest expense and that of Sun Worldfor the two periods (in thousands): YEAR ENDED DECEMBER 31, ------------ 2004 2003 ---- ---- Cadiz Interest on outstanding debt $ 3,970 $ 3,053 Amortization of financing costs 3,767 641 Write off of unamortized financing costs 1,369 - Interest income (42) (58) Sun World interest expense - 1,269 -------- -------- $ 9,064 $ 4,905 ======== ======== Page 16 Financing costs, which include legal fees, warrant costs andpreferred stock, are amortized over the life of the ING debtagreement. In December 2003 we entered into an agreement with INGSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. which extended the maturity date of our loan, which had a priormaturity date of January 31, 2003. As a result there was littleamortization during 2003 as the deferred financing costs werefully amortized at the January 2003 maturity date. Followingseveral months of discussion with ING, our loan was amended inDecember 2003 and the financing costs associated with the debtamendment of $5.3 million (consisting of fees of $0.3 million andpreferred stock valued at $5.0 million) were being amortizedthrough the maturity date of March 31, 2005. On November 30, 2004we entered into another amendment of the loan agreement, underwhich the term of the loan was extended, the interest rate wasreduced, and a portion of the principal balance was repaidnecessitating the write off of the remaining $1.4 million inunamortized financing costs associated with the loan under theterms applicable as of December 2003.(B) YEAR ENDED DECEMBER 31, 2003 COMPARED TO YEAR ENDED DECEMBER 31, 2002 --------------------------------------------------- The Company had revenues of $3.2 million for the year endedDecember 31, 2003 and $114.3 million for the year ended December31, 2002. Cadiz, excluding Sun World, had revenues of $0.3million for the year ended December 31, 2003 and $2.1 million forthe year ended December 31, 2002. The Company had a net loss of$11.5 million for the year ended December 31, 2003 compared to$22.2 million for the year ended December 31, 2002. Cadiz' netloss, excluding the loss from Sun World, totaled $9.2 million forthe year ended December 31, 2003 compared to $12.7 million forthe year ended December 31, 2002, with the decrease for the 2003period resulting from decreases in general and administrative andinterest expense offset by a reduction in revenue and no costincurred for the removal of underperforming crops in 2003. REVENUES Our revenue totaled $3.2 million during the yearended December 31, 2003 compared to $114.2 million the precedingyear. Cadiz' standalone revenue, excluding the revenue of SunWorld, totaled $0.3 million during the year ended December 31,2003 compared to $2.1 million the preceding year. The decrease isprimarily due to discontinuation of the management fee payable bySun World as of January 30, 2003 due to Sun World's Chapter 11filing. GENERAL AND ADMINISTRATIVE EXPENSES. General andadministrative expenses during the year ended December 31, 2003totaled $5.2 million compared to $17.0 million for the year endedDecember 31, 2002. Cadiz' general and administrative expenses,excluding that of Sun World, during the year ended December 31,2003 totaled $4.7 million compared to $7.5 million for the yearended December 31, 2002. The decrease in general andadministrative expenses is primarily due to reductions insalaries and other costs associated with a reduction in staffing,elimination of foreign water programs, and reduced facility andinsurance costs, partly offset by increased professional feesrelated to transactions with our secured lender, our equityraising activities, and the Sun World bankruptcy. WRITE OFF OF INVESTMENT IN SUBSIDIARY On January 30, 2003,Sun World and certain of its subsidiaries filed voluntarypetitions for relief under Chapter 11 of the Bankruptcy Code. Asof that date, due to the Company's loss of control over theoperations of Sun World, the financial statements of Sun Worldare no longer consolidated with those of Cadiz, but instead Cadizaccounts for its investment in Sun World on the cost basis ofaccounting. As a result of changing to the cost basis ofaccounting and because the Company does not believe it will beable to recover its investment, in 2003 the Company wrote off itsinvestment in Sun World of $195,000.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 17 REORGANIZATION COSTS Reorganization costs totaled $0.7million during 2003. These costs were incurred by Sun Worldduring January 2003 related to the Chapter 11 bankruptcy filing.No such costs occurred during 2002. REMOVAL OF UNDERPERFORMING CROPS Removal of underperformingcrops totaled $4.5 million for the year ended December 31, 2002.During 2002, Cadiz removed 200 acres of underperforming tablegrapes and citrus at the Cadiz Ranch resulting in a charge of$1.0 million in connection with the removal of these crops. Theremaining $3.5 million related to Sun World. No such removals occurred during 2003. DEPRECIATION AND AMORTIZATION Depreciation and amortizationtotaled $0.7 million for the year ended December 31, 2003compared to $7.5 million for the 2002 year. Depreciation andamortization for Cadiz, excluding that of Sun World, totaled $0.6million for the year ended December 31, 2003 compared to $1.0million for the 2002 year. The reduction in depreciation andamortization is primarily due to the removal of underperformingcrops in 2002 and certain assets becoming fully depreciatedduring the past year. INTEREST EXPENSE, NET. Net interest expense totaled $4.9million during the year ended December 31, 2003, which includedSun World expense for the period to January 30, 2003, compared to$21.2 million during the same period in 2002, which included SunWorld expense for the full year. Net interest expense for Cadiz,excluding that of Sun World, totaled $3.6 million during the yearended December 31, 2003, compared to $5.1 million during the sameperiod in 2002. The following table summarizes the components ofCadiz' net interest expense and that of Sun World for the twoperiods (in thousands): YEAR ENDED DECEMBER 31, ------------ 2003 2002 ---- ---- Cadiz Interest on outstanding debt $ 3,053 $ 3,101 Amortization of financing costs 641 2,712 Interest income (58) (705) Sun World interest expense 1,269 16,064 -------- -------- $ 4,905 $ 21,172 ======== ======== Financing costs, which include legal fees and warrant costs,are amortized over the life of the debt agreement. In December2003 we entered into an agreement with ING which extended thematurity date of our loan which had a prior maturity date ofJanuary 31, 2003. The financing costs associated with the December2003 debt amendment of $5.3 million (consisting of fees of $0.3million and preferred stock valued at $5.0 million) were beingamortized through the maturity date of March 31, 2005 starting inDecember 2003. The deferred financing costs of the loan thatmatured in January 2003 were fully amortized as at the January2003 maturity date. As a result there was little amortizationduring 2003. The lower interest income was the result of nointerest accruing on the intercompany loans to Sun Worldfollowing the Chapter 11 petition. Page 18Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. LIQUIDITY AND CAPITAL RESOURCES(A) CURRENT FINANCING ARRANGEMENTS ------------------------------ CADIZ OBLIGATIONS. As we have not received significantrevenues from our water resource activity to date, we have beenrequired to obtain financing to bridge the gap between the timewater resource development expenses are incurred and the timethat revenue will commence. Historically, we have addressed theseneeds primarily through secured debt financing arrangements withour lenders, private equity placements and the exercise ofoutstanding stock options. Subsequent to the vote of Metropolitan's Board in October2002 to not proceed with the Cadiz Program and Sun World'sJanuary 2003 bankruptcy filing, we have worked with our primarysecured lender, ING Capital LLC, to structure our debt in a waywhich would allow us to continue our development of the CadizProgram. We believe that we have accomplished this goal with aseries of agreements with ING, in the most recent of whichconcluded in November 2004. In November 2004 we entered into our most recent series ofagreements with ING which provided for: * the repayment in full of our senior term loan facility with ING and the reduction to $25 million of the outstanding principal balance under our existing revolving credit facility; and * amendments to the terms and conditions of our revolving credit facility with ING in order to: (i) extend the maturity date of the debt until March 31, 2010, conditioned upon a further principal reduction of $10 million on or before March 31, 2008, and (ii) reduce the interest rate through March 31, 2008 on the new outstanding balance to 4% cash plus 4% PIK (increasing to 4% cash plus 6% PIK for interest periods commencing on and after April 1, 2008). Also in November 2004 ING agreed to convert 99,000 shares ofthe Company's Series F Preferred Stock (representing 99% of theoutstanding shares of Series F Preferred Stock) into 1,711,665shares of the Company's common stock. We had issued 100,000shares of Series F preferred stock to ING as part of ouragreements in December 2003. Concurrently with this conversion, the terms and conditionsof the remaining outstanding Series F Preferred Stock wereamended to fix the conversion ratio at its original conversionratio of 17.28955 shares of common stock for each share of SeriesF Preferred Stock converted. In addition to its conversationrights, as the holder of this preferred stock ING holds: - The right to appoint two members of our Board of Directors as long as both (a) the outstanding principal balance of ING's loan is at least $15 million, and (b) the Series F Preferred Stock holdings of ING (including both the common stock into which outstanding Series F Preferred Stock is then convertible and any common stock received by ING upon previous Page 19Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. conversions of Series F Preferred Stock which remains held by, and has not been disposed of, by ING) represent at least 5% of our common stock; - The right to approve the authorization or issuance of any other class or shares of our preferred stock; - Anti-dilution protection; - Pre-emptive rights; - Registration rights; and - Dividend, liquidation and voting rights shared on an as- converted basis with common stock. Pursuant to our loan arrangements with ING, ING also has theright to appoint an independent manager to the Board of Managersof Cadiz Real Estate LLC, a Delaware limited liability company("Cadiz Real Estate"), in which we hold 100% of the economicinterests. In December 2003 we transferred substantially all ofour assets (with the exception of our office sublease, certainoffice furniture and any Sun World related assets) to Cadiz RealEstate. Cadiz Real Estate is a co-obligor with us on our creditfacilities with ING, and the properties now held of record byCadiz Real Estate secure our obligations under these facilities.We have entered into a management agreement with Cadiz RealEstate pursuant to which we manage the assets now held by CadizReal Estate, subject to the requirements of the OperatingAgreement of Cadiz Real Estate. The Operating Agreement of CadizReal Estate provides for a Board of Managers consisting of twomanagers appointed by us and one independent manager named byING. As long as our obligations to ING are outstanding, CadizReal Estate may not institute bankruptcy proceedings without theunanimous consent of this Board of Managers (including theindependent manager). The debt covenants associated with our ING credit facilitywere negotiated by the parties with a view towards our operatingand financial condition as it existed at the time our currentrevised agreements were entered into. Given currentcircumstances, we do not consider it likely that we will be inmaterial breach of such covenants. As we continue to actively pursue our business strategy,additional financing specifically in connection with our waterprograms will be required. See "Outlook", below. As the partieshave anticipated this need, the covenants in the credit facilitywhich would otherwise prohibit our incurrence of additional debt(or our use of our assets as security for such debt) contain anexception for debt and liens incurred in order to finance theacquisition, construction or improvement of any assets (up to amaximum of $135 million at any one time outstanding). Thecovenants in the credit facility do not prohibit our use ofequity financing, but do provide that 35% of the proceeds of suchissuance be applied as a prepayment against such facility. We donot expect these covenants to materially limit our ability toundertake debt or equity financing in order to finance our waterdevelopment activities. At December 31, 2004, we have no outstanding creditfacilities or preferred stock other than that held by ING asdescribed above.SUN WORLD OBLIGATIONS--------------------- Sun World has outstanding $115 million of First MortgageNotes. The First Mortgage Notes were originally to mature onApril 15, 2004. The First Mortgage Notes went into default as aconsequence of the Sun World bankruptcy filing. In February 2005,Sun World completed the sale of substantially all of its assetsfor cash and credit consideration of $127.8 million, plus Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 20payment and assumption of certain liabilities totaling an estimated $14 million, including the trade claims, which approximates net bookvalue of the acquired assets as of December 31, 2004. Sun Worldplans to file an amended Plan to distribute the remainingconsideration left in Sun World (estimated at approximately $50million after interim distributions/credits to the holders ofFirst Mortgage Notes of approximately $78 million upon closing asauthorized by the Court) and the distribution will be sufficientto enable Sun World to repay all holders of the First MortgageNotes. We have obtained waivers and/or releases with respect to ourpreviously issued guarantees of the First Mortgage Notes from allthe holders of outstanding First Mortgage Notes. Further, aspart of a December 2003 global settlement, we have settled all ofour claims and obligations with Sun World. Although we continueto be the record owner of Sun World's stock, with the recentlycompleted sale by Sun World of all of its assets, Sun World doesnot conduct any business operations. We therefore have nofurther obligations or working capital needs with respect to SunWorld. CASH USED FOR OPERATING ACTIVITIES. Cash used for operatingactivities totaled $7.6 million for the year ended December 31,2004, as compared to cash used for operating activities of $6.6million for the year ended December 31, 2003. The above amountsare not comparable because of the deconsolidation of Sun World inJanuary 2003. Cash used by Cadiz (exclusive of Sun World) for operatingactivities for the year ended December 31, 2004 totaled $7.6million compared to $4.9 million for the previous year. Theincrease in cash used for operating activities was due to anincrease in net loss by $4.5 million in the year ended December31, 2004 as compared to the same period in 2003. This was offsetby an increase in non-cash expenses, the major items being write-off of permanent crops of $3.4 million in the year ended December31, 2004 compared to $2.5 million loss from subsidiary in Januaryof the preceding year. CASH PROVIDED BY (USED FOR) INVESTING ACTIVITIES. Cashprovided by investing activities totaled $2.1 million for theyear ended December 31, 2004, as compared to $3.5 million usedfor investing activities during the same period in 2003. Cash provided by investing activities for the year endedDecember 31, 2004 was almost entirely due to the reduction ofrestricted cash that had been placed in a restricted bank accountto pay for interest on the $35 million term loan facility withING. The use of a restricted bank account for this purpose hadbeen a requirement under our pre-November 2004 arrangements withING. The 2003 expenditures of $2.0 million (exclusive of SunWorld) were primarily the placing of the $2.1 million in therestricted bank account. CASH PROVIDED BY FINANCING ACTIVITIES. Cash provided byfinancing activities totaled $11.1 million for the year endedDecember 31, 2004 consisting primarily of $21.3 million in netproceeds from the issuance of capital stock by Cadiz, offset by$10.0 million in repayment of term loan borrowings. For the sameperiod in 2003, cash provided by financing activities totaled$10.2 million consisting primarily of $10.3 million from theissuance of capital stock by Cadiz.(B) OUTLOOKSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ------- SHORT TERM OUTLOOK. The proceeds of our 2003 and 2004private placements have provided us with sufficient cash to meetour expected working capital needs for current operations untilthe Company will need to raise additional capital in order tofund the $10 million Page 21repayment of its borrowing from ING required to be made by March 2008 in order to obtain a further two year extension of the maturity date of the ING loan. See "Long Term Outlook", below. Approximately $12.7 million of the proceeds of our November 2004 private placement were used to reduce the principal balance, which included approximately $2.7 million in interest payable in kind ("PIK"), owed to ING under our ING credit facilities to $25 million. 40 Units in the 2004 private placement were issued to ING for $2.4 million of prepaidinterest under the Company's $25 million borrowing from the lender. The remainder of the proceeds from the placements will be used to meet our ongoing working capital needs. LONG TERM OUTLOOK. In the longer term, the current maturitydate of our loan with ING is March 2008, although we may obtain afurther extension of this loan by making a $10 million repayment.Otherwise, our working capital needs will be determined basedupon the specific measures we pursue in the development of ourwater resources. We will evaluate the amount of cash needed,and the manner in which such cash will be raised, on an ongoingbasis. We may meet any such future cash requirements through avariety of means to be determined at the appropriate time. Suchmeans may include equity or debt placements, or the sale or otherdisposition of assets. Equity placements would be undertakenonly to the extent necessary so as to minimize the dilutiveeffect of any such placements upon our existing stockholders. (C) CERTAIN TRENDS AND UNCERTAINTIES -------------------------------- In connection with the "safe harbor" provisions of thePrivate Securities Litigation Reform Act of 1995, we are filingcautionary statements identifying important risk factors thatcould cause our actual results to differ materially from thoseprojected in our forward-looking statements made by or on ourbehalf. We wish to caution readers that these factors, amongothers, could cause our actual results to differ materially fromthose expressed in any projected, estimated or forward-lookingstatements relating to us. The following factors should beconsidered in conjunction with any discussion of operations orresults by us or our representatives, including any forward-looking discussion, as well as comments contained in pressreleases, presentations to securities analysts or investors, orother communications to us. In making these statements, we are not undertaking toaddress or update each factor in future filings or communicationsregarding our business or results, and are not undertaking toaddress how any of these factors may have caused changes todiscussions or information contained in previous filings orcommunications. In addition, certain of these matters may haveaffected our past results and may affect future results. OUR REVENUES ARE DEPENDENT UPON THE SUCCESS OF OUR WATERDEVELOPMENT PROJECTS. We may never generate revenues or becomeprofitable unless we are able to successfully implement our waterdevelopment programs. At present, we do not know the terms, ifSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. any, upon which we may be able to proceed with the Cadiz Program,or of any alternative means which we may be able to use in orderto implement our water development programs. Regardless of theform of our water development programs, the circumstances underwhich transfers or storage of water can be made and theprofitability of any transfers or storage are subject tosignificant uncertainties, including hydrologic risks of variablewater supplies, risks presented by allocations of water underexisting and prospective priorities, and risks of adverse changesto or interpretations of U.S. federal, state and local laws,regulations and policies. Additional risks attendant to suchprograms include our ability to obtain all necessary regulatory approvals and permits, possible litigation by environmental or other groups, unforeseen technical difficulties, and general market conditions for water supplies. Page 22 OUR FAILURE TO MAKE TIMELY PAYMENTS OF PRINCIPAL ANDINTEREST ON OUR INDEBTEDNESS MAY RESULT IN A FORECLOSURE ON OURASSETS. As of December 31, 2004, we had indebtedness outstandingto our senior secured lender of approximately $25 million. Ourassets have been put up as collateral to secure the payment ofthis debt. If we cannot generate sufficient cash flow to maketimely payments of principal and interest on this indebtedness,or if we otherwise fail to comply with the terms of agreementsgoverning our indebtedness, we may default on our obligations.If we default on our obligations, our lenders may sell off theassets that we have put up as collateral. This, in turn, mayresult in a cessation or sale of our operations. THE ISSUANCE OF SHARES UNDER OUR MANAGEMENT EQUITY INCENTIVEPLAN WILL IMPACT EARNINGS. Under applicable accounting rules, theissuance of shares and options under our Management IncentiveEquity Plan will result in a charge to earnings based on thevalue of our common stock at the time of issue and the valuationof options at the time of their award and will be recorded overthe vesting period in proportion to the quantities vested. OurManagement Equity Incentive Plan provides for the issuance of upto 1,472,051 shares of common stock. We expect that during theyear ended December 31, 2005 we will issue stock or options topurchase stock representing most or all of the shares authorizedfor issuance under this Management Equity Incentive Plan. Basedon the trading price at February 28, 2004 such issuances willresult in significant charges to our earnings for the yearsending December 31, 2005 and 2006. If all shares are issued underthis plan in the year ending December 31, 2005, the cost ofapproximately 83% of shares will be an expense during 2005. OUR STOCK IS NOT TRADED ON A NATIONAL SECURITIES EXCHANGE.Effective March 27, 2003, our common stock was delisted fromtrading on the Nasdaq National Market. While we have reappliedfor a Nasdaq listing, certain requirements for such a listing,such as minimum trading price, are not within our control, andtherefore we cannot be certain when or if Nasdaq will approve ourlisting application. FURTHER EQUITY FINANCINGS WOULD RESULT IN THE DILUTIONOF OWNERSHIP INTERESTS OF CURRENT STOCKHOLDERS. We may requireadditional capital to finance our operations until such time asour water development operations produce revenues. We cannotassure you that our current lenders, or any other lenders, willgive us additional credit should we seek it. THE REGISTRATION FOR RESALE OF COMMON STOCK PURSUANT TOEXISTING REGISTRATION RIGHTS AGREEMENTS WILL INCREASE THE NUMBEROF OUTSTANDING SHARES OF OUR COMMON STOCK ELIGIBLE FOR RESALE.The sale, or availability for sale, of these shares could causeSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. decreases in the market price of our common stock, particularlyin the event that a large number of shares were sold in thepublic market over a short period of time. Similarly, theperception that additional shares of our common stock could besold in the public market in the future, could cause a reductionin the trading price of our stock. WE ARE RESTRICTED BY CONTRACT FROM PAYING DIVIDENDS ANDWE DO NOT INTEND TO PAY DIVIDENDS IN THE FORESEEABLE FUTURE. Anyreturn on investment on our common stock will depend primarilyupon the appreciation in the price of our common stock. To date,we have never paid a cash dividend on our common stock. The loandocuments governing our credit facilities with ING prohibit thepayment of dividends while such facilities are outstanding. Aswe have a history of operating losses, we have been unable todate to pay dividends. Even if we post a profit in future years, we currently intend to retain all future earnings for the operation of our business. As a result, we do not anticipate that we will declare any dividends in the foreseeable future. Page 23(D) CRITICAL ACCOUNTING POLICIES ---------------------------- As discussed in Note 2 to the Consolidated FinancialStatements of Cadiz, the preparation of financial statements inconformity with accounting principles generally accepted in theUnited States requires management to make estimates andassumptions that affect amounts reported in the accompanyingconsolidated financial statements and related footnotes. Inpreparing these financial statements, management has made itsbest estimates and judgments of certain amounts included in thefinancial statements based on all relevant information availableat the time and giving due to consideration to materiality. We donot believe there is a great likelihood that materially differentamounts would be reported related to the accounting policiesdescribed below. However, application of these policies involvesthe exercise of judgment and use of assumptions as to futureuncertainties and, as a result, actual results could differ fromthese estimates. Management has concluded that the followingcritical accounting policies described below affect the mostsignificant judgments and estimates used in the preparation ofthe consolidated financial statements. (1) PRINCIPLES OF CONSOLIDATION The ConsolidatedFinancial Statements have been prepared by Cadiz Inc., sometimesreferred to as "Cadiz" or "the Company". On January 30, 2003, SunWorld filed voluntary petitions under Chapter 11 of theBankruptcy Code. Since the filing date, Sun World has operatedits business and managed its affairs as debtor and debtor inpossession. As of that date due to the Company's loss of controlover the operations of Sun World, the financial statements of SunWorld are no longer consolidated with those of Cadiz, butinstead, Cadiz is accounting for its investment in Sun World onthe cost basis of accounting. As a result, the Company wrote offits net investment in Sun World of $195 thousand at the Chapter11 filing date because it did not anticipate being able torecover its investment. The foregoing Consolidated FinancialStatements include the accounts of the Company and, until January30, 2003, those of its then wholly-owned subsidiary, Sun WorldInternational, Inc. and its subsidiaries collectively referred toas "Sun World", and contain all adjustments, consisting only ofnormal recurring adjustments, which the Company considersnecessary for a fair presentation. Certain reclassificationshave been made to the prior period to conform to the currentperiod presentation.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (2) Intangible and Other Long-Lived Assets. Property,plant and equipment, intangible and certain other long-livedassets are amortized over their useful lives. Useful lives arebased on management's estimates of the period that the assetswill generate revenue. Long-lived assets are reviewed forimpairment whenever events or changes in circumstances indicatethat the carrying amount of an asset may not be recoverable. AtSun World, management regularly reviews crop portfolios in anattempt to identify crops that are underperforming generally atthe conclusion of each growing season. As a result of thesereviews, management determines which crops will be removedimmediately or at the conclusion of the next growing season. Assuch, appropriate writedowns and accruals for estimated removalcosts are made and where appropriate, remaining useful lives areshortened to correspond to the estimated period that the assetsare expected to generate future revenues. As a result of theactions taken by Metropolitan in the fourth quarter of 2002 asdescribed in Note 1, the Company, with the assistance of avaluation firm, evaluated the carrying value of its water programand determined that the asset was not impaired and that the costsexpect to be recovered through sale or operation of the project. During the fourth quarter of the year ended December 31,2004, the long-standing lease to Sun World for a portion of thepermanent and developing crops at the Cadiz Valley propertyterminated and the crops have not been leased to any other party.The lease to an independent Page 24third party for the remainder of the crops is on a year to year basis and does not generate a significant amount of revenue. Based on the uncertainty as to possible recovery of the carrying value of the permanent crops and developing crops the Company recorded a charge of $3.4 million to write off the capitalized costs related to these crops which is shown under the heading "Write-off of permanent and developing crops" on the Consolidated Statement of Operations. (3) GOODWILL. As a result of a merger in May 1988 betweentwo companies, which eventually became known as Cadiz Inc.,goodwill in the amount of $7,006,000 was recorded. Approximately$3,193,000 of this amount was amortized until the adoption ofFinancial Accounting Standards Board (FASB) issued Statement ofFinancial Accounting Standards No. 142, ("SFAS No. 142")"Goodwill and Other Intangible Assets" on January 1, 2002.Goodwill is tested for impairment annually in the first quarter,or if events occur which require an impairment analysis beperformed. As a result of the actions taken by Metropolitan inthe fourth quarter of 2002 as described in Note 1, the Company,with the assistance of a valuation firm, performed an impairmenttest of its goodwill and determined that its goodwill was notimpaired. In addition, in the first quarter of 2004 and 2003,the Company, performed its annual impairment test of goodwill anddetermined its goodwill was not impaired. (4) DEFERRED TAX ASSETS AND VALUATION ALLOWANCES. To date,we have had a history of net operating losses as we have notgenerated significant revenue from our water development programsand Sun World had experienced losses from its agriculturaloperations. As such, we have generated significant deferred taxassets, including large net operating loss carry forwards forfederal and state income taxes for which we have a full valuationallowance. Management is currently working on initiatives atCadiz that are designed to generate future taxable income,although there can be no guarantee that this will occur. Astaxable income is generated, some portion or all of the valuationallowance will be reversed and an increase in net income wouldSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. consequently be reported in future years.(E) NEW ACCOUNTING PRONOUNCEMENTS ----------------------------- In December 2004, the Financial Accounting Standards Boardissued SFAS no. 123(R) (revised 2004), "Share-Based Payment"which amends SFAS Statement 123 and will be effective for publiccompanies for interim periods or annual periods beginning afterJune 15, 2005. The new standard will require us to recognizecompensation costs in our financial statements in an amount equalto the fair value of share-based payments granted to employeesand directors. We are currently evaluating how we will adopt thestandard and evaluating the effect that the adoption of SFAS123(R) will have on our financial position and results ofoperations.(F) OFF BALANCE SHEET ARRANGEMENTS ------------------------------ Cadiz does not have any off balance sheet arrangements atthis time other than the guarantee of Sun World's first mortgagenotes. See "Liquidity and Capital Resources - Sun WorldObligations" above. Page 25(G) CERTAIN KNOWN CONTRACTUAL OBLIGATIONS ------------------------------------- PAYMENTS DUE BY PERIODCONTRACTUAL LESS THANOBLIGATIONS TOTAL 1 YEAR 1-3 YEARS 4-5 YEARS AFTER 5 YEARS----------- ----- --------- --------- --------- -------------Long term debt obligations $ 25,000 $ - $ - $ 10,000 $ 15,000Operating leases 150 124 26 - - -------- -------- -------- -------- -------- $ 25,150 $ 124 $ 26 $ 10,000 $ 15,000 ======== ======== ======== ======== ======== Cadiz long-term debt included in the table above reflectsthe most recent arrangements with ING which were concluded inNovember 2004 as described above in Item 7, ManagementsDiscussion and Analysis of Financial Condition and Results ofOperation; Liquidity and Capital Resources; Cadiz Obligations.ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK We are exposed to market risk from changes in interest rateson long-term debt obligations that impact the fair value of theseobligations. Our policy is to manage interest ratesfair values by year of scheduled maturities to evaluate theexpected cash flows and sensitivity to interest rate changes (inthousands of dollars). Circumstances could arise which may causeinterest rates and the timing and amount of actual cash flows todiffer materially from the schedule below: LONG-TERM DEBT ------------------------------------------------------- FIXED RATE AVERAGE VARIABLE RATE AVERAGEEXPECTED MATURITY MATURITIES INTEREST RATE MATURITIES INTEREST RATE----------------- ---------- ------------- ------------- ------------- 2008 $ 10,000 8.0% $ - $ - Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ======== ======== 2010 $ 15,000 8.8% $ - $ - ======== ==== ======== ======== Cadiz long-term debt included in the table above reflectsthe debt restructuring which occurred in December 2004 asdescribed above in Item 7. Managements Discussion and Analysis ofFinancial Condition and Results of Operations; Liquidity andCapital Resources; Cadiz Obligations. Cadiz has guaranteed the First Mortgage Notes issued by SunWorld as described above in Item 7. Managements Discussion andAnalysis of Financial Condition and Results of Operations;Liquidity and Capital Resources; Sun World Obligations.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The information required by this item is submitted inresponse to Part IV below. See the Index to ConsolidatedFinancial Statements. Page 26ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE Not applicable.ITEM 9A. CONTROLS AND PROCEDURES We carried out an evaluation, under the supervision and withthe participation of our management, including our Chairman,Chief Executive Officer and Chief Financial Officer (PrincipalExecutive and Financial Officer), of the effectiveness of thedesign and operation of our disclosure controls and procedures asof December 31, 2004. As of the date of that evaluation, ourChairman, Chief Executive Officer and Chief Financial Officerconcluded that these disclosure controls and procedures areeffective in timely alerting him to material information relatingto Cadiz (including our consolidated subsidiaries) required to beincluded in our periodic Securities and Exchange Commissionfilings. There was no significant change in our internal controlover financial reporting that occurred during the most recentfiscal quarter that materially affected, or is reasonably likelyto affect, our internal control over financial reporting, and nocorrective actions with regard to significant deficiencies orweaknesses.ITEM 9B. OTHER INFORMATION COMPENSATORY PLANS OR ARRANGEMENTS On December 7, 2004 our Board adopted resolutionssupplementing our Management Equity Incentive Plan, which wasauthorized in December 2003. These resolutions provided for thegeneral vesting and other conditions of issuance for the 754,678shares characterized as the "Subsequent Allocation Shares" underthe Plan. See Item 12. "Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters -Management Equity Incentive Plan". Also on December 7, 2004, our Compensation Committeeadopted, and our Board ratified, the Cadiz Inc. 2004 ManagementBonus Plan which authorized the issuance of 10,000 shares of ourSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. common stock to our Chairman and Chief Executive Officer, KeithBrackpool, as a performance bonus. Such shares have not yet beenissued. See Item 12. "Security Ownership of Certain BeneficialOwners and Management and Related Stockholder Matters -Management Equity Incentive Plan". Page 27 PART IIIITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT Name Age Position with Cadiz ---- --- ------------------- Keith Brackpool 47 Chairman of the Board, President, Chief Executive and Financial Officer Murray H. Hutchison 66 Director Timothy J. Shaheen 45 Director Geoffrey Arens 40 Director Gregory Ritchie 41 Director Richard E. Stoddard 54 Chairman of the Board of Managers and CEO of Cadiz Real Estate LLC Keith Brackpool is a founder of Cadiz, has served as amember of Cadiz' Board of Directors since September 1986, and hasserved as President and Chief Executive Officer of Cadiz sinceDecember 1991. Mr. Brackpool assumed the role of Chairman of theBoard of Cadiz on May 14, 2001, and the role of Chief FinancialOfficer on May 19, 2003. Mr. Brackpool has also been a principalof 1334 Partners L.P., a partnership that owns commercial realestate from 1989 to present. Murray H. Hutchison was appointed a director of Cadiz inJune 1997. He is also a member of the Board of Managers (an LLC'sfunctional equivalent of a Board of Directors) of Cadiz'subsidiary, Cadiz Real Estate LLC. In his capacity as a managerof the LLC he performs essentially the same duties on behalf ofthe LLC as he would as an outside director for a corporation.Since his retirement in 1996 from International TechnologyCorporation, a publicly traded diversified environmentalmanagement company, Mr. Hutchison has been self-employed with hisbusiness activities involving primarily the management of aninvestment portfolio. From 1976 to 1994, Mr. Hutchison served asChief Executive Officer and Chairman of International Technology.Mr. Hutchison currently serves as a director of Jack in the Box,Inc., a publicly traded fast food restaurant chain. Additionally,Mr. Hutchison serves as Chairman of the Huntington HotelCorporation, a privately owned hotel and office building, and asa director of several other non-publicly traded U.S. companies. Timothy J. Shaheen was appointed a director of Cadiz inMarch 1999. Since September 1996 Mr. Shaheen has served as thePresident, Chief Executive Officer and a director of Sun World.Concurrently with the February 2005 sale by Sun World ofsubstantially all of its assets, Mr. Shaheen agreed to remainwith Sun World for a 60 day transition period in order tofacilitate the transfer of Sun World's operations to the buyer ofthese assets. At the conclusion of this transition period Mr.Shaheen's relationship with Sun World shall end.. Prior toSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. joining Sun World, Mr. Shaheen served as a senior executive withAlbert Fisher North America, a publicly traded domestic andinternational produce company from 1989 to 1996. While withAlbert Fisher, Mr. Shaheen also served as director of itsCanadian produce operations and as a director of Fresh WesternMarketing, one of the largest growers and shippers of freshvegetables in the Salinas Valley of California. Prior to hisemployment with Albert Fisher, Mr. Page 28Shaheen has seven years of experience with the accounting firm of Ernst & Young LLP. Mr. Shaheen is a certified public accountant. As described more fully in "Item 1 Description of Business - General Development of Business" above, Sun World and its domestic subsidiaries filed for bankruptcy on January 30, 2003. Geoffrey Arens was appointed a director of Cadiz on January30, 2004 as a nominee of ING pursuant to the rights of ING asholder of Cadiz' Series F preferred stock. Mr. Arens has beenwith ING since 1995 and is the co-Head of ING's Strategic TradingPlatform Americas group and as such is responsible for thatgroup's global proprietary investing business. He is also CEO ofING Capital Advisors, LLC, a registered investment advisorspecializing in the management of leveraged loan assets for largeinstitutional clients. In addition to his Board duties at Cadiz,Mr. Arens also serves on the Board of Directors of ING CapitalManagement, Ltd., and California Coastal Communities, Inc. Gregory Ritchie was appointed a director of Cadiz on March25, 2004 as a nominee of ING pursuant to the rights of ING asholder of Cadiz' Series F preferred stock. Mr. Ritchie has beenwith ING since 1995 and is a Managing Director and the co-head ofING's Strategic Trading Platform and as such is responsible forthe group's global proprietary investing business. He is alsohead of the Strategic Trading Platform's Equities team. Richard E. Stoddard serves as Chairman and CEO of the Boardof Managers of Cadiz Real Estate LLC, the subsidiary of Cadiz,directing the development of the Cadiz Groundwater StorageProgram and the other Cadiz real estate assets. In addition,since 1988, Mr. Stoddard has served as the Chairman and CEO ofKaiser Ventures LLC, an unrelated public entity involved realestate development and waste management projects in southernCalifornia. Kaiser Ventures LLC was previously involved in waterdevelopment projects in Southern California. The certificate of designation for our Series F preferredstock provides that the holder(s) of the Series F preferred stock(currently ING) have the right to elect two members of the Boardof Directors. Directors of Cadiz hold office until the next annual meetingof stockholders or until their successors are elected andqualified. There are no family relationships between anydirectors or current officers of Cadiz. Officers serve at thediscretion of the Board of Directors. The Board of Directors has determined that Mr. Hutchison, amember of the Company's Audit Committee, is an "audit committeefinancial expert" as that term is defined in Item 401(h) ofRegulation S-K under the Securities Act. The other members of theAudit Committee are Messrs. Arens and Ritchie. The Board hasdetermined that Messrs. Hutchison, Arens and Ritchie areindependent in accordance with the criteria and guidelinesestablished by Nasdaq. SECTION 16(A) BENEFICIAL OWNERSHIP REPORTING COMPLIANCESource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Section 16(a) of the Exchange Act requires our directors andexecutive officers, and persons who beneficially own more than10% of a registered class of our equity securities ("reportingpersons"), to file with the SEC initial reports of ownership andreports of changes in ownership of common stock and other equitysecurities of Cadiz. Reporting persons are required by the SECregulations to furnish Cadiz with copies of all Section 16(a)forms they file. To Cadiz' knowledge, based solely on a reviewof the copies of reports and amendments thereto on Forms 3, 4 and5 furnished to us by reporting persons and forms that we filed onbehalf of certain directors and officers, during, and withrespect to, Cadiz' fiscal year ended Page 29December 31, 2004, and on a review of written representations from reporting persons to Cadiz that no other reports were required to be filed for such fiscal year, the Form 3 filed on February 11, 2004 by ING Groep NV which reported transactions by which it became a 10% owner on December 15, 2003 was inadvertently filed late and the Form 4 filed on January 7, 2005 for Mr. Shaheen which reported his sale onDecember 27, 2004 of 3,986 shares was inadvertently filed late,and all other Section 16(a) filing requirements applicable toCadiz' directors, executive officers and greater than 10%beneficial owners during such period were satisfied in a timelymanner.CODE OF ETHICS Cadiz has adopted a code of ethics that applies to all ofits employees, including its principal executive and financialofficer. A copy of the code of ethics may be found on Cadiz'website at www.cadizinc.com. Other information on this websiteis not incorporated as part of this filing. Page 30ITEM 11. EXECUTIVE COMPENSATION The tables and discussion below set forth information aboutthe compensation awarded to, earned by, or paid to Cadiz' chiefexecutive and financial officer during the years ended December31, 2004, 2003 and 2002 and to the chief executive of Cadiz'subsidiary, Cadiz Real Estate LLC, during the year ended December31, 2004. SUMMARY COMPENSATION TABLENAME AND FISCAL ANNUAL COMPENSATION(2) OTHER LONG-TERMPRINCIPAL POSITION YEAR(1) SALARY BONUS COMPENSATION AWARDS Keith Brackpool 12/31/04 $ 250,000 $240,000(3) $ -0- President and Chief 12/31/03 288,461 200,000(4) 850,000(5) Executive and 12/31/02 500,000 233,124 -0- Financial Officer Richard E. Stoddard 12/31/04 250,000(6) -0- -0- Chief Executive Officer Cadiz Real Estate LLC ______________________________________ (1)The information presented in this table is for the years ended December 31, 2004, 2003 and 2002. The executive officers for whom compensation has been disclosed for the year ended December 31, 2004, are the only executive officers of Cadiz or its subsidiaries as of December 31, 2004. Mr. Stoddard was appointed chief executive officer of Cadiz Real Estate LLC effective October 29, 2004. No other executive officer received total salary or bonus exceedingSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. $100,000 during the year ended December 31, 2004. (2)No column for "Other Annual Compensation" has been included to show compensation not properly categorized as salary or bonus, which consisted entirely during each fiscal year of perquisites and other personal benefits, because the aggregate amounts did not exceed the lesser of either $50,000 or 10% of the total of annual salary and bonus reported for Mr. Brackpool for each fiscal year and for Mr. Stoddard for 2004. See "Employment Arrangements" below. (3)This bonus was paid to Mr. Brackpool $120,000 in cash during the year and $120,000 to be paid through the issue of 10,000 shares of common stock in 2005 under the 2004 Management Bonus Plan. Such shares have not yet been issued. (4)This bonus was paid to Mr. Brackpool in February 2004 for services completed in the preceding calendar year. Mr. Brackpool was provided the opportunity to receive the bonus in cash or shares of common stock valued at $2.50 per share and elected to receive his compensation in stock. (5)Mr. Brackpool received an aggregate $850,000 due to the termination of his previous employment agreement without cause and foregone salary. (6)Mr. Stoddard receives $20,833 monthly in accordance with a consulting agreement dated August 1, 2002 and revised and extended on January 1, 2004 COMPENSATION OF DIRECTORS In the fiscal year 2004, Murray H. Hutchison received cashcompensation for his services as a director of Cadiz in theamount of $25,000. Messrs. Brackpool, Shaheen, Arens and Ritchie do not receiveany compensation from Cadiz for serving as directors of Cadiz.Mr. Hutchison will receive $25,000 per year in accordancewith his agreement with Cadiz for services as director. EMPLOYMENT ARRANGEMENTS Mr. Brackpool is compensated under an Agreement RegardingEmployment pursuant to which Mr. Brackpool receives basecompensation of $250,000 per year, plus certain fringe benefitsincluding the use of a leased automobile and life and disabilityinsurance benefits funded by us. While this Agreement requiresMr. Brackpool to perform his services in a satisfactory manner,it does not require that his services be provided on a full-timebasis. Although the initial term of the Agreement RegardingEmployment ended September 30, 2003, Page 31Mr. Brackpool continues to provide services to us upon the terms and conditions set forth in this Agreement. Mr. Stoddard is compensated in accordance with a ConsultingAgreement dated August 1, 2002, and extended on January 1, 2004,pursuant to which he receives $20,833.00 per month and whichcontinues on a month to month basis until terminated by eitherparty. Under this agreement Mr. Stoddard serves as the Chairmanand CEO of the Board of Managers of Cadiz Real Estate LLC, thesubsidiary of Cadiz. The agreement also provides that Mr.Stoddard will participate in the Management Equity Incentive Planand as a member of the key management team in any further equitygrants considered by the compensation committee of the Board ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Directors of Cadiz.COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION The Board of Directors has formed a Compensation Committee which is responsible for reviewing and establishing the compensation payable to Cadiz' executive officers, including the President and Chief Executive Officer. For executive officers other than the President and Chief Executive Officer, the Committee establishes compensation levels based, in part, upon the recommendations of the President and Chief Executive Officer. The Compensation Committee has furnished the following report on executive compensation:(1) Cadiz' executive compensation programs are designed to enhance operating performance and to maximize the long- term value of Cadiz' assets and stockholder value, by aligning the financial interest of the executive officers with those of the stockholders. Such a compensation program helps to achieve Cadiz' business and financial objectives and provide incentives needed to attract and retain well-qualified executives in a highly competitive marketplace. To this end, Cadiz has developed a compensation program with three primary components: base salary, performance-based cash awards and long-term incentives through stock awards. BASE SALARY. In light of the nature of Cadiz' resource development activities, the Cadiz compensation program is weighted more heavily towards long-term incentives than is typical of other companies with similarly sized asset portfolios. Accordingly, the base salary component of the compensation program is lower than that typically provided by similarly sized companies. No specific or set formula has been used to tie base salary levels to precise measurable factors; rather, current base salaries have been established by agreement between Cadiz and its key executives. Where applicable, the Compensation Committee may also consider the past performance of the officer, both in adjusting base salary levels and in determining additional incentive compensation, such as the cash awards and long term incentives discussed below. As Chairman and Chief Executive Officer of Cadiz, Mr. Brackpool is charged with the overall responsibility for the performance of Cadiz. Mr. Brackpool is compensated pursuant to a written agreement effective as of February 1, 2003. This agreement was entered into following a breach by Cadiz of Mr. Brackpool's Page 32 prior employment agreement and the effective termination of such prior employment agreement. At the time, Cadiz and Mr. Brackpool agreed that, because of Mr. Brackpool's experience and background, particularly at a critical juncture of Cadiz' operations, Cadiz had and continues to have a need for Mr. Brackpool's services. In light of then existing circumstances (i.e. Metropolitan's actions in 2002, the January 2003 bankruptcy filing of Cadiz' Sun World subsidiary and the consequent uncertainty concerning Cadiz' ability to continue with the development of its water programs), the employment agreement entered into with Mr.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Brackpool effective as of February 1, 2003 reduced his base salary to 50% of its previous amount but also allowed Mr. Brackpool to provide services to Cadiz on a non-exclusive basis. PERFORMANCE-BASED CASH AWARDS. The Compensation Committee believes that incentives should be offered to executives which are related to improvements in performance that yield increased value for stockholders. Although the Compensation Committee relies primarily upon the grant of incentive stock options or other stock awards to reward executive performance (see "Long-Term Incentives" below), under certain circumstances, the Compensation Committee will utilize performance-based cash awards from time to time to provide additional incentives. Prior to 2003, the Compensation Committee had established bonus compensation for Mr. Brackpool pursuant to criteria established in his employment agreement. Mr. Brackpool's current written agreement does not provide specific criteria for the granting of bonuses. Following Sun World's bankruptcy Cadiz has been able, under Mr. Brackpool's leadership, to successfully retain ownership of all of the assets relating to Cadiz' water programs and to obtain working capital needed to continue efforts to develop these water programs. In light of these accomplishments, the Compensation Committee granted Mr. Brackpool a performance-based bonus in 2004 in the form of $120,000 in cash and 10,000 shares of Cadiz common stock (valued at $12.00 per share) to be issued during 2005. LONG-TERM INCENTIVES. The primary form of incentive compensation offered by Cadiz to executives consists of long-term incentives in the form of stock options or other stock awards. This form of compensation is intended to help retain executives and motivate them to improve Cadiz' long-term performance and hence long- term stock market performance. Stock options and other stock awards are granted at the prevailing market value and will only have added value if Cadiz' stock price increases. The Compensation Committee views the grant of stock awards as both a reward for past performance and an incentive for future performance. Stock options or other stock awards granted by Cadiz may vest immediately upon grant, with the passage of time, at the discretion of the Board, and/or upon the achievement of certain specific performance goals. Where performance is not readily measurable, the vesting of performance based options or other stock awards may be dependent upon the satisfaction of subjective performance criteria. As noted above, a portion of Mr. Brackpool performance based bonus for 2004 is in the form of common stock. Due to the difficult circumstances which Cadiz and its subsidiaries have faced subsequent to Metropolitan's actions in 2002 with respect to the Cadiz water program, all stock options granted under the three then existing stock option Page 33 plans have become virtually worthless and a majority of them have subsequently expired without exercise. Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Therefore, the Compensation Committee, Board of Directors, management and our senior secured lender agreed in December 2003 upon the implementation of a Management Equity Incentive Plan with a total of 1,472,051 shares authorized which would provide incentive to senior management in a going- forward manner. Under this Plan, as supplemented by further board action in December 2004, an initial allocation of 717,373 shares will vest 2/3 immediately on the date of the grant and the remaining 1/3 will vest on December 11, 2005. A subsequent allocation of the remaining shares will be in the form of 377,339 shares of common stock to be granted and 377,339 shares in the form of options to purchase common stock at the price of $12.00 per share. Vesting of the subsequent allocation will be 1/3 upon grant, 1/3 on December 7, 2005 and 1/3 on December 7, 2006. All awards will be subject to continued employment or immediate vesting upon termination without cause. The Board has formed an allocation committee made up of Messrs. Brackpool, Hutchison, and Stoddard to direct the allocation of these shares. While no shares or options have been allocated, granted, or issued under this Plan to date, the allocation committee has identified the members of management who are eligible to participate in the Plan, and the actual allocation and issuance of the shares and options authorized under the Plan may occur at any time. DEDUCTIBILITY OF CERTAIN EXECUTIVE COMPENSATION EXPENSES UNDER FEDERAL TAX LAWS The Compensation Committee has considered the impact of provisions of the Internal Revenue Code of 1986, specifically Code Section 162(m). Section 162(m) limits to $1 million Cadiz' deduction for compensation paid to each executive officer of Cadiz, which does not qualify as "performance based". While Cadiz expects that this provision will not limit its tax deductions for executive compensation in the near term, the Cadiz 1996 Stock Option Plan ?enables Cadiz to comply, to the extent deemed advisable, with the requirements of Section 162(m) for performance based compensation to insure that Cadiz will be able to avail itself of all deductions otherwise available with respect to awards made under the 1996 Stock Option Plan. However, any shares of stock issued to executives under the Cadiz 2000 Stock Award Plan and Management Equity Incentive Plan will not qualify as performance- based compensation and, therefore, will be counted in determining whether the $1 million limit has been reached. CONCLUSION Through the programs described above, a very significant portion of Cadiz' executive compensation is contemplated to be linked directly to corporate performance. The Compensation Committee intends to implement this policy of linking executive compensation to corporate performance in order to continue to align the interest of executives with those of Cadiz' stockholders. THE COMPENSATION COMMITTEE Murray H. Hutchison, Chairman Page 34Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ---------------------------------------------(1) This report shall not be deemed incorporated by reference byany general statement incorporating by reference this annualreport on Form 10-K into any filing under the Securities Act of1933, except to the extent that Cadiz specifically incorporatesthis report by reference, and shall not otherwise be deemed filedunder such acts. STOCK PRICE PERFORMANCE The stock price performance graph below compares thecumulative total return of Cadiz common stock against thecumulative total return of the Standard & Poor's Small Cap 600Nasdaq U.S. index and the Russell 2000r index for the past fivefiscal years. The graph indicates a measurement point of December31, 1999 and assumes a $100 investment on such date in Cadizcommon stock, the Standard & Poor's Small Cap 600 and the Russell2000r indices. With respect to the payment of dividends, Cadizhas not paid any dividends on its common stock, but the Standard& Poor's Small Cap 600 and the Russell 2000r indices assume thatall dividends were reinvested. The stock price performance graphshall not be deemed incorporated by reference by any generalstatement incorporating by reference this annual report on Form10-K into any filing under the Securities Act of 1933, asamended, except to the extent that Cadiz specificallyincorporates this graph by reference, and shall not otherwise bedeemed filed under such acts. COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURNS* Among Cadiz Inc., The Russell 2000 Index and the S&P Smallcap 600 Index 12/99 12/00 12/01 12/02 12/03 12/04Cadiz Inc. 100.00 94.08 84.42 5.79 2.33 6.52Russell 2000 100.00 96.98 99.39 79.03 116.38 137.71S&P Smallcap 600 100.00 111.80 119.11 101.69 141.13 173.09* $100 invested on 12/31/99 in stock or index-including reinvestment of dividends. Fiscal year ending December31.Copyright (c) 2002, Standar & Poor's, a division of The McGraw-HillCompanies, Inc. All rights reserved. www.researchdatagroup.com/S&P.htm Page 35ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERSSTOCK OPTION AND AWARD PLANS NOT APPROVED BY STOCKHOLDERS The purpose of Cadiz' stock option and award plans is toprovide incentives to attract, retain and motivate eligiblepersons whose present and potential contributions are importantto the success of Cadiz and its subsidiaries and affiliates, byoffering them an opportunity to participate in Cadiz futureperformance through awards of options, restricted stock grantsand other similar stock awards. The following is a descriptionof the stock option plans and awards not approved bystockholders.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. MANAGEMENT EQUITY INCENTIVE PLAN In December 2003 our board of directors authorized theadoption of a Management Equity Incentive Plan (the "IncentivePlan"). Under the Incentive Plan, as supplemented by furtherboard action in December 2004, a total of 1,472,051 shares of ourcommon stock may be granted to our key personnel. Of the1,472,051 shares, 1,094,712 may be granted with 717,373 sharesvesting 2/3 immediately on the date of the grant and 1/3 onDecember 11, 2005, and 377,339 shares vesting 1/3 upon grant, 1/3on December 7, 2005 and 1/3 on December 7, 2006. The remaining377,339 shares of common stock may be granted in the form ofoptions to purchase common stock at the price of $12.00 pershare. Vesting of the 377,339 options will be 1/3 upon grant, 1/3on December 7, 2005 and 1/3 on December 7, 2006. All awards willbe subject to continued employment or immediate vesting upontermination without cause. The Board formed allocation committeesmade up of Messrs. Brackpool, Hutchison, and Stoddard, to directthe allocation of these shares. As of December 31, 2004, no shares had been issued,allocated, or granted under the Incentive Plan. However, theallocation committee has identified the members of management whoare eligible to participate in the Plan, and the actualallocation and issuance of the shares and options authorizedunder the Plan may occur at any time. 2004 MANAGEMENT BONUS PLAN In December 2004, our Compensation Committee, with boardapproval, adopted the Cadiz Inc. 2004 Management Bonus Plan (the"Bonus Plan") pursuant to which a total of 10,000 shares of ourcommon stock, valued at $12 per share, were authorized forissuance to Mr. Brackpool as a performance bonus along with acash bonus of $120,000. See Item 11 "Executive Compensation". Asof December 31, 2004, these shares had not yet been issued underthe Bonus Plan but the liability and compensation expense havebeen recorded in the 2004 financial statements. 1998 STOCK OPTION PLAN In 1998, the Board approved a Non-Qualified StockOption Plan (the "1998 Plan") to provide grants of stock optionsto certain employees, consultants, independent contractors andadvisors of Cadiz or its subsidiaries and affiliates, butexcluding any directors or officers including those who would berequired to file reports of beneficial ownership pursuant to theExchange Act. Page 36 The 1998 Plan is administered by a committee of the Boardor the Board acting as the committee. It permits the governingcommittee to establish, as to any participant, the number ofoptions, exercise price, exercise term (subject to a maximum often years), and other terms and conditions, however, the Board'sgeneral intent with the plan is to grant options at an exerciseprice equal to the fair market value of Cadiz common stock at thetime of grant, which options vest ratably over a five-year periodsubject to vesting acceleration for a change in control of theCompany or the Board's determination of satisfaction of certainspecified performance criteria. The Board may amend or terminate the Plan at any time;provided, however, that the Board may not, with respect to anyparticular option grant, without the consent of the holder ofthat outstanding option, amend or terminate such option orSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. materially adversely affect the rights of the holder under suchoption. According to its terms, the 1998 Plan will terminate 10years from its effective date. 31,700 shares are reserved and authorized for issuanceunder the 1998 Plan, which amount may be decreased by thecumulative cap of 160,000 for issuance under the 1998 Plan, theCadiz Inc. 1996 Stock Option Plan (the "1996 Plan") and the CadizInc. 2000 Stock Award Plan (the "2000 Plan"). The 1996 Plan andthe 2000 Plan were approved by our stockholders in 1996 and 2000respectively. Shares subject to a grant or award under the 1998Plan which are not issued or delivered by reason of the failureto vest or the expiration, termination, cancellation orforfeiture are again available for future grants and awards. Asof December 31, 2004, 15,560 shares remained available for grantunder the 1998 Plan (subject to the cumulative cap for issuanceunder all three stock option and award plans). The following table provides information as of December 31,2004 with respect to shares of our common stock that may beissued under our existing compensation plans:EQUITY COMPENSATION PLAN INFORMATION Number of Weighted- Number of securities to average securities be issued exercise remaining upon exercise price of available for of outstanding future issuance outstanding options, under equity options, warrants and compensation plans warrants and rights (excluding rights securities reflected in Plan column (a))Category (a) (b) (c)----------------------------------------------------------------Equity 2,990 $ 228.32 34,467compensationplans approvedby stockholders(1)Equity 11,700(2) $ 234.38 1,497,611(3)compensationplans notapproved bystockholdersTotal 14,690 $ 233.14 1,532,078(4)(1) Represents the Cadiz Inc. 1996 Stock Option Plan, and Cadiz Inc. 2000 Stock Award Plan(2) Represents the Cadiz Inc. 1998 Stock Option Plan(3) Represents 15,560 shares for the 1998 Stock Option Plan, 1,472,051 shares for the Management Equity Incentive Plan, and 10,000 shares for the 2004 Management Bonus Plan(4) There is a cumulative cap on the 1996 Stock Option Plan, the 1998 Stock Option Plan, and the 2000 Stock Award Plan of 160,000 shares Page 37BENEFICIAL OWNERSHIP The following table sets forth, as of February 28, 2005, theownership of common stock of Cadiz by each stockholder who isknown by Cadiz to own beneficially more than five percent of theoutstanding common stock, by each director, by each executiveSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. officer listed in the summary compensation table above, and byall directors and executive officers as a group excluding, ineach case, rights under options or warrants not exercisablewithin 60 days. All persons named have sole voting power andinvestment power over their shares except as otherwise noted.CLASS OF COMMON STOCK AMOUNT AND NATURE PERCENT NAME AND ADDRESS OF BENEFICIAL OWNERSHIP OF CLASS ---------------- ----------------------- --------ING Groep N.V. 1,911,665 (1) 19.0%ING Capital LLC Amstelveenseweg 5001081 KL Amsterdam Bedford Oak Partners, L.P. 828,500(4) 8.2%Bedford Oak Capital, L.P.Bedford Oak Offshore100 South Bedford RoadMt. Kisco, NY 10549SACC Partners LP 684,699(2) 6.7%Riley Investment Management LLCB. Riley & Co. Inc.B. Riley & Co. Retirement Trust11100 Santa Monica Blvd.,Suite 800Los Angeles, CA 90025Morgan Stanley & Co. 639,603 (5) 6.7%International Limited1585 BroadwayNew York, NY 10036 FMR Corp. 675,306(8) 6.5%82 Devonshire Street Boston MA 02109RAB Special Situations LP 606,900(9) 6.4%c/o RAB CapitalNo. 1 Adam StreetLondon W2CN 6LEUnited KingdomLloyd Miller MILGRAT I 560,000(3) 5.5%Lloyd I. Miller Fund CLloyd Miller A4 TrustLloyd Miller MILFAM II4550 Gordon DriveNaples, Florida 34102-7914 Keith Brackpool 127,223(6) 1.2%c/o 777 S. Figueroa St.,Suite 4250Los Angeles, CA 90017 Timothy J. Shaheen 6,185 *c/o 777 S. Figueroa St.,Suite 4250Los Angeles, CA 90017Richard E. Stoddard 17,500 *c/o 777 S. Figueroa St.,Suite 4250Los Angeles, CA 90017 Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Murray Hutchison 6,490(7) *c/o 777 S. Figueroa St.,Suite 4250Los Angeles, CA 90017 Geoffrey Arens 0 *c/o 777 S. Figueroa St.,Suite 4250Los Angeles, CA 90017 Page 38 Gregory Ritchie 1,000 *c/o 777 S. Figueroa St.,Suite 4250Los Angeles, CA 90017 All directors and officers 165,322(6)(7) 1.6%as a group(five individuals)----------------------------------------------------------------- * Represents less than one percent of the 10,324,339 outstanding shares of common stock of Cadiz as of February 28, 2005. CLASS OF SERIES F PREFERRED STOCK AMOUNT AND NATURE OF PERCENTNAME AND ADDRESS BENEFICIAL OWNERSHIP OF CLASS---------------- -------------------- --------ING Groep N.V. 1000(1) 100%ING Capital LLC Amstelveenseweg 5001081 KL Amsterdam (1) Based upon a Schedule 13D filed on February 15, 2005 with the SEC by ING Groep N.V. on behalf of its wholly-owned subsidiary ING Capital LLC, and based on Cadiz corporate records, the ING entities beneficially own 1,000 shares of Cadiz Series F Preferred Stock and have sole voting and dispositive power as to all of the shares. The preferred stock held by ING is initially convertible into 17,289 shares of Cadiz common stock. In addition to the preferred stock, ING holds 1,911,665 shares of Cadiz common stock, and ING has sole voting and dispositive power as to the common stock. In addition to the common and preferred stock, ING holds 40,0000 warrants, each exercisable into one share of Cadiz common stock, and ING has sole voting and dispositive power as to the warrants. The principal office of ING Capital LLC is located at 1325 Avenue of the Americas, New York, NY 10019. (2) Based upon a Schedule 13G filed on May 12, 2004 with the SEC by SACC Partners LP and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with Mr. Riley, the listed affiliated entities beneficially own an aggregate of 634,699 shares of Cadiz common stock, and have sole voting and dispositive power of the stock. (3) Based upon a Schedule 13G filed on February 4, 2005 with the SEC by Lloyd I. Miller, III, Cadiz corporate records of stock issuances and correspondence with Mr. Miller, the listed affiliated entities beneficially own an aggregate of 560,000 shares of Cadiz common stock and 10,000 warrants exercisable to acquire an additional 60,000 shares of common stock. Mr. Miller has sole voting power of 460,000 of the shares, and sole dispositive power of 460,000 of the shares. The remaining shares beneficially owned by Mr. Miller are subject to shared voting and dispositive power. (4) Based upon a Schedule 13G filed on February 15, 2005 withSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the SEC, Cadiz corporate records of stock issuances and correspondence with Bedford Oak, the listed related funds beneficially own an aggregate of 828,500 shares of Cadiz common stock. (5) Based upon a Schedule 13G filed on February 18, 2004 with the SEC by Morgan Stanley & Co. International Limited and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with Morgan Stanley, Morgan Stanley has shared voting rights and shared dispositive power over an aggregate of 639,603 shares of Cadiz common stock. (6) Includes 2,000 shares owned by a foundation of which Mr. Brackpool is a trustee, but in which Mr. Brackpool has no economic interest and 2,000 shares owned by his separated spouse. Mr. Brackpool disclaims any beneficial ownership of the 4,000 shares owned by the foundation and his spouse. (7) Includes 1,490 shares underlying presently exercisable options. (8) Based upon a Schedule 13G filed on October 14, 2004 with the SEC by FMR Corp. and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with FMR Corp., the listed affiliated entities beneficially own an aggregate of 675,306 shares of Cadiz common stock, and have sole voting and dispositive power of the stock. (9) Based upon a Schedule 13G filed on February 14, 2005 with the SEC by RAB Special Situations LP. and its affiliated entities, Cadiz corporate records of stock issuances and correspondence with RAB., the listed affiliated entities beneficially own an aggregate of 606,400 shares of Cadiz common stock and 60,000 Page 39 warrants exercisable to acquire an additional 60,000 shares of common stock and have shared voting and dispositive power of the stock. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONSTRANSACTIONS WITH ING On November 30, 2004, the Company entered into an agreementwith ING, whereby, among other things, the Company's senior termloan facility with ING was repaid in full and the outstandingprincipal balance under the Company's existing revolving creditfacility was reduced to $25 million, and ING agreed to convert99,000 shares of the Company's Series F Preferred Stock(representing 99% of the outstanding shares of Series F PreferredStock) into 1,711,665 shares of the Company's common stock. SeeItem 7, "Management's Discussion and Analysis of FinancialCondition and of Operations - Liquidity and Capital Resources -Current Financing Arrangements", above.NOVEMBER 2004 PRIVATE PLACEMENT On November 30, 2004, the Company completed a privateplacement (the "Placement") of 400,000 Units at the price of$60.00 per Unit. See Item 7, "Management's Discussion andAnalysis of Financial Condition and of Operations - Overview".40 Units in the Placement were issued to ING for $2.4 million ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. prepaid interest under the Company's $25 million borrowing from the lender. The other holders of more than 5% of the Company's common stock participating in the Placement were SACC Partners LP and affiliated entities, as to 10,000 Units; FMR Corp. and affiliatedentities, as to 72,500 Units; Lloyd I. Miller III and affiliatedentities, as to 10,000 Units; Bedford Oak Partners and affiliatedentities, as to 17,000 Units; and Morgan Stanley & Co.International Limited and affiliated entities, as to 60,000Units. ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES For the fiscal years ended December 31, 2004 and 2003,professional services were performed by PricewaterhouseCoopersLLC (PwC). Cadiz' audit committee annually approves theengagement of outside auditors for audit services in advance. Theaudit committee has also established complementary procedures torequire pre-approval of all audit-related, tax and permitted non-audit services provided by PwC, and to consider whether theoutside auditors' provision of non-audit services to Cadiz iscompatible with maintaining the independence of the outsideauditors. The audit committee may delegate pre-approval authorityto one or more of its members. Any such fees pre-approved in thismanner shall be reported to the audit committee at its nextscheduled meeting. All services described below were pre-approvedby the audit committee. All fees for services rendered by PwC aggregated $313,000and $296,050 for the fiscal years ended December 31, 2004 and2003, respectively, and were composed of the following: Audit Fees. The aggregate fees billed for the audit of theannual financial statements for the fiscal years ended December31, 2004 and 2003, for reviews of the financial statementsincluded in the Company's Quarterly Reports on Form 10Q, and forassistance with and review of documents filed with the SEC were$313,000 for 2004 and $296,050 for 2003. Page 40 Audit Related Fees. No audit-related fees were billed byPwC to Cadiz for the fiscal years ended December 31, 2004 and2003. Tax Fees. Fees billed for tax services for the fiscal yearsended December 31, 2004 and 2003 were $0 and $0, respectively. All Other Fees. No other fees were billed by PwC to Cadizfor services other than as discussed above for the fiscal yearsended December 31, 2004 and 2003. Page 41 PART IV Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORT ON FORM 8-K (a) 1. Financial Statements. See Index to Consolidated Financial Statements. 2. Financial Statement Schedules. See Index to Consolidated Financial Statements. 3. Exhibits. The following exhibits are filed or incorporated bySource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. reference as part of this Form 10-K. 3.1 Cadiz Certificate of Incorporation, as amended(1) 3.2 Amendment to Cadiz Certificate of Incorporation dated November 8, 1996(2) 3.3 Amendment to Cadiz Certificate of Incorporation dated September 1, 1998(3) 3.4 Amendment to Cadiz Certificate of Incorporation dated December 15, 2003(11) 3.5 Certificate of Elimination of Series D Preferred Stock, Series E-1 Preferred Stock and Series E-2 Preferred Stock of Cadiz Inc. dated December 15, 2003(11) 3.6 Certificate of Elimination of Series A Junior Participating Preferred Stock of Cadiz Inc., dated March 25, 2004(11) 3.7 Certificate of Designations of Series F Preferred Stock of Cadiz Inc. dated December 15, 2003 3.8 Amended and Restated Certificate of Designations of Series F Preferred Stock of Cadiz Inc.(12) 3.9 Cadiz Bylaws, as amended (4) 4.1 Indenture, dated as of April 16, 1997 among Sun World as issuer, Sun World and certain subsidiaries of Sun World as guarantors, and IBJ Whitehall Bank & Trust Company as trustee, for the benefit of holders of 11 percent First Mortgage Notes due 2004 (including as Exhibit A to the Indenture, the form of the Global Note and the form of each Guarantee)(5) 4.2 Amendment to Indenture dated as of October 9, 1997(6) 4.3 Amendment to Indenture dated as of January 23, 1998(7) 4.4 Preferred Stock Exchange Agreement, dated October 20, 2003, by and among Cadiz Inc., OZ Master Fund, Ltd. and OZF Credit Opportunities Master Fund, Ltd. (11) Page 42 10.1 Cadiz Inc. 1996 Stock Option Plan(4) 10.2 Amendment to the Cadiz Inc. 1996 Stock Option Plan(8) 10.3 Amended and Restated Cadiz Inc. 1998 Non- Qualified Stock Option Plan(8) 10.4 Cadiz Inc. 2000 Stock Award Plan(9) 10.5 Agreement Regarding Employment Between Cadiz Inc. and Keith Brackpool dated July 5, 2003(10)Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.6 Agreement Regarding Satisfaction of Note Obligations Between Cadiz Inc. and Keith Brackpool dated July 5, 2003(10) 10.7 Sixth Amended and Restated Credit Agreement, dated as of December 15, 2003, among Cadiz Inc., Cadiz Real Estate LLC, and ING Capital LLC, as Administrative Agent, and the lenders party thereto(11) 10.8 Sixth Global Amendment Agreement, dated as of December 15, 2003, between Cadiz Inc., Cadiz Real Estate LLC, and ING Capital LLC(11) 10.9 First Amendment to 2003 Restated Credit Agreement and Consent to Offering, dated as of November 30, 2004, among Cadiz Inc., Cadiz Real Estate LLC, and ING Capital LLC, as Administrative Agent, and the lenders party thereto. 10.10 ING Capital LLC Amended and Restated Tranche A Note in principal amount of $25 million(11) 10.11 ING Capital LLC Amended and Restated Tranche B Note in principal amount of $10 million(11) 10.12 ING Capital LLC Second Amended and Restated Tranche A Note, dated as of November 30, 2004, in principal amount of $15 million. 10.13 ING Capital LLC Second Amended and Restated Tranche B Note, dated as of November 30, 2004, in principal amount of $10 million. 10.14 Limited Liability Company Agreement of Cadiz Real Estate LLC dated December 11, 2003(11) 10.15 Amendment No. 1, dated October 29, 2004, to Limited Liability Company Agreement of Cadiz Real Estate LLC. 10.16 The Cadiz Groundwater Storage and Dry- Year Supply Program Definitive Economic Terms and Responsibilities between Metropolitan Water District of Southern California and Cadiz dated March 6, 2001(8) 10.17 Sun World-Bondholder-Cadiz Term Sheet and Agreement in Principle, dated as of October 13, 2003, by and among Cadiz, Sun World International, Inc. and its debtor affiliates, and Black Diamond Capital Management, L.L.C. and CFSC Wayland Advisers, Inc. and their respective Page 43 affiliates(11) 10.18 Sun World Noteholder Trust Agreement, dated December 15, 2003, by and among Cadiz Inc., Logan & Company, as Trustee, Black Diamond Capital Management, L.L.C. on behalf of its affiliates, and CFSC Wayland Advisers, Inc. (11) 10.19 Assignment of Claims, dated December 15, 2003, by Cadiz Inc. and the Sun World Noteholder Trust (11)Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 10.20 Pledge Agreement, dated as of December 12, 2003, by and between Cadiz Inc., as Pledgor, and Sun World Noteholder Trust, as Secured Party (11) 10.21 Agreement re Closing of "Sun World- Bondholder-Cadiz Term Sheet and Agreement in Principle", dated as of November 24, 2003, by and between Cadiz Inc. and Black Diamond Capital Management, L.L.C. and CFSC Wayland Advisers, Inc. and their respective affiliates(11) 10.22 Mutual General Release, dated December 15, 2003 by and between Cadiz Inc., and Sun World International, Inc., Sun Desert Inc., Coachella Growers and Sun World/Rayo(11) 10.23 Resolution of the Directors of Cadiz Inc., authorizing the Management Equity Incentive Plan. (11) 10.24 Supplemental Resolutions of the Compensation Committee of the Board of Directors of Cadiz Inc., regarding the Management Equity Incentive Plan. 10.25 2004 Management Bonus Plan. 10.26 Consulting Agreement dated August 1, 2002 by and between Richard Stoddard and Cadiz Inc., and Extension of Consulting Agreement dated January 1, 2004 by and between Richard Stoddard and Cadiz Inc. 21.1 Subsidiaries of the Registrant 31.1 Certification of Keith Brackpool, Chairman, Chief Executive Officer and Chief Financial Officer of Cadiz Inc. pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 32.1 Certification of Keith Brackpool, Chairman, Chief Executive Officer and Chief Financial Officer of Cadiz Inc. pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002--------------------------------------------------------- (1) Previously filed as an Exhibit to our Registration Statement of Form S-1 (Registration No. 33-75642) declared effective May 16, 1994 filed on February 23, 1994 (2) Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 1996 filed on November 14, 1996 Page 44 (3) Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended September 30, 1998 filed on November 13, 1998 (4) Previously filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarter ended June 30, 1999 filed on August 13, 1999 (5) Previously filed as an Exhibit to Amendment No. 1 to our Form S-1 Registration Statement No. 333- 19109 filed on April 29, 1997 (6) Previously filed as an Exhibit to Amendment No. 2 to Sun World's Form S-4 Registration Statement No. 333-31103 filed on October 14, 1997Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (7) Previously filed as an Exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 1997 filed on March 26, 1998 (8) Previously filed as an exhibit to our Annual Report on Form 10-K for the fiscal year ended December 31, 2001 filed on March 28, 2002 (9) Previously filed as Appendix A to our Proxy Statement dated April 5, 2000, filed on March 29, 2000 (10) Previously filed as an Exhibit to our Report on Form 10-Q for the quarter ended September 30, 2003 filed on November 2, 2004 (11) Previously filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2003 filed on November 2, 2004. (12) Previously filed as an Exhibit to our Current Report on Form 8-K dated November 30, 2004 filed on December 2, 2004. (B) REPORTS ON FORM 8-K We filed a report on Form 8-K dated November 30, 2004reporting numerous transactions involving the reduction andextension of our senior secured debt, the issuance of our commonstock in a private placement, the conversion of preferred stockinto common stock, and an amendment to the terms of our remainingoutstanding preferred stock. Page 45 SIGNATURESPursuant to the requirements of Section 13 or 15(d) of theSecurities Exchange Act of 1934, the registrant has duly causedthis report to be signed on its behalf by the undersigned,thereto duly authorized. CADIZ INC. By:/s/ Keith Brackpool ------------------------------ Keith Brackpool, Chairman and Chief Executive and Financial Officer Date: March 30, 2005 ------------------------- Pursuant to the requirements of the Securities Exchange Act of1934, this report has been signed by the following persons in thecapacities and on the dates indicated. NAME AND POSITION DATE/s/ Keith Brackpool March 30, 2005-------------------------------- -----------------Keith Brackpool, Chairman and Chief Executiveand Financial Officer(Principal Executive, Financial and Accounting Officer)/s/ Murray H. Hutchison March 30, 2005-------------------------------- -----------------Murray H. Hutchison, DirectorSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. /s/ Timothy J. Shaheen March 30, 2005-------------------------------- -----------------Timothy J. Shaheen, Director/s/ Geoffrey Arens March 30, 2005-------------------------------- -----------------Geoffrey Arens, Director/s/ Gregory Ritchie March 30, 2005-------------------------------- -----------------Gregory Ritchie, Director Page 46 CADIZ INC. INDEX TO FINANCIAL STATMENTSCADIZ INC. CONSOLIDATED FINANCIAL STATEMENTS-------------------------------------------- PageReport of Independent Registered Public Accounting Firm . . . . 48Consolidated Statement of Operations for the three years endedDecember 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . 49Consolidated Balance Sheet as of December 31, 2004 and 2003 . . 50Consolidated Statement of Cash Flows for the three years endedDecember 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . 51Consolidated Statement of Stockholders' Equity for the threeyears ended December 31, 2004 . . . . . . . . . . . . . . . . .53Notes to the Consolidated Financial Statements . . . . . . . . .55CADIZ INC. FINANCIAL STATEMENT SCHEDULES----------------------------------------Schedule I - Condensed Financial Information of Registrant as of December 31, 2003 and for the two years ended December 31, 2003 . . . . . . . . . . . . . . . . .81Schedule II - Valuation and Qualifying Accounts for the three years ended December 31, 2004 . . . . . . . . . . 85SUN WORLD INTERNATIONAL, INC. FINANCIAL STATEMENTS--------------------------------------------------Report of Independent Registered Public Accounting Firm . . . . 86Consolidated Statement of Operationsfor the three years ended December 31, 2004 . . . . . . . . . . 87Consolidated Balance Sheet as of December 31, 2004 and 2003 . . 88Consolidated Statement of Cash Flows for the three years endedDecember 31, 2004 . . . . . . . . . . . . . . . . . . . . . . . 89Consolidated Statement of Stockholder's Equityfor the three years ended December 31, 2004 . . . . . . . . . . 90Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Notes to the Consolidated Financial Statements . . . . . . . . .91(Schedules other than those listed above have been omitted sincethey are either not required, inapplicable, or the requiredinformation is included on the financial statements or notesthereto.) Page 47 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Stockholders of Cadiz Inc. In our opinion, the consolidated financial statements listedin the accompanying index present fairly, in all materialrespects, the financial position of Cadiz Inc. and itssubsidiaries at December 31, 2004 and 2003, and the results oftheir operations and their cash flows for each of the three yearsin the period ended December 31, 2004 in conformity withaccounting principles generally accepted in the United States ofAmerica. In addition, in our opinion, the financial statementschedules listed in the accompanying index present fairly, in allmaterial respects, the information set forth therein when read inconjunction with the related consolidated financial statements.These financial statements and financial statement schedules arethe responsibility of the Company's management. Ourresponsibility is to express an opinion on these financialstatements and financial statement schedules based on our audits.We conducted our audits of these statements in accordance withthe standards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements,assessing the accounting principles used and significantestimates made by management, and evaluating the overallfinancial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. As discussed in Note 2 to the accompanying financialstatements, the Company incurred losses of approximately $16.0million and $11.5 million in 2004 and 2003, respectively, andused cash for operating activities of $7.6 million and $6.6million in 2004 and 2003, respectively. The Company's objectivesin regard to this matter are discussed in Note 2. Theaccompanying consolidated financial statements have been preparedusing accounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities inthe normal course of business. The matters described above raise substantial doubt about the Company's ability to continueas a going concern. The financial statements do not include anyadjustments that might result from the outcome of thisuncertainty./s/ PricewaterhouseCoopers LLP-------------------------------PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 11, 2005 Page 48Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC. CONSOLIDATED STATEMENT OF OPERATIONS--------------------------------------------------------------------- THREE YEAR ENDED DECEMBER 31,(IN THOUSANDS, EXCEPT PER SHARE DATA) 2004 2003 2002---------------------------------------------------------------------Total revenues $ 47 $ 3,162 $114,250 -------- -------- --------Costs and expenses: Cost of sales - 2,965 86,356 General and administrative 3,050 5,235 16,953 Write off of investment in subsidiary - 195 - Reorganization costs - 655 - Removal of underperforming crops - - 4,514 Write-off of permanent and developing crops 3,443 - - Depreciation and amortization 527 743 7,480 -------- -------- -------- Total costs and expenses 7,020 9,793 115,303 -------- -------- --------Operating loss (6,973) (6,631) (1,053)Interest expense, net 9,064 4,905 21,172 -------- -------- --------Net loss before income taxes (16,037) (11,536) (22,225)Income tax expense - - - -------- -------- --------Net loss (16,037) (11,536) (22,225)Less: Preferred stock dividends - 918 1,125 Imputed dividend on preferred stock - 1,600 984 -------- -------- --------Net loss applicable to common stock $(16,037) $(14,054) $(24,334) ======== ======== ========Basic and diluted net loss per share $ (2.32) $ (6.39) $ (16.76) ======== ======== ========Weighted-average shares outstanding 6,911 2,200 1,452 ======== ======== ========See accompanying notes to the consolidated financial statements. Page 49 CADIZ INC. CONSOLIDATED BALANCE SHEET----------------------------------------------------------------- DECEMBER 31,($ IN THOUSANDS) 2004 2003-----------------------------------------------------------------ASSETS Current assets:Cash and cash equivalents $ 9,031 $ 3,422Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Prepaid interest expense 1,106 -Prepaid expenses and other 116 248 -------- -------- Total current assets 10,253 3,670Property, plant, equipment and water programs, net 35,552 39,514Goodwill 3,813 3,813Restricted cash - 2,142Other assets 1,453 387 -------- -------- $ 51,071 $ 49,526 ======== ========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 470 $ 857 Accrued liabilities 743 1,545 -------- -------- Total current liabilities 1,213 2,402Long-term debt 25,000 30,253Other liabilities - 654Contingencies (Note 13)Stockholders' equity: Series F convertible preferred stock - $.01 par value: 100,000 shares authorized, shares issued and outstanding - 1,000 at December 31, 2004 and 100,000 at December 31, 2003 - 1 Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding 10,324,339 at December 31, 2004 and 6,471,384 at December 31, 2003 103 65Additional paid-in capital 209,615 184,974Accumulated deficit (184,860) (168,823) -------- -------- Total stockholders' equity 24,858 16,217 -------- -------- $ 51,071 $ 49,526 ======== ========See accompanying notes to the consolidated financial statements. Page 50 CADIZ INC. CONSOLIDATED STATEMENT OF CASH FLOWS---------------------------------------------------------------------- YEAR ENDED DECEMBER 31,($ IN THOUSANDS) 2004 2003 2002----------------------------------------------------------------------Cash flows from operating activities: Net loss $(16,037) $(11,536) $(22,225) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 4,294 1,602 13,241 Write off of unamortized deferred debt Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. discount and loan fees 1,369 - - Write off of investment in subsidiary - 195 Stock issued for services - 550 - Compensation paid through settlement of note receivable from officer - 841 - Interest paid in common stock - 12 - Loss on disposal of assets - 43 346 Write-off of permanent and developing crops 3,443 - - Removal of underperforming crops - - 4,514 Shares of KADCO stock earned for services - - (1,250) Compensation charge for deferred stock units - 152 579 Accrued interest on note receivable from officer - - (22) Changes in operating assets and liabilities: Decrease (increase) in accounts receivable - 1,488 (405) Increase in inventories - (3,043) (1,116) Decrease (increase) in prepaid expenses and other 132 (112) (378) (Decrease) increase in accounts payable (386) 1,393 (4,365) (Decrease) increase in accrued liabilities (454) 1,831 633 Increase in other liabilities - - 315 -------- -------- -------- Net cash used for operating activities (7,639) (6,584) (10,133) -------- -------- --------Cash flows from investing activities: Deconsolidation of subsidiary - (1,019) - Additions to property, plant and equipment (8) (140) (638) Additions to water programs - - (643) Additions to developing crops - (231) (2,176) Proceeds from disposal of property, plant and equipment - - 2,463 Loan to officer - 181 (1,000) Decrease (increase) in restricted cash 2,142 (2,142) - Increase in other assets (10) (104) (95) -------- -------- -------- Net cash provided by (used for) investing activities 2,124 (3,455) (2,089) -------- -------- --------Cash flows from financing activities: Net proceeds from issuance of stock 21,274 10,304 764 Proceeds from issuance of long-term debt - 135 - Financing costs (150) (400) - Proceeds from convertible note payable - 200 - Net proceeds from short-term borrowings - - 14,400 Principal payments on long-term debt (10,000) (7) (761) Bank overdraft - - (410) -------- -------- -------- Net cash provided by financing activities 11,124 10,232 13,993 -------- -------- --------Net increase in cash and cash equivalents 5,609 193 1,771Cash and cash equivalents, beginning Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. of period 3,422 3,229 1,458 -------- -------- -------- Page 51Cash and cash equivalents, end of period $ 9,031 $ 3,422 $ 3,229 ======== ======== ========Non-cash financing and investing activitiesSettlement of note receivable from officer $ 1 $ 841 $ -Common stock issued upon conversion of preferred stock - 14,020 -Issuance of preferred stock with loan extension - 5,000 -Issuance of common stock upon conversion of note payable - 212 -Issuance of common stock to prepay interest on term loan obligations 2,400 - -Issuance of common stock for services accrued in 2003 350 - -Exchange of deferred stock units for common stock 654 1,054 43Payment of preferred stock dividends with common stock - - 908See accompanying notes to the consolitated financial statements Page 52 CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--------------------------------------------------------------------------------FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2001($ IN THOUSANDS)-------------------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL TOTAL --------------- ------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------ ------ ------- ------- ------Balance as of December 31, 2001 - $ - 1,442,833 $ 14 $152,751 $(135,062) $ 17,703Exercise of stock options - - 5,741 1 763 - 764Issuances of common stock to lender - - 1,000 - 208 - 208Beneficial conversion feature for convertible notes payable - - - - 884 - 884Exchange of deferred stock units for common stock - - 3,482 - 43 - 43Issuance of warrants to Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. lenders - - - - 2,703 - 2,703Payment of preferred stock dividends with common stock - - 5,603 - 908 - 908Preferred stock dividend - - - - (1,125) - (1,125)Imputed dividend from warrants and deferred beneficial conversion feature - - - - (984) - (984)Net loss - - - - - (22,225) (22,225)Balance as of December 31, 2002 - - 1,458,659 15 156,151 (157,287) (1,121) ----- ----- --------- ---- -------- --------- --------Exchange of deferred stock units for common stock - - 26,027 - 1,054 - 1,054Issuance of common stock for cash - - 4,112,000 41 10,239 - 10,280Issuance of stock to lenders - - 168,000 2 430 - 432Issuance of common stock for services - - 128,000 1 279 - 280Exercise of warrants - - 94,000 1 23 - 24Conversion of Series D and E convertible preferred stock - - 400,000 4 14,016 - 14,020Conversion of convertible note payable - - 84,699 1 211 - 212Beneficial conversion feature of note payable - - - - 90 - 90Preferred stock dividend - - - - (918) - (918)Imputed dividend from warrants and deferred beneficial conversion feature - - - - (1,600) - (1,600) Page 53 CADIZ INC. CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY--------------------------------------------------------------------------------FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2001($ IN THOUSANDS), CONTINUED-------------------------------------------------------------------------------- PREFERRED STOCK COMMON STOCK ADDITIONAL TOTALSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. --------------- ------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT SHARES AMOUNT CAPITAL DEFICIT EQUITY ------ ------ ------ ------ ------- ------- ------Issuance of Series F convertible preferred stock 100,000 1 - - 4,999 - 5,000Net loss - - - - - (11,536) (11,536) ------- ----- --------- ---- -------- --------- --------Balance as of December 31, 2003 100,000 1 6,471,385 65 $184,974 (168,823) 16,217Exchange of deferred stock units for common stock - - 1,289 - 654 - 654Issuance of common stock for cash - - 2,000,000 20 23,654 - 23,674Issuance of common stock for services - - 140,000 1 349 - 350Conversion of Series F convertible preferred stock (99,000) (1)1,711,665 17 (16) - -Net loss - - - - - (16,037) (16,037) ----- ----- --------- ---- -------- --------- --------Balance as of December 31, 2004 1,000 $ - 10,324,339 $103 $209,615 $(184,860) $ 24,858 ===== ===== ========== ==== ======== ========= ========See accompanying notes to the consolidated financial statements Page 54 CADIZ INC. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 - DESCRIPTION OF BUSINESS-------------------------------- The Company had agricultural operations through its wholly-owned subsidiary, Sun World International, Inc. and itssubsidiaries, collectively referred to as "Sun World," and isdeveloping the water resource segment of its business. With SunWorld's filing of voluntary petitions for relief under Chapter 11of the Bankruptcy code as further described below, the primarybusiness of the Company is to acquire and develop waterresources. The Company has created a complementary portfolio ofassets encompassing undeveloped land with high-qualitygroundwater resources and/or storage potential, locatedthroughout central and southern California with valuable waterrights, and other contractual water rights. Management believesthat, with both the increasing scarcity of water supplies inCalifornia and an increasing population, the Company's access towater could provide it with a competitive advantage as a supplierof water. The Company's primary asset consists of three blocks ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. largely contiguous land in eastern San Bernardino County,California. This land position totals approximately 45,000acres. Virtually all of this land is underlain by high-qualitygroundwater resources with demonstrated potential for variousapplications, including water storage and supply programs, andagricultural, municipal, recreational and industrial development.Two of the three blocks of land are located in proximity to theColorado River Aqueduct, the major source of imported water forsouthern California. The third block of land is located near theColorado River. The value of these assets derives from a combination ofpopulation increases and limited water supplies throughoutsouthern California. In addition, most of the major populationcenters in southern California are not located where significantprecipitation occurs requiring the importation of water fromother parts of the state. The Company therefore believes that acompetitive advantage exists for those companies that possess orcan provide high quality, reliable and affordable water to majorpopulation centers. To this end, in 1997, the Company commenced discussions withthe Metropolitan Water District of Southern California("Metropolitan") in order to develop a long-term agreement for ajoint venture groundwater storage and supply program on and underits desert properties, sometimes referred to as the "CadizProgram". Under the Cadiz Program, surplus water from theColorado River would be stored in the aquifer system underlyingits land during wet years. When needed, the stored water,together with indigenous groundwater, would be returned to theColorado River Aqueduct for distribution to Metropolitan's memberagencies throughout six southern California counties. During the next several years, the Company engaged inextensive negotiations with Metropolitan concerning the CadizProgram and actively pursued and received substantially all ofthe various permits required to construct and operate theproject. However, in October 2002, Metropolitan's Board voted tonot proceed with the Cadiz Program. Notwithstanding Metropolitan's actions in 2002, the Companyexpects to be able to use its land assets and related waterresources to participate in a broad variety of water storage andsupply, exchange, and conservation programs with public agenciesand other parties. Southern California's need for water storageand supply programs has not abated. The Company believes Page 55there are many different scenarios to maximize the value of this water resource, all of which are under current evaluation. The Company believes there are a variety of scenarios underwhich the value of the Cadiz Program may be realized.Exploratory discussions have been initiated with representativesof governmental organizations, water agencies, and private waterusers with regard to their expressed interest in implementationof the Cadiz Program. Several such discussions have been heldwith water agencies that are independently seeking reliability ofsupply. Other discussions have focused on the possibility ofexchanging water stored at the Cadiz Program with watercontractors in other regions in California. In addition, thecurrent drought within the Colorado River watershed has served asan impetus to cooperative discussions between states, with thegoal that interstate exchanges and transfers may also becomefeasible in the future. Because of the Company's long-term relationship withSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Metropolitan, the Company also intends to pursue discussions withthe agency in an effort to determine whether there are termsacceptable to both parties under which the Cadiz Program could beimplemented. With the recent finalization of the QuantificationSettlement Agreement (QSA), an agreement between the Secretary ofthe Interior, the State of California, Metropolitan and threeother southern California water agencies quantifying the amountof water California's Colorado River users could expect on anannual basis, Metropolitan's Colorado River supplies are nowspecified and limited only by the variable volume of flow on theriver. To meet the growing needs of its service area,Metropolitan must take advantage of all opportunities to storeavailable Colorado River water during periods of surplus. Withvirtually all environmental permits and approvals in place forthe Cadiz Program, except for those dependent upon Metropolitan'scertification of the Environmental Impact Report (EIR), theCompany believes a partnership with Metropolitan could be renewedin a timely manner if terms acceptable to both parties were to benegotiated. Sun World is a large vertically integrated agriculturalcompany that owns approximately 17,000 acres of land, primarilylocated in two major growing areas of California: the San JoaquinValley and the Coachella Valley. Fresh produce, including tablegrapes, stonefruit, citrus, peppers and watermelons, is marketedand shipped to food wholesalers and retailers throughout theUnited States and to more than 30 foreign countries. Sun Worldowns and operates two cold storage and packing facilities locatedin California. On January 30, 2003, Sun World and certain of itssubsidiaries (Sun Desert Inc., Coachella Growers, and SunWorld/Rayo) filed voluntary petitions for relief under Chapter 11of the Bankruptcy Code. The filing was made in the United StatesBankruptcy Court, Central District of California, RiversideDivision. Sun World sought bankruptcy protection in order toaccess a seasonal financing package of up to $40 million toprovide working capital through the 2003-2004 growing seasons. As a debtor-in-possession, Sun World is authorized tocontinue to operate as an ongoing business, but may not engage intransactions outside the ordinary course of business without theapproval of the Bankruptcy Court. Under the Bankruptcy Code,actions to collect pre-petition indebtedness, as well as mostother pending litigation, are stayed and other contractualobligations against Sun World may not be enforced. In addition,under the Bankruptcy Code, Sun World may assume or rejectexecutory contracts, including lease obligations. Partiesaffected by these rejections may file claims with the Court inaccordance with the reorganization Page 56process. Absent an order of the Court, substantially all pre-petition liabilities are subject to settlement under a plan of reorganization to be voted upon by creditors and equity holders and approved by the Bankruptcy Court. The four Sun World entities are the joint proponents of theDebtors' Joint Plan of Reorganization Dated November 24, 2003(the "Plan"). The Plan provided for the restructuring of SunWorld's balance sheet by providing for Sun World to issue equityinterests in the reorganized company to the holders of its FirstMortgage Notes in full satisfaction of their mortgage noteclaims; for the payment in full of convenience claims and tradeclaims; and for Sun World to issue equity interests in thereorganized company to entities holding certain other unsecuredclaims in full satisfaction of those claims. The holders of SunSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. World's secured First Mortgage Notes were unable to reachagreement on various Plan issues, and the Plan as presented wasnot confirmable. Thereafter, following an extensive marketingprocess, Sun World entered into, subject to Court approval, anasset purchase agreement ("APA") in December 2004 with BDCMOpportunity Fund, L.P. ("BDCM""), " a major holder of the FirstMortgage Notes, under which BDCM would acquire substantially allof Sun World's assets subject to overbids at a Court authorizedauction. Following the auction on January 13, 2005, BDCM wasdeclared the winning bidder and the Court approved on January 14,2005, an amended APA under which BDCM agreed to acquiresubstantially all of Sun World's assets in exchange for cash andcredit consideration of $127,750,000, plus assumption of certainliabilities totaling an estimated $14 million, including thetrade claims which approximate net book value as of December 31,2004 of the assets sold. Thereafter, BDCM assigned its rightsunder the APA to Sun World International LLC ("SWLLC"), asubsidiary of BDCM. The agreement with SWLLC closed on February28, 2005. The Company expects that following closing of thetransaction, that Sun World will file an amended Plan todistribute the remaining consideration left in Sun World(estimated at approximately $50 million after interimdistributions/credits to the holders of First Mortgage Notes ofapproximately $78 million upon closing as authorized by theCourt). At January 30, 2003, due to the Company's loss of controlover the operations of Sun World, the financial statements are nolonger consolidated with those of Cadiz. Instead, Cadiz accountsfor its investment in Sun World on the cost basis of accounting.As a result, the Company wrote off its net investment in SunWorld of $195 thousand at the Chapter 11 filing date because itdid not anticipate being able to recover its investment.NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES---------------------------------------------------BASIS OF PRESENTATION The financial statements of the Company have beenprepared using accounting principles applicable to a goingconcern, which assumes realization of assets and settlementof liabilities in the normal course of business. The Companyincurred losses of $16.0 million and $11.5 million in 2004and 2003, respectively, had working capital of $9.0 millionat December 31, 2004, and used cash in operations of $7.6million and $6.6 million in 2004 and 2003, respectively. Onthat date, Sun World was deconsolidated and the Companydiscontinued its agricultural operations. Currently, theCompany's sole focus is the development of its waterresources program. Page 57 As discussed in Note 1, on October 8, 2002,Metropolitan's Board voted not to approve the terms andconditions of the right-of-way grant and not to proceed withthe Cadiz Program. On April 7, 2003, the Company filed anadministrative claim against Metropolitan, asserting thebreach of various obligations specified in the Company'sPrinciples of Agreement with Metropolitan. The Companybelieves that by failing to complete the environmentalreview process for the Cadiz Program, as specified in thePrinciples of Agreement, Metropolitan violated thiscontract. In discussions following presentation of thisclaim, the Company and Metropolitan agreed to continue toevaluate alternative approaches to implementation of theSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cadiz Program. Metropolitan has not to date responded tothe claim and the Company has until October 2005 to file alawsuit against the agency. The Company remains committed to its water programs andit continues to explore all opportunities for development ofthese assets. As further discussed in Note 1, exploratorydiscussions have been initiated with representatives ofgovernmental organizations, water agencies, and privatewater users with regard to their expressed interest inimplementation of the Cadiz Program. However, at thepresent time, the Company does not have a commitment fromany of these parties for the implementation of the Cadizprogram. During the quarter ended December 31, 2004, the Companyraised $21.3 million in cash through a private sale ofcommon stock. Based on current forecasts, the Companybelieves it has sufficient resources to fund operationsbeyond December 2005. The Company's current resources donot provide the capital necessary to fund the waterdevelopment project should the Company be required to do so.There is no assurance that additional financing (public orprivate) will be available on acceptable terms or at all. Ifthe Company issues additional equity securities to raisefunds, the ownership percentage of the Company's existingstockholders would be reduced. New investors may demandrights, preferences or privileges senior to those ofexisting holders of common stock. If the Company cannotraise needed funds, it might be forced to make furthersubstantial reductions in its operating expenses, whichcould adversely affect its ability to implement its currentbusiness plan and ultimately its viability as a company.These financial statements do not include any adjustmentsthat might result from these uncertainties.PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accountsof the Company and those of Sun World until January 30, 2003, atwhich date Sun World and certain of its subsidiaries (Sun DesertInc., Coachella Growers, and Sun World/Rayo) filed voluntarypetitions for relief under Chapter 11 of the Bankruptcy Code. Asof that date, due to the Company's loss of control over theoperations of Sun World, the financial statements of Sun Worldare no longer consolidated with those of Cadiz, but instead,Cadiz accounts for its investment in Sun World on the cost basisof accounting. As a result of changing to the cost basis ofaccounting on January 31, 2003, the Company had a net investmentin Sun World of $195 thousand consisting of loans and otheramounts due from Sun World of $13,500,000 less losses in excessof investment in Sun World of $13,305,000. The Company wrote offits net investment in Sun World during the quarter ended March31, 2003 because it will not be able to recover its investment. Page 58 In December 2003, the Company transferred substantially allof its assets (with the exception of our office sublease, certainoffice furniture and equipment and any Sun World related assets)to Cadiz Real Estate LLC, a Delaware limited liability company("Cadiz Real Estate"). The Company holds 100% of the equityinterests of Cadiz Real Estate, and therefore continues to hold100% beneficial ownership of the properties that it transferredto Cadiz Real Estate. Because the transfer of the Company'sproperties to Cadiz Real Estate has no effect on its ultimatebeneficial ownership of these properties, the properties owned ofrecord either by Cadiz Real Estate or by the Company are treatedSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. as belonging to the Company. ONE-FOR-25 REVERSE STOCK SPLIT In December 2003, the Company effected a one-for-25 reversestock split. All share and per share information in theaccompanying financial statements have been retroactivelyrestated to reflect the effect of this stock split.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity withgenerally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reportingperiod. In preparing these financial statements, management hasmade estimates with regard to revenue recognition and thevaluation of inventory, goodwill and other long-lived assets, anddeferred tax assets. Actual results could differ from thoseestimates.REVENUE RECOGNITION Prior to the deconsolidation of Sun World, the Companyrecognized crop sale revenue upon shipment and transfer of titleto customers. Packing revenues and marketing commissions fromthird party growers were recognized when the related serviceswere provided. Proprietary product development revenues wererecognized based upon product sales by licensees. Projectdevelopment and management fees were recorded when earned underthe terms of the related agreement. Sun World revenues attributable to one national retailertotaled $0.1 million (2.2%) for the month ended January 31, 2003,and $9.6 million (8.4%) for the year ended December 31, 2002.Revenues attributable to another national retailer totaled $0.5million (16.6%) for the month ended January 31, 2003. Sun Worldexport sales accounted for approximately 6.1%, and 12.1% of theCompany's revenues for the month ended January 31, 2003, and foryear ended December 31, 2002, respectively. Services and licenserevenues were less than 10% of total revenues for each of theyears in the two-year period ended December 31, 2003.RESEARCH AND DEVELOPMENT Prior to the deconsolidation of Sun World, the Companyincurred costs to research and develop new varieties ofproprietary products. Research and development costs wereexpensed as incurred. Such costs incurred by Sun World wereapproximately $183,000 for the month ended January 31, 2003, and$2,424,000 for the year ended December 31, 2002. Page 59NET LOSS PER COMMON SHARE Basic Earnings Per Share (EPS) is computed by dividing thenet loss, after deduction for preferred dividends either accruedor imputed, if any, by the weighted-average common sharesoutstanding. Options, deferred stock units, warrants, andparticipating and redeemable preferred stock convertible into orexercisable for certain shares of the Company's common stock,were not considered in the computation of diluted EPS becausetheir inclusion would have been antidilutive. Had theseinstruments been included, the fully diluted weighted averageshares outstanding would have increased by approximately 68,000Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. shares, 125,000 shares, and 333,000 shares for the years endedDecember 31, 2004, 2003 and 2002, respectively.STOCK-BASED COMPENSATION As permitted under Statement of Financial AccountingStandards No. 123 ("SFAS 123"), "Accounting for Stock-BasedCompensation" as amended by SFAS 148, "Accounting for Stock-BasedCompensation-Transition and Disclosure", the Company has electedto follow Accounting Principles Board Opinion No. 25, "Accountingfor Stock Issued to Employees" in accounting for its stockoptions and other stock-based employee awards. Pro formainformation regarding net loss and loss per share, as calculatedunder the provisions of SFAS 123, are disclosed in the tablebelow. The Company accounts for equity securities issued to non-employees in accordance with the provision of SFAS 123 andEmerging Issues Task Force 96-18. Had compensation cost for these plans been determined usingfair value the Company's net loss and net loss per common sharewould have increased to the following pro forma amounts (dollarsin thousands except per share amounts): YEAR ENDED DECEMBER 31, ----------------------- 2004 2003 2001 ---- ---- ---- Net loss applicable to common stock: As reported $(16,037) $(14,054) $(24,334) Expense under SFAS 123 - (150) (648) -------- -------- -------- Pro forma $(16,037) $(14,204) $(24,982) ======== ======== ======== Net loss per common share: As reported $ (2.32) $ (6.39) $ (16.76) Expense under SFAS 123 - (0.07) (0.45) -------- -------- -------- Pro forma $ (2.32) $ (6.46) $ (17.21) ======== ======== ========CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with anoriginal maturity of three months or less to be cash equivalents.The Company invests its excess cash in deposits with majorinternational banks and short-term commercial paper and,therefore, bears minimal risk. Such investments are stated at cost, which approximates fair value, and are considered cash equivalents for purposes of reporting cash flows. Page 60PREPAID INTEREST EXPENSE As part of the private sale of common shares on November 30,2004, the Company issued to its lender $2.4 million of units asprepaid interest under the Company's $25 million borrowing fromING. The current portion of this interest is included in PrepaidInterest Expense and the non-current portion is included in OtherAssets in the Consolidated Balance Sheet.RESTRICTED CASH At the time the Company entered into revised secured termlending arrangements with ING in December 2003, the Companydeposited into the lender's cash collateral account the sum ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. $2,142,000. The deposit represented collateral for futureinterest payments on the Company's credit facility accruing atthe rate of 4% per annum from October 1, 2003 until March 31,2005. This amount is shown on the balance sheet at December 31,2003 as Restricted Cash. The balance was applied to principal andinterest payments on the ING borrowing during 2004.PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS Property, plant, equipment and water programs are stated atcost. The Company capitalized direct and certain indirect costs ofplanting and developing orchards and vineyards during thedevelopment period, which varied by crop and generally rangedfrom three to seven years. Depreciation commenced in the yearcommercial production is achieved. Permanent land development costs, such as acquisition costs,clearing, initial leveling and other costs required to bring theland into a suitable condition for general agricultural use, arecapitalized and not depreciated since these costs have anindefinite useful life. Depreciation is provided using the straight-line method overthe estimated useful lives of the assets, generally ten to forty-five years for land improvements and buildings, three to twenty-five years for machinery and equipment, and five to thirty yearsfor permanent crops. Water rights and water storage and supply programs arestated at cost. All costs directly attributable to thedevelopment of such programs are being capitalized by theCompany. These costs, which are expected to be recovered throughfuture revenues, consist of direct labor, drilling costs,consulting fees for various engineering, hydrological,environmental and feasibility studies, and other professional andlegal fees.IMPAIRMENT OF LONG-LIVED ASSETS The Company evaluates its long-lived assets, includingintangibles, for potential impairment when circumstances indicatethat the carrying amount of the asset may not be recoverable.This evaluation is based upon estimated future cash flows. In theevent that the undiscounted cash flows are less than the net book value of the assets, the carrying value of the assets will be written down to their estimated fair value. As a result of the actions taken by Metropolitan in the fourth quarter of 2002 as described in Note 1, the Page 61Company, with the assistance of a valuation firm, evaluated the carrying value of its water program and determined that the asset was not impaired and that the costs were estimated to be recovered through implementation of the Cadiz Program either with other government organizations, water agencies and private water users, or through implementation of the Cadiz Program on terms acceptable to both Cadiz and Metropolitan. In 2004 and 2003 the Company reviewed the valuation of the its water program and concluded that the carrying amount of the program was not impaired. The Company's estimate could be impacted by changes in plans related to the Cadiz program. During the year ended December 31, 2002, Cadiz and Sun Worldincurred costs to remove certain underperforming crops, primarilystonefruit, citrus, and wine grapes. The Company recorded aSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. charge of $4.5 million in connection with the removal costs andwrite off of capitalized costs related to these crops which isshown under the heading "Removal of underperforming crops" on theConsolidated Statement of Operations. Permanent crops and developing crops shown as Cadiz assetshave previously been leased to Sun World and an unaffiliatedthird party as Cadiz does not conduct agricultural operations.During the fourth quarter of the year ended December 31, 2004,the long-standing lease to Sun World for a portion of these cropsterminated and the crops have not been leased to any other party.The lease to an independent third party for the remainder of thecrops is on a year to year basis and does not generate asignificant amount of revenue. Based on the uncertainty as topossible recovery of the carrying value of the permanent cropsand developing crops the Company recorded a charge of $3.4million to write off the capitalized costs related to these cropswhich is shown under the heading "Write-off of permanent anddeveloping crops" on the Consolidated Statement of Operations.GOODWILL AND OTHER ASSETS As a result of a merger in May 1988 between two companies,which eventually became known as Cadiz Inc., goodwill in theamount of $7,006,000 was recorded. Approximately $3,193,000 ofthis amount was amortized until the adoption of Statement ofFinancial Accounting Standards No. 142, ("SFAS No. 142")"Goodwill and Other Intangible Assets" on January 1, 2002.Goodwill is tested for impairment annually in the first quarter,or if events occur which require an impairment analysis beperformed. As a result of the actions taken by Metropolitan inthe fourth quarter of 2002 as described in Note 1, the Company,with the assistance of a valuation firm, performed an impairmenttest of its goodwill and determined that its goodwill was notimpaired. In addition, in the first quarters of 2004 and 2003,the Company, performed its annual impairment test of goodwill anddetermined its goodwill was not impaired. Capitalized loan fees represent costs incurred to obtaindebt financing. Such costs are amortized over the life of therelated loan. At December 31, 2004 and 2003, the capitalizedloan fees relate to costs incurred in connection with the INGloan described in Note 7. Trademark development costs represent legal costs incurredto obtain and defend patents and trademarks related to theCompany's proprietary products throughout the world. Such costs are capitalized and amortized over their estimated useful life, which range from 10 to 20 years. Page 62INCOME TAXES Income taxes are provided for using an asset and liabilityapproach which requires the recognition of deferred tax assetsand liabilities for the expected future tax consequences oftemporary differences between the financial statement and taxbases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is more likelythan not that some portion or all of the deferred tax assets willnot be realized.SUPPLEMENTAL CASH FLOW INFORMATION Cash paid for interest during the years ended December 31,2004, 2003 and 2002 was $3,970,000, $3,913,000, and $15,262,000,respectively. Cash paid for income taxes during the years endedSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 2004, 2003 and 2002 was $0, $0 and $71,000,respectively.NEW ACCOUNTING PRONOUNCEMENTS In December 2004, the Financial Accounting Standards Boardissued SFAS no. 123(R) (revised 2004), "Share-Based Payment"which amends SFAS Statement 123 and will be effective for publiccompanies for interim periods or annual periods beginning afterJune 15, 2005. The new standard will require the Company torecognize compensation costs in its financial statements in anamount equal to the fair value of share-based payments granted toemployees and directors. The Company is currently evaluating howit will adopt the standard and evaluating the effect that theadoption of SFAS 123(R) will have on its financial position andresults of operations. NOTE 3 - NOTE RECEIVABLE FROM OFFICER------------------------------------- On July 5, 2002, the chief executive officer ("CEO") of theCompany issued a promissory note to the Company for a loan of upto $1,000,000 to be made by the Company to the CEO. Under theterms of the promissory note, the principal and unpaid interest,at 6% per annum, was due and payable on July 5, 2003. The notewas collateralized by a pledge of shares of common stock,restricted stock and deferred stock units so that the aggregatefair market value of the pledged collateral was equal to orgreater than 133% of the outstanding principal and accruedinterest due on the note. On July 5, 2003, the Company and CEO entered into an"Agreement Regarding Satisfaction of Note Obligation" (the"Agreement"). Under the terms of the Agreement, the Companydetermined that it was obligated to pay the CEO effectiveFebruary 1, 2003, $800,000 as a termination payment under apreviously existing employment agreement. This overallsettlement with Mr. Brackpool was made effective July 5, 2003, byway of a corresponding reduction in Mr. Brackpool's obligationsto Cadiz under the loan. This reduction, along with cashpayments by Mr. Brackpool in the amount of $181,013 and anapplication of $50,000 of accrued but unpaid compensation owed byCadiz to Mr. Brackpool under his post February 1, 2003 employment arrangements with Cadiz, resulted in the settlement in full by Mr. Brackpool of his obligations under this loan. Page 63 The Agreement of Employment dated July 5, 2003, has aninitial term of February 1, 2003, through September 30, 2003;provides for a fixed amount of monthly compensation; and allowsfor a new employment agreement to be negotiated, if mutuallyagreeable, upon expiration of the term of the agreement.Although the initial term of the agreement has expired, the CEOcontinues to provide services to the Company under the terms ofthe agreement.NOTE 4 - PROPERTY, PLANT, EQUIPMENT AND WATER PROGRAMS------------------------------------------------------ Property, plant, equipment and water programs consist of thefollowing (dollars in thousands): DECEMBER 31, 2004 2003 ---- ----Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Land and land improvements $ 22,010 $ 22,010 Permanent crops - 6,494 Developing crops - 192 Water programs 14,274 14,274 Buildings 1,408 1,408 Machinery and equipment 3,599 3,590 -------- -------- 41,291 47,968 Less accumulated depreciation (5,739) (8,454) -------- -------- $ 35,552 $ 39,514 ======== ======== Depreciation expense during the years ended December 31,2004, 2003 and 2002 was $527,000, $683,000 and $7,178,000respectively. Permanent crops and developing crops shown as Cadiz assetswere leased to Sun World and to an unaffiliated third party asCadiz does not conduct agricultural operations. In the fourthquarter of the year ended December 31, 2004, the lease of theCadiz Valley farming property to Sun World terminated. Based onthe uncertainty as to possible recovery of the carrying value ofthe permanent crops and developing crops on this property, duringthe last quarter of 2004 the Company wrote off $3.4 million, netof depreciation, of permanent and developing crops at thisproperty.NOTE 5 - OTHER ASSETS--------------------- Other assets consist of the following (dollars inthousands): DECEMBER 31, 2004 2003 ---- ---- Deferred loan costs, net $ 148 $ 387 Prepaid interest 1,294 - Property tax refund receivable 11 - -------- -------- $ 159 $ 387 -------- -------- Page 64 Amortization expense of deferred loan costs was $3,767,000,$641,000, and $5,761,000 in 2004, 2003, and 2002, respectively,and is included in interest expense in the statement ofoperations. Amortization expense included in the consolidatedfinancial statements for Sun World's capitalized trademarkdevelopment was $0, $60,000, and $302,000 in 2004, 2003, and2002, respectively.NOTE 6 - ACCRUED LIABILITIES---------------------------- Accrued liabilities consist of the following (dollars inthousands): DECEMBER 31,Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 2004 2003 ---- ---- Interest $ 172 $ 1,073 Payroll, bonus, and benefits 142 248 Consulting fee 326 150 Other 103 74 -------- -------- $ 743 $ 1,545 ======== ========NOTE 7 - LONG-TERM DEBT----------------------- At December 31, 2004 and 2003, the carrying amount of theCompany's outstanding debt is summarized as follows (dollars inthousands): DECEMBER 31, 2004 2003 ---- ---- Senior term bank loan, interest payable semi-annually, interest per annum at 4% in cash plus 4% paid in kind until March 31, 2008 and 4% in cash plus 6% paid in kind until March 31, 2010 $ 25,000 $ 35,000 Debt discount - (4,747) -------- -------- 25,000 30,253 Less current portion - - -------- -------- $ 25,000 $ 30,253 ======== ======== Pursuant to the Company's loan agreement, annual maturity oflong-term debt outstanding (in thousands) on December 31, 2004 isas follows: 2008 - $10,000, 2010 - $15,000.CADIZ OBLIGATIONS The senior term bank loan, which previously consisted of arevolving credit facility and a term loan, had an outstanding balance of $25 million and $35 million at December 31, 2004 and 2003. The senior term bank loan was due on January 31, 2003 and, through various extensions, Page 65is now due on March 31, 2010 assuming a principal repayment of $10 million on or before March 31, 2008. In February 2002, the Company completed an amendment to thesenior term bank facility that extended the maturity date of theobligation to January 31, 2003. The interest rate could eitherbe LIBOR plus 300 basis points if paid in cash or LIBOR plus 700basis points if paid in common stock. In March 2002, therevolving credit facility was increased from $15 million to $25million, with $10 million of the $25 million revolver convertibleinto 1,250,000 of the Company's common stock any time prior toJanuary 2003 at the election of the lender. In connection withobtaining the extension of the term loan and revolver and theincrease in the revolver, the Company repriced certain warrantsSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. previously issued and issued certain additional warrants topurchase shares of the Company's common stock. The estimated fairvalue of the warrants issued and repriced was calculated usingthe Black Scholes option pricing model and was recorded as a debtdiscount and was being amortized over the remaining term of theloan. The Company failed to pay off the senior term bank loan onits maturity date of January 31, 2003 and on February 13, 2003,the lender delivered to the Company a Notice of Default andDemand for Payment. On December 15, 2003, the Company entered into an amendmentof its senior term loan and revolving credit facility to extendthe maturity date through March 31, 2005 and was entitled toobtain further extensions through September 30, 2006, bymaintaining sufficient balances, among other conditions, in acash collateral account with the lender. The maximum aggregateamount to be outstanding under the amended credit facility was$35 million plus accrued interest. The amendment of the creditfacility did not constitute a troubled debt restructuring and wasaccounted for as a debt modification under EITF 96-19. Inconnection with this amendment, the Company; * paid the lender $2,425,034 representing; (i) accrued interest through September 30, 2003 of $1,412,457 at the non default interest rate; (ii) accrued interest through September 30, 2003 of $612,577 at the default rate of interest; and (iii) $400,000 in fees; * issued to the lender 100,000 shares of series F Preferred stock initially convertible into 1,728,955 shares of common stock; and * deposited $2,142,280 in the cash collateral account with the lender representing prepaid interest through March 31, 2005. The estimated value of the Series F preferred stock of $5million was recorded as a debt discount and was being amortizedover the initial term of the note through March 31, 2005. Interest under the amended credit facilities was payablesemiannually at the Company's option in either cash at 8% perannum, or in cash and paid in kind ("PIK"), at 4% per annum forthe cash portion and 8% per annum for the PIK portion. The PIKportion was to be added to the outstanding principal balance. Page 66 On November 30, 2004 the Company entered into anotheramendment of its senior term loan agreement with ING. Theamendment of the credit facility did not constitute a troubleddebt restructuring and was accounted for as a debt modificationunder EITF 96-19. Pursuant to this amendment, the Company; * repaid in full the senior term loan portion of the facility with ING of $10 million and reduced to $25 million the outstanding principal balance under the existing revolving portion of the loan; * amended the terms and conditions of the loan facility with ING in order to: (i)extend the maturity date of the debt until March 31, 2010, conditioned upon a further principal reduction of $10 million on or before March 31, 2008, and Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (ii)reduce the interest rate through March 31, 2008 on the new outstanding balance to 4% cash plus 4% PIK (increasing to 4% cash plus 6% PIK for interest periods commencing on and after April 1, 2008). * wrote off of the remaining $1.4 million in unamortized financing costs associated with the loan under the terms applicable as of the previous, December 2003, amendment. The terms of the amended loan facilities also requirecertain mandatory prepayments from the cash proceeds of futureequity issuances by the Company and prohibit the payment ofdividends. The senior term loan is secured by substantially all of theassets of the Company.SUN WORLD OBLIGATIONS In December 2000, Sun World entered into a two-year $5million senior unsecured term loan. In connection with obtainingthe loan, the Company issued 2,000 shares of the Cadiz' commonstock as well as certain warrants to purchase shares of the Cadizcommon stock were issued. The fair value of the stock and thewarrants were recorded as a debt discount and were fullyamortized over the life of the loan through December 31, 2002.At December 31, 2002, Sun World did not repay the loan and thus,Sun World was in default. With the default, pursuant to theterms of the agreement, the interest rate was increased by 2%.In connection with Sun World's Chapter 11 filing, all principaland interest on this obligation have been suspended. In April 1997, Sun World issued $115 million of Series AFirst Mortgage Notes through a private placement. The notes havesubsequently been exchanged for Series B First Mortgage Notes,which are registered under the Securities Act of 1933 and arepublicly traded. The First Mortgage Notes are secured by a firstlien (subject to certain permitted liens) on substantially all ofthe assets of Sun World and its subsidiaries other than growingcrops, crop inventories and accounts receivable and proceedsthereof, which secure the Revolving Credit Facility. With theentering into the DIP Facility as described in Note 9, the noteholders now have a second position on substantially all of theCompany's assets for so long as the DIP Facility is outstanding. The First Mortgage Notes mature April 15, 2004, but are redeemable at the option of Sun World, in whole or in part, atany time prior to the maturity date. The First Mortgage Page 67Notes include covenants that do not allow for the payment of dividendsby the Company other than out of cumulative net income. As aresult of Sun World's Chapter 11 filing discussed in Note 2,principal payment on the First Mortgage Notes was suspended untila final plan of reorganization is approved. The First Mortgage Notes are also secured by the guaranteesof Coachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, andSun World International de Mexico S.A. de C.V. (collectively, the"Sun World Subsidiary Guarantors") and by Cadiz. Cadiz alsopledged all of the stock of Sun World as collateral for itsguarantee. The guarantees by the Sun World Subsidiary Guarantorsare full, unconditional, and joint and several. Sun World andthe Sun World Subsidiary Guarantors comprise all of the directand indirect subsidiaries of the Company other thaninconsequential subsidiaries. Additionally, management believesthat the direct and indirect non-guarantor subsidiaries of Cadizand Sun World Subsidiary Guarantors are inconsequential, bothSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. individually and in the aggregate, to the financial statements ofthe Company for all periods presented.CONDENSED CONSOLIDATING FINANCIAL INFORMATION Condensed consolidating financial information for the yearsended December 31, 2003 and 2002 for the Company are presentedbelow (in thousands). The condensed consolidating financialinformation for 2003 include the accounts of the Company andthose of Sun World until January 30, 2003, at which time SunWorld was no longer consolidated. No consolidating balance sheetinformation for 2003 and no consolidating financial informationfor 2004 are presented as the consolidated financial statementsinclude only the results of Cadiz due to the deconsolidation ofSun World on January 30, 2003.CONSOLIDATING STATEMENTOF OPERATIONS INFORMATIONYEAR ENDED DECEMBER 31, 2003 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Revenues $ 303 $ 3,005 $ (146) $ 3,162 -------- -------- -------- --------Costs and expenses: Cost of sales 333 2,653 (21) 2,965 General and administrative 4,653 707 (125) 5,235 Write off of investment in subsidiary 195 - - 195 Reorganization Costs - 655 - 655 Depreciation and amortization 553 190 - 743 -------- -------- -------- -------- Total costs and expenses 5,734 4,205 (146) 9,793 -------- -------- -------- --------Operating loss (5,431) (1,200) - (6,631)Loss from subsidiary (2,469) - 2,469 -Interest expense, net 3,636 1,269 - 4,905 -------- -------- -------- --------Loss before income taxes (11,536) (2,469) 2,469 (11,536)Income tax expense - - - - -------- -------- -------- --------Net loss (11,536) (2,469) 2,469 (11,536)Less: Preferred stock dividends (918) - - (918) Imputed dividend on preferred stock (1,600) - - (1,600) -------- -------- -------- --------Net loss applicable to common stock $(14,054) $ (2,469) $ 2,469 $(14,054) ======== ======== ======== ======== Page 68CONSOLIDATING STATEMENT OFCASH FLOW INFORMATIONYEAR ENDED DECEMBER 31, 2003Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Net cash used for operating activities $ (4,881) $ (1,703) $ - $ (6,584) -------- -------- -------- --------Cash flows from investing activities: Disposal of subsidiary - (1,019) - (1,019) Additions to property, plant and equipment - (140) - (140) Additions to developing crops (34) (197) - (231) Payment of loan to officer 181 - - 181 Increase in restricted cash (2,142) - - (2,142) (Increase) decrease in other assets 5 (109) - (104) -------- -------- -------- --------Net cash used for investing activities (1,990) (1,465) - (3,455) -------- -------- -------- --------Cash flows from financing activities: Proceeds from issuance of long-term debt - 135 - 135 Net proceeds from issuance of stock 10,304 - - 10,304 Financing costs (400) - - (400) Proceeds from convertible note payable 200 - - 200 Principal payments on long-term debt - (7) - (7) -------- -------- -------- --------Net cash provided by financing activities 10,104 128 - 10,232 -------- -------- -------- --------Net increase (decrease) in cash and cash equivalents 3,233 (3,040) - 193Cash and cash equivalents, beginning of period 189 3,040 - 3,229 -------- -------- -------- --------Cash and cash equivalents, end of period $ 3,422 $ - $ - $ 3,422 ======== ======== ======== ======== Page 69CONSOLIDATING STATEMENTOF OPERATIONS INFORMATIONYEAR ENDED DECEMBER 31, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Revenues $ 2,067 $114,234 $ (2,051) $114,250 -------- -------- -------- --------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Costs and expenses: Cost of sales 103 86,880 (627) 86,356 General and administrative 7,500 10,953 (1,500) 16,953 Removal of underperforming crops 1,017 3,497 - 4,514 Depreciation and amortization 1,022 6,458 - 7,480 -------- -------- -------- -------- Total costs and expenses 9,642 107,788 (2,127) 115,303 -------- -------- -------- --------Operating profit (loss) (7,575) 6,446 76 (1,053)Loss from subsidiary (9,540) - 9,540 -Interest expense, net 5,108 16,299 (235) 21,172 -------- -------- -------- --------Loss before income taxes (22,223) (9,853) 9,851 (22,225)Income tax expense 2 (2) - - -------- -------- -------- -------- Net loss (22,225) (9,851) 9,851 (22,225) Less: Preferred stock dividends (1,125) - - (1,125) Imputed dividend on preferred stock (984) - - (984) -------- -------- -------- --------Net loss applicable to common stock $(24,334) $ (9,851) $ 9,851 $(24,334) ======== ======== ======== ======== Page 70CONSOLIDATING STATEMENT OFCASH FLOW INFORMATIONYEAR ENDED DECEMBER 31, 2002 CADIZ SUN WORLD ELIMINATIONS CONSOLIDATED ----- --------- ------------ ------------Net cash provided by (used for) operating activities $ (7,910) $ (4,205) $ 1,982 $(10,133) -------- -------- -------- --------Cash flows from investing activities: Additions to property, plant and equipment (138) (500) - (638) Additions to water programs (643) - - (643) Additions to developing crops (24) (2,152) - (2,176) Proceeds from disposal of property, plant and equipment 3 2,460 - 2,463 Loan to officer (1,000) - - (1,000) (Increase) decrease in other assets 124 (219) - (95) -------- -------- -------- --------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net cash used for investing activities (1,678) (411) - (2,089) -------- -------- -------- --------Cash flows from financing activities: Net proceeds from issuance of stock 764 - - 764 Net proceeds from short-term borrowings 10,000 4,400 - 14,400 Borrowings from intercompany revolver (977) 2,959 (1,982) - Principal payments on long-term debt - (761) - (761) Bank overdraft (410) - - (410) -------- -------- -------- --------Net cash (used for) provided by financing activities 9,377 6,598 (1,982) 13,993 -------- -------- -------- --------Net (decrease) increase in cash and cash equivalents (211) 1,982 - 1,771Cash and cash equivalents, beginning of period 400 1,058 - 1,458 -------- -------- -------- --------Cash and cash equivalents, end of period $ 189 $ 3,040 $ - $ 3,229 ======== ======== ======== ======== Page 71NOTE 8 - INCOME TAXES---------------------- Deferred taxes are recorded based upon differences betweenthe financial statement and tax bases of assets and liabilitiesand available carryforwards. Temporary differences andcarryforwards which gave rise to a significant portion ofdeferred tax assets and liabilities as of December 31, 2004 and2003 are as follows (in thousands): DECEMBER 31, 2004 2003 ---- ---- Deferred tax assets: Net operating losses $ 36,238 $ 36,663 Fixed asset basis difference 8,049 6,759 Contributions carryover 35 35 Other 61 303 -------- -------- Total deferred tax assets 44,383 43,760 Valuation allowance for deferred tax assets (44,383) (43,760) -------- -------- Net deferred tax asset $ - $ - ======== ========Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. The valuation allowance increased by $623,000 in 2004 due toan increase in the deferred tax assets decreased by $21,258,000in 2003 primarily due to the deconsolidation of Sun World andincreased in 2002 by $5,613,000 due to an increase in deferredtax assets. As of December 31, 2004, the Company had net operating loss(NOL) carryforwards of approximately $105 million for federalincome tax purposes. Such carryforwards expire in varyingamounts through the year 2024. At December 31, 2004, the Companyhas state NOL carryforwards of $4.5 million. These NOLcarryforwards expire in varying amounts through the year 2013. Because it is more likely than not that the Company will notrealize its net deferred tax assets, it has recorded a fullvaluation allowance against these assets. Accordingly, nodeferred tax asset has been recorded in the accompanying balancesheet. Section 382 of the Internal Revenue Code imposes an annuallimitation on the utilization of net operating loss carryforwardsbased on a statutory rate of return (usually the "applicablefederal funds rate", as defined in the Internal Revenue Code) andthe value of the corporation at the time of a "change ofownership" as defined by Section 382. Due to past equityissuances and equity issuances in 2004, and due to the Chapter 11filing by Sun World, the Company's ability to utilize netoperating loss carryforwards may be limited. Page 72 A reconciliation of the income tax benefit to the statutoryfederal income tax rate is as follows (dollars in thousands): YEAR ENDED DECEMBER 31, --------------------------- 2004 2003 2002 ---- ---- ---- Expected federal income tax benefit at 34% $ (5,453) $ (3,922) $ (7,557) Loss with no tax benefit provided 1,993 3,900 7,440 Federal AMT refund - - (73) State income tax 2 2 5 Amortization/write off of debt discount 1,614 - - Losses utilized against unconsolidated subsidiary taxable income 1,837 - - Foreign withholding taxes - - 68 Other non-deductible expenses 7 20 117 -------- -------- -------- Income tax expense (benefit) $ - $ - $ - ======== ======== ========NOTE 9 - EMPLOYEE BENEFIT PLANS------------------------------- The Company has a 401(k) Plan for its salaried employees.Employees must work 1,000 hours and have completed one year ofservice to be eligible to participate in this plan. The Companymatches 75% of the first four percent deferred by an employee upto $1,600 per year. The Company contributed $3,000, $12,000 and$322,000 to the plans for fiscal years 2004, 2003 and 2002,respectively. Contributions include those made under Sun Worldplans for its employees for January 2003 and for the year endedSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. December 31, 2002.NOTE 10 - PREFERRED AND COMMON STOCK------------------------------------SERIES F CONVERTIBLE PREFERRED STOCK The Company has an authorized class of 100,000 shares of$0.01 par value Series F Convertible preferred stock ("Series FPreferred Stock"). On December 15, 2003, the Company issued100,000 shares of Series F Convertible Preferred Stock inconjunction with the extension of the Company's senior termloan's maturity date. The 100,000 preferred shares wereinitially convertible into 1,728,955 shares of Common Stock ofthe Company. The holders of the Preferred Stock are entitled toreceive dividends as if the shares had been converted to CommonStock if dividends are paid on the Company's common stock. TheSeries F Preferred Stock may not be redeemed by the Company. Theestimated value of the Series F Preferred Stock was recorded as adebt discount and was being amortized over the initial term ofthe senior term loans through March 31, 2005. However, when thesenior term loans were amended on November 30, 2004, theremaining debt discount of $1.4 million was written off. OnNovember 30, 2004, 99,000 shares of the Series F Preferred Stockwere converted into 1,711,665 shares of Common Stock of theCompany leaving 1,000 shares of the Series F Preferred Stockoutstanding. Page 73SERIES D CONVERTIBLE PREFERRED STOCK On December 29, 2000, the Company issued 5,000 shares ofSeries D Convertible Preferred Stock ("Series D Preferred Stock")for $5,000,000. The holders of the Preferred Stock were entitledto receive dividends, payable semi-annually, at a rate of 7% ifpaid in cash or 9% if paid in the Company's common stock. TheSeries D Preferred Stock was initially convertible into 25,000shares of the Company's common stock any time prior to July 2004at the election of the holder. The Company also had the right toconvert the Series D Preferred Stock, but only when the closingprice of the Company's common stock had exceeded $300 per sharefor 30 consecutive trading days. Holders were entitled to aliquidation preference equal to the initial purchase of $1,000per share plus any accrued and unpaid dividends. The Series DPreferred Stock would be redeemable in July 2004 if stilloutstanding. In 2003, all outstanding shares of Series Dpreferred stock were exchanged for common stock as furtherdescribed below. The Company issued certain warrants to purchase shares ofthe Company's common stock in connection with the issuance of theSeries D Preferred Stock. The fair market value of the Company'scommon stock at the time of issuance was above the accountingconversion price resulting in an imputed dividend (beneficialconversion feature). The estimated fair value of the warrantsissued (calculated using the Black Scholes option pricing model)and the imputed dividend totaled $1,050,000 which was recorded asa discount to the Series D Preferred Stock. The discount isbeing amortized through the redemption date of the stock andtreated as a reduction to earnings for earnings per sharecalculations. Upon exchange of the Series D Preferred Stock forcommon stock in October 2003, the unamortized beneficialconversion feature was charged against paid in capital.SERIES E-1 AND E-2 CONVERTIBLE PREFERRED STOCKSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. During the fourth quarter of 2001, the Company issued 3,750shares of Series E-1 Convertible Preferred Stock and 3,750 sharesof Series E-2 Convertible Preferred Stock (the "Series EPreferred Stock") for an aggregate of $7,500,000. The holders ofthe Series E Preferred Stock are entitled to receive dividends,payable semi-annually, at a rate of 7% if paid in cash or 9% ifpaid in the Company's common stock. The Series E Preferred Stockwas convertible into 40,000 shares of the Company's common stockany time prior to July 2004 at the election of the holder. TheCompany also had the right to convert the Series E PreferredStock, but only when the closing price of the Company's commonstock had exceeded $262 per share for 30 consecutive tradingdays. Holders were entitled to a liquidation preference equal tothe initial purchase of $1,000 per share plus any accrued andunpaid dividends. The Series E Preferred Stock would beredeemable in July 2004 if still outstanding. In 2003, alloutstanding shares of Series E preferred stock were exchanged forcommon stock as further described below. The Company issued 1,600 shares of the Company's commonstock and certain warrants to purchase shares of the Company'scommon stock in connection with the issuance of the Series EPreferred Stock. The fair market value of the Company's commonstock at the time of issuance was above the accounting conversionprice resulting in an imputed dividend (beneficial conversionfeature). The estimated fair value of the warrants issued(calculated using the Black Scholes option pricing model) and theimputed dividend totaled $1,614,000 which was recorded as adiscount to the Series E-1 and Series E-2 Preferred Stock. The Page 74discount is being amortized through the redemption date of thestock and treated as a reduction to earnings for earnings pershare calculations. Upon exchange of the Series E Preferred Stockfor common stock in October 2003, the unamortized beneficialconversion feature was charged against paid in capital. On October 15, 2002, the Company and preferred stockholdersagreed to amend the Certificates of Designations of Series D,Series E-1 and Series E-2 Preferred Stock to (i) reduce theconversion price from $200 per share for the Series D PreferredStock and from $187.50 per share for Series E Preferred Stock to$131.25 per share for both Series D and Series E Preferred Stock;and (ii) extend the redemption date to July 16, 2006. With theassistance of a valuation firm, the Company determined that theadditional value associated with the reduction in the conversionprice was offset by the extension of the redemption date and thatthere was no loss or gain attributable to the amendment to theCertificates of Designations. On October 20, 2003, the Company and the preferredstockholders entered into an agreement to (i) exchange alloutstanding shares of Series D Preferred Stock, plus accrued andunpaid dividends, for an aggregate of 320,000 shares of commonstock; and (ii) exchange all outstanding shares of series EPreferred Stock, plus accrued and unpaid dividends, for anaggregate of 80,000 shares of common stock. In connection withthis conversion, the Company recorded a charge of $42,000 againstpaid in capital as an inducement to convert. At this time theCompany also recorded the unamortized beneficial conversionfeature of the Series D and Series E Preferred Stock as a chargeagainst paid in capital. COMMON STOCK AND WARRANTS On November 30, 2004, the Company completed a privateplacement of 400,000 Units at the price of $60.00 per Unit. EachSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Unit consisted of five (5) shares of the Company's common stockand one (1) common stock purchase warrant. Each Warrant willentitle the holder to purchase, commencing 180 days from the dateof issuance, one (1) share of common stock at an exercise priceof $15.00 per share. Each Warrant has a term of three (3) years,but will be callable at $15.00 per share by the Companycommencing twelve months following completion of the placement ifthe closing market price of the Company's common stock exceeds$18.75 for 10 consecutive trading days. NOTE 11 - STOCK-BASED COMPENSATION PLANS AND WARRANTS-----------------------------------------------------STOCK OPTIONS AND WARRANTS The Company issued options pursuant to its 1996 Stock OptionPlan (the "1996 Plan") and the 1998 Non-Qualified Stock OptionPlan (the "1998 Plan"). The Company also grants stock awardspursuant to its 2000 Stock Award Plan (the "2000 Plan"),Management Equity Incentive Plan, and 2004 Management Bonus Plan,described below. Collectively, the 1996 Plan, the 1998 Plan, and the 2000 Plan provide for the granting of up to 160,000 shares. At December 31, 2004, the Company has approximately 50,027 shares remaining that can be granted under the 1996 Plan, the 1998 Plan, and the 2000 Plan. All options under the 1996 Plan, the 1998 Plan and the 2000 Plan are granted at a price approximating fair market value at the date of grant, have vesting periods ranging from issuance date to five years, have maximum Page 75terms ranging from five to seven years and are issued to directors, officers, consultants and employees of the Company. The Management Equity Incentive Plan provides for the granting of 1,094,712 shares of common stock and 377,339 options for the purchase of one share of common stock at a price of $12 per share. The 2004 Management Bonus Plan provides for the granting of 10,000 shares of common stock valued at $12.00 per share. Compensation cost for stock options is measured as theexcess, if any, of the quoted market price of the Company's stockat the date of the grant over the amount an employee must pay toacquire the stock. The Company has adopted the disclosure-only provisions ofStatement of Financial Accounting Standards No. 123, ("SFAS123"), "Accounting for Stock-Based Compensation." Accordingly,no compensation cost has been recognized for the stock-basedcompensation other than for non-employees. The fair value of each option granted during 2002 wasestimated on the date of grant using the Black Scholes optionpricing model based on the weighted-average assumptions of: risk-free interest rate of 4.08%; expected volatility of 57.2%;expected life of three years; and an expected dividend yield ofzero. No options were granted in 2003 and 2004. The following table summarizes stock option activity for theperiods noted. All options listed below were issued to officers,directors, employees and consultants. WEIGHTED- AVERAGE AMOUNT EXERCISE PRICE ------ --------------Outstanding at December 31, 2001 74,030 $ 201.25 Granted 3,700 $ 183.75Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Expired or canceled (10,280) $ 189.25 Exercised (5,740) $ 132.75 -------- Outstanding at December 31, 2002 61,710 $ 197.45 Granted - - Expired or canceled (7,760) $ 207.45 Exercised - - -------- Outstanding at December 31, 2003 53,950 $ 207.43 Granted - - Expired or canceled (39,270) $ 198.54 Exercised - - -------- Outstanding at December 31, 2004 14,680(a) $ 231.22 ======== Options exercisable at December 31, 2002 54,690 $ 196.50 ======== Options exercisable at December 31, 2003 53,150 $ 206.98 ======== Options exercisable at December 31, 2004 14,520 $ 231.29 ========Weighted-average years of remaining contractual life of options outstanding at December 31, 2004 0.48 ======== Page 76 (a) Exercise prices vary from $165.63 to $293.75 and expiration dates vary from February 2005 to February 2007 as displayed in the following table:------------------------------------------------------------------------------ EXERCISABLE ----------- WEIGHTED AVERAGE WEIGHTED WEIGHTED REMAINING AVERAGE AVERAGE RANGE OF NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISEEXERCISE PRICES OUTSTANDING LIFE PRICE OUTSTANDING PRICE--------------- ----------- ----------- -------- ----------- --------$165.63-$234.38 13,280 0.44 $ 228.32 13,120 $ 228.36$243.75-$293.75 1,400 0.87 $ 258.75 1,400 $ 258.75 ------ ------ 14,680 14,520 ====== ====== The weighted-average fair value of options granted during2002 was $83.22. The Company accounts for equity securities issued to non-employees in accordance with the provisions of SFAS 123 andEmerging Issues Task Force 96-18. During the years endedDecember 31, 2002 and 2001, the Company issued 64,000, and 8,600warrants with weighted-average exercise prices of $50.75, and$189.75, respectively. No warrants expired or were canceledduring any of the three periods discussed. During 2002, inconnection with the loan amendments for the Cadiz obligationsdescribed in Note 10, the Company repriced certain warrantspreviously issued resulting in a reduction in the weighted-average exercise price. At December 31, 2002, there were 113,600Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. warrants outstanding with a weighted-average exercise price of$58.50 per share, which expire through 2006. In connection with the Company's default in February 2003 onits senior term loan and $25 million revolving credit facility,as described in Note 10; (i) warrants held by the lender topurchase 40,000 shares of the Company's common stock vested at anexercise price of $0.25 per share; and (ii) the exercise price onwarrants held by the lender to purchase 57,000 shares of theCompany's common stock was automatically reset to $0.25 pershare. In December 2003, warrants to purchase 94,000 shares ofcommon stock were exercised for $23,500 in total cash proceeds.At December 31, 2004, warrants to purchase 8,600 shares of commonstock of the Company at a weighted average exercise price of$190.00 per share remained outstanding.2000 STOCK AWARD PLAN The Cadiz Inc. 2000 Stock Award Plan ("Stock Award Plan")was approved by the Company's shareholders in May 2000. Underthe Stock Award Plan, the Company may issue various forms ofstock awards including restricted stock and deferred stock unitsto attract, retain and motivate key employees or other eligiblepersons. As of December 31, 2004, the Company had no outstandingdeferred stock units granted under the Stock Award Plan. Each ofthe units entitled the holder to receive one share of theCompany's common stock for each deferred stock unit three yearsfrom the date of grant. During the year ended December 31, 2004,1,289 stock units were exchanged for shares of the Company'scommon stock and the remaining deferred stock units werecancelled in exchange for a payment to the holders of Page 77approximately $9,000. The Company charged $0, $152,000, and$579,000 to expense during the years ended December 31, 2004,2003 and 2002, respectively, in connection with the Stock AwardPlan.MANAGEMENT EQUITY INCENTIVE PLAN In December 2003, concurrently with the completion of theCompany's then current financing arrangements with ING, theCompany's board of directors authorized the adoption of aManagement Equity Incentive Plan (the "Incentive Plan"). Underthe Incentive Plan, a total of 1,472,051 shares of common stockmay be granted to key personnel. The Board has formed allocationcommittees to direct the initial allocation of 717,373 of theseshares and a subsequent allocation of the remaining shares in theform of 377,339 shares of common stock and 377,339 shares in theform of options to purchase common stock at the price of $12.00per share. Any grant of shares will be subject to vestingconditions. The 717,373 initial allocation shares will vest 2/3immediately on the date of the grant and the remaining 1/3 willvest on December 11, 2005. The subsequent allocation of 377,339shares of common stock and 377,339 shares in the form of optionsto purchase common stock will vest 1/3 upon grant, 1/3 onDecember 7, 2005 and 1/3 on December 7, 2006. All grants will besubject to continued employment or immediate vesting upontermination without cause. No shares have been granted, issued or allocated to specificindividuals under the Incentive Plan.2004 MANAGEMENT BONUS PLANSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In December 2004, the Company, with board approval, adoptedthe Cadiz Inc. 2004 Mangement Bonus Plan (the "Bonus Plan") pursuantto which a total of 10,000 shares of Cadiz common stock, valued at$12 per share, were authorized for issuance to Mr. Brackpool as aperformance bonus. See item 11 "Executive Compensation". Theseshares had not yet been issued under the Bonus Plan but the liabilityand compensation expense have been recorded in the 2004 financialstatements.STOCK PURCHASE WARRANTS On November 30, 2004 the Company completed a privateplacement of 400,000 units, each Unit consisting of five (5)shares of the Company's common stock and one (1) common stockpurchase warrant. Each of the 400,000 warrants entitle theholder to purchase, commencing 180 days from the date ofissuance, one (1) share of common stock at an exercise price of$15.00 per share. Each Warrant has a term of three (3) years,but will be callable by the Company commencing twelve monthsfollowing completion of the placement if the closing market priceof the Company's common stock exceeds $18.75 for 10 consecutivetrading days.NOTE 12 - SEGMENT INFORMATION----------------------------- With Sun World's filing of voluntary petitions for reliefunder Chapter 11 of the Bankruptcy code as further described inNote 1, the primary business of the Company is to acquire anddevelop water resources. Prior to the filing of voluntarypetitions the Company had two reportable segments; waterresources (Cadiz) and agriculture (Sun World). The accounting Page 78policies of the segments are the same as those described in thesummary of significant accounting polices. The Company'soperations are reported in the following business segments: Financial information by reportable business segment isreported in the following tables: 2004 2003 2002 ---- ---- ---- ($ in thousands)External sales: Water Resources $ 47 $ 157 $ 16 Agricultural - 3,005 114,234 -------- -------- --------Consolidated $ 47 $ 3,162 $114,250 ======== ======== ========Inter-segment sales: Water Resources $ - $ 146 $ 2,051 Agricultural - (146) (2,051) -------- -------- --------Consolidated $ - $ - $ - ======== ======== ========Total sales: Water Resources $ 47 $ 303 $ 2,067 Agricultural - 3,005 114,234 Other - (146) (2,051) -------- -------- --------Consolidated $ 47 $ 3,162 $114,250 ======== ======== ========Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Profit (loss) before income taxes: Water Resources $ (3,530) $ (5,236) $ (7,575) Agricultural - (1,200) 6,446 Other (3,443) (195) 76 Interest expense (9,064) (4,905) (21,172) -------- -------- --------Consolidated $(16,037) $(11,536) $(25,665) ======== ======== ========Assets: Water Resources $ 51,071 $ 49,526 $ 45,591 Agricultural - - 146,417 Other - - (125) -------- -------- --------Consolidated $ 51,071 $ 49,526 $191,883 ======== ======== ========Capital expenditures: Water Resources $ 8 $ 34 $ 805 Agricultural - 337 2,652 -------- -------- --------Consolidated $ 8 $ 371 $ 3,457 ======== ======== ======== Page 79Depreciation and amortization: Water Resources $ 527 $ 553 $ 1,022 Agricultural - 190 6,458 -------- -------- --------Consolidated $ 527 $ 743 $ 7,480 ======== ======== ========Interest expense, net: Water Resources $ 9,064 $ 3,636 $ 5,108 Agricultural - 1,269 16,299 Other - - (235) -------- -------- --------Consolidated $ 9,064 $ 4,905 $ 21,172 ======== ======== ========NOTE 13 - CONTINGENCIES----------------------- In the normal course of its agricultural operations, theCompany handles, stores, transports and dispenses productsidentified as hazardous materials. Regulatory agenciesperiodically conduct inspections and, currently, there are nopending claims with respect to hazardous materials. The Company is involved in other legal and administrativeproceedings and claims. In the opinion of management, theultimate outcome of each proceeding or all such proceedingscombined will not have a material adverse impact on the Company'sfinancial statements.NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)----------------------------------------------------(In thousands except per share data) QUARTER ENDED ------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2004 2004 2004 2004 ---- ---- ---- ----Revenues $ 11 $ 9 $ 12 $ 15Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Gross profit 11 9 12 15Net loss applicable to common stock (2,815) (2,724) (2,894) (7,604)Net loss per common share $ (0.43) $ (0.41) $ (0.44) $ (1.04) QUARTER ENDED ------------------------------------------------ MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, 2003 2003 2003 2003 ---- ---- ---- ----Revenues $ 3,046 $ 97 $ 19 $ -Gross profit (loss) 367 47 (154) (63)Net loss applicable to common stock (5,171) (1,951) (3,013) (3,919)Net loss per common share $ (3.53) $ (0.92) $ (1.32) $ (1.17) Page 80 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT ----------------------------------------------------------------------BALANCE SHEET ($ IN THOUSANDS) DECEMBER 31, 2003----------------------------------------------------------------------ASSETSCurrent assets: Cash and cash equivalents $ 3,422 Prepaid expenses and other 248 -------- Total current assets 3,670Property, plant, equipment and water programs, net 39,514Goodwill 3,813Restricted cash 2,142Other assets 387 -------- $ 49,526 ========LIABILITIES AND STOCKHOLDERS' EQUITYCurrent liabilities: Accounts payable $ 857 Accrued liabilities 1,545 -------- Total current liabilities 2,402Long-term debt 30,253Other liabilities 654ContingenciesStockholders' equity: Series F convertible preferred stock - $.01 par value: 100,000 shares authorized, shares issued and outstanding - 100,000 at December 31, 2003 1Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Common stock - $0.01 par value; 70,000,000 shares authorized; shares issued and outstanding 6,471,384 at December 31, 2003 65 Additional paid-in capital 184,974 Accumulated deficit (168,823) -------- Total stockholders' equity 16,217 -------- $ 49,526 ======== Page 81 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT----------------------------------------------------------------------STATEMENT OF OPERATIONS YEAR ENDED DECEMBER 31,($ IN THOUSANDS) 2003 2002----------------------------------------------------------------------Total revenues $ 303 $ 2,067 -------- --------Costs and expenses: Cost of sales 333 103 General and administrative 4,653 7,500 Removal of underperforming crops - 1,017 Write off of investment in subsidiary 195 - Depreciation and amortization 553 1,022 -------- -------- Total costs and expenses 5,734 9,642 -------- --------Operating loss (5,431) (7,575)Loss from subsidiary (2,469) (9,540)Interest expense, net 3,636 5,108 -------- --------Net loss before income taxes (11,536) (22,223)Income taxes - 2 -------- --------Net loss (11,536) (22,225)Less: Preferred stock dividends 918 1,125 Imputed dividend on preferred stock 1,600 984 -------- --------Net loss applicable to common stock $(14,054) $(24,334) ======== ======== Page 82 CADIZ INC. SCHEDULE I - CONDENSED FINANCIAL INFORMATION OF REGISTRANT--------------------------------------------------------------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. YEAR ENDED DECEMBER 31, -----------------------STATEMENT OF CASH FLOWS ($ IN THOUSANDS) 2003 2002--------------------------------------------------------------Cash flows from operating activities: Net loss $ (11,536) $(22,225) Adjustments to reconcile net loss to net cash used for operating activities: Depreciation and amortization 1,336 5,181 Write off of investment in subsidiary 195 - Stock issued for services 550 - Compensation paid through settlement of note receivable from officer 841 - Interest paid in common stock 12 - Loss from subsidiary 2,470 9,540 (Gain) loss on disposal of assets 43 (3) Removal of underperforming crops - 1,017 Compensation charge for deferred stock units 126 272 Accrued interest on note receivable from officer - (22) Changes in operating assets and liabilities: Increase in due to subsidiary - (1,360) Decrease (increase) in prepaid expenses and other 75 (112) Decrease in accounts payable (155) (189) Increase (decrease) in accrued liabilities 1,117 (9) Increase in due to affiliate 45 - -------- -------- Net cash used for operating activities (4,881) (7,910) -------- --------Cash flows from investing activities: Additions to property, plant and equipment - (138) Additions to developing crops - (24) Additions to water programs (34) (643) Proceeds from disposal of property, plant and equipment - 3 Loan to officer 181 (1,000) Increase in restricted cash (2,142) - Increase in other assets 5 124 -------- -------- Net cash used for investing activities (1,990) (1,678) -------- --------Cash flows from financing activities: Net proceeds from issuance of stock 10,304 764 Financing costs (400) - Proceeds from convertible note payable 200 - Net proceeds from short-term borrowings - 10,000 Intercompany revolver with subsidiary - (977) Bank overdraft - (410) -------- -------- Net cash provided by financing activities 10,104 9,377 -------- -------- Page 83Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Net increase (decrease) in cash and cash equivalents 3,233 (211)Cash and cash equivalents, beginning of period 189 400 -------- --------Cash and cash equivalents, end of period $ 3,422 $ 189 ======== ======== Page 84 CADIZ INC. SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS--------------------------------------------------------------------------------FOR THE YEARS ENDED DECEMBER 31, 2004, 2003 AND 2002 ($ IN THOUSANDS) BALANCE AT ADDITIONS CHARGED TO BALANCEYEAR ENDED BEGINNING COSTS AND OTHER AT ENDDECEMBER 31, 2004 OF PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD----------------- ---------- --------- -------- ---------- --------- Tax valuation allowance $ 43760 $ - $ 623 $ - $ 44,383 ======== ======== ======== ======== ========YEAR ENDEDDECEMBER 31, 2003----------------- Allowance for doubtful accounts $ 547 $ - $ 547 $ - $ - ======== ======== ======== ======== ======== Tax valuation allowance $ 65,018 - $(21,258) $ - $ 43,760 ======== ======== ======== ======== ========YEAR ENDEDDECEMBER 31, 2002----------------- Allowance for doubtful accounts $ 506 $ 200 $ - $ 159 $ 547 ======== ======== ======== ======== ======== Tax valuation allowance $ 59,405 $ - $ 5,613 $ - $ 65,018 ======== ======== ======== ======== ======== Page 85 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the Board of Directors and Stockholder ofSun World International, Inc. In our opinion, the accompanying consolidated balance sheetsand the related consolidated statements of operations, cash flowsand stockholder's deficit present fairly, in all materialrespects, the financial position of Sun World International,Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Inc., a wholly-owned subsidiary of Cadiz Inc., and itssubsidiaries at December 31, 2004 and 2003, and the results oftheir operations and their cash flows for each of the three yearsin the period ended December 31, 2004 in conformity withaccounting principles generally accepted in the United States ofAmerica. These financial statements are the responsibility ofthe Company's management. Our responsibility is to express anopinion on these financial statements based on our audits. Weconducted our audits of these statements in accordance with thestandards of the Public Company Accounting Oversight Board(United States). Those standards require that we plan andperform the audit to obtain reasonable assurance about whetherthe financial statements are free of material misstatement. Anaudit includes examining, on a test basis, evidence supportingthe amounts and disclosures in the financial statements,assessing the accounting principles used and significantestimates made by management, and evaluating the overallfinancial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion. As discussed in Note 1 to the accompanying financialstatements, Sun World International, Inc. had a stockholder'sdeficit of $13.8 million and $21.1 million at December 31, 2004and 2003, respectively. In addition, Sun World International,Inc. and certain of its subsidiaries filed voluntary petitionsfor reorganization under Chapter 11 of the United StatesBankruptcy Code on January 30, 2003. Management continues tooperate the Company as a debtor-in-possession until a Plan ofReorganization is approved by its creditors and confirmed by theBankruptcy Court. The Company's objectives in regard to thismatter are also discussed in Note 1. The accompanying financialstatements have been prepared using accounting principlesapplicable to a going concern, which assumes realization ofassets and settlement of liabilities in the normal course ofbusiness. The uncertainties inherent in the bankruptcy processraise substantial doubt about the Company's ability to continueas a going concern. The financial statements do not include anyadjustments that might result from the outcome of thisuncertainty./s/ PricewaterhouseCoopers LLP-------------------------------PricewaterhouseCoopers LLPLos Angeles, CaliforniaMarch 2, 2005 Page 86 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF OPERATIONS-------------------------------------------------------------------- YEAR ENDED DECEMBER 31,($ IN THOUSANDS) 2004 2003 2002--------------------------------------------------------------------Revenues $118,555 $100,938 $114,583 -------- -------- --------Costs and expenses:Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cost of sales 92,713 86,989 86,880 General and administrative 8,745 8,889 9,243 Intellectual property defense and professional fees (Note 15) - - 1,710 Removal of underperforming crops 1,307 926 3,497 Depreciation and amortization 5,927 6,873 6,458 -------- -------- -------- 108,692 103,677 107,788 -------- -------- --------Operating income (loss) 9,863 (2,739) 6,795(Gain) loss on sale of property (1,329) (387) 349Interest expense, net (contractual interest for fiscal year 2004 and 2003 was $15,281 and $17,041, respectively) 1,193 2,932 16,299 -------- -------- --------Income (loss) before reorganization items and income taxes 9,999 (5,284) (9,853)Reorganization items: Debt issuance costs - 912 - Professional fees 2,949 3,770 - -------- -------- --------Total reorganization items 2,949 4,682 - -------- -------- --------Income (loss) before income taxes 7,050 (9,966) (9,853)Income tax (benefit) expense 89 102 (2) -------- -------- --------Net income (loss) $ 6,961 $(10,068) $ (9,851) ======== ======== ========See accompanying notes to the consolidated financial statements. Page 87 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED BALANCE SHEET-------------------------------------------------------------------- DECEMBER 31,($ IN THOUSANDS) 2004 2003--------------------------------------------------------------------ASSETSCurrent assets: Cash and cash equivalents $ 5,311 $ 1,548 Restricted cash 3,344 - Accounts receivable, net 6,243 7,031 Inventories 12,078 12,851 Prepaid expenses and other 1,745 1,817 -------- -------- Total current assets 28,721 23,247Property, plant, and equipment, net 104,647 107,812Intangible assets 1,909 1,903Other assets 6,424 6,568Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. -------- -------- Total assets $141,701 $139,530 ======== ========LIABILITIES AND STOCKHOLDER'S DEFICITCurrent liabilities: Accounts payable $ 4,944 $ 5,689 Accrued liabilities 2,993 2,280 Revolving credit facility - 4,423 Long-term debt, current portion 722 125 -------- -------- Total current liabilities 8,659 12,517Long-term debt 9 730Deferred income taxes 5,447 5,447Other liabilities 17 365 -------- -------- Total liabilities not subject to compromise 14,132 19,059 -------- --------Liabilities subject to compromise under reorganization proceedings 141,387 141,606 -------- --------Contingencies (Note 16)Stockholder's deficit: Common stock, $0.01 par value, 300,000 shares authorized; 42,000 shares issued and outstanding - - Additional paid-in capital 39,479 39,123 Accumulated deficit (53,297) (60,258) -------- -------- Total stockholder's deficit (13,818) (21,135) -------- -------- Total liabilities and stockholder's deficit $141,701 $139,530 ======== ========See accompanying notes to the consolidated financial statements.. Page 88 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF CASH FLOWS---------------------------------------------------------------------- YEAR ENDED DECEMBER 31, -----------------------($ IN THOUSANDS) 2004 2003 2002----------------------------------------------------------------------Cash flows from operating activities:Net income (loss) $ 6,961 $(10,068) $ (9,851)Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities:Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Depreciation and amortization 5,934 6,987 8,295 Write off of debt issuance costs - 912 - Valuation allowance - 1,500 - (Gain) loss on sale of property (1,329) (387) 349 Removal of underperforming crops 1,307 926 3,497 Shares of KADCO stock earned for services - (938) (1,250) Compensation charge for deferred stock units 20 211 307 Changes in operating assets and liabilities: Decrease (increase) in accounts receivable 919 (299) (406) Decrease (increase) in inventories 409 246 (1,039) Decrease (increase) in prepaid expenses and other 72 (974) (265) Decrease in accounts payable (745) (3,143) (4,176) Increase in accrued liabilities 713 247 687 Decrease in due to parent - - (668) (Decrease) increase in other liabilities (11) (159) 315 -------- -------- --------Net cash provided by (used for) operating activities before reorganization items 14,250 1,347 (4,205)(Decrease) increase in liabilities subject to compromise under reorganization proceedings (219) 559 - -------- -------- -------- Net cash provided by (used for) operating activities 14,031 1,906 (4,205) -------- -------- --------Cash flows from investing activities:Additions to property, plant, and equipment (2,169) (2,831) (500)Additions to developing crops (2,919) (1,963) (2,152)Proceeds from disposal of property, plant and equipment 3,009 2,754 2,460Increase in restricted cash (3,344) - -Increase in other assets (298) (539) (219) -------- -------- -------- Net cash used for investing activities (5,721) (2,579) (411) -------- -------- --------Cash flows from financing activities: Proceeds from issuance of long-term debt - 136 - Principal payments on long-term debt (124) (978) (762) Net (payments) proceeds from short-term borrowings (4,423) 23 4,400 Intercompany revolver with parent - - 2,960 -------- -------- -------- Net cash (used for) provided by financing activities (4,547) (819) 6,598 -------- -------- --------Net increase (decrease) in cash and cash equivalents 3,763 (1,492) 1,982Cash and cash equivalents at beginning of period 1,548 3,040 1,058 -------- -------- --------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Cash and cash equivalents at end of period $ 5,311 $ 1,548 $ 3,040 ======== ======== ========See accompanying notes to the consolidated financial statements. Page 89 SUN WORLD INTERNATIONAL, INC. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) CONSOLIDATED STATEMENT OF STOCKHOLDER'S EQUITY (DEFICIT)($ in thousands)------------------------------------------------------------------------ COMMON STOCK ADDITIONAL TOTAL ------------ PAID-IN ACCUMULATED STOCKHOLDERS' SHARES AMOUNT CAPITAL DEFICIT EQUITY(DEFICIT) ------ ------ ------- ------- --------------- Balance as of December 31, 2001 42,000 $ - $ 38,273 $(40,339) $ (2,066)Revaluation of derivative for warrants issued by parent - - 235 - 235Net loss - - - (9,851) (9,851) ------ ------ -------- -------- --------Balance as of December 31, 2002 42,000 - 38,508 (50,190) (11,682)Exchange of deferred stock units for parent's common stock - - 615 - 615Net loss - - - (10,068) (10,068) ------ ------ -------- -------- --------Balance as of December 31, 2003 42,000 - 39,123 (60,258) (21,135)Exchange of deferred stock units for parent's common stock - - 356 - 356Net income - - - 6,961 6,961 ------ ------ -------- -------- --------Balance as of December 31, 2004 42,000 $ - $ 39,479 $(53,297) $(13,818) ====== ====== ======== ======== ========See accompanying notes to the consolidated financial statements. Page 90 SUN WORLD INTERNATIONAL, INC.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (DEBTOR-IN-POSSESSION) (A WHOLLY-OWNED SUBSIDIARY OF CADIZ INC.) NOTES TO CONSOLIDATED FINANCIAL STATEMENTSNOTE 1 - NATURE OF OPERATIONS AND REORGANIZATION UNDER CHAPTER 11----------------------------------------------------------------- Founded in 1975, Sun World International, Inc. ("SWII" or"Sun World") and its subsidiaries (collectively, the "Company")operate as the wholly-owned agricultural segment of Cadiz Inc.("Cadiz"). The Company is an integrated agricultural operationthat owns approximately 17,000 acres of land, primarily locatedin two major growing areas of California: the San Joaquin Valleyand the Coachella Valley. Fresh produce, including table grapes,stonefruit, citrus, peppers and watermelons is marketed, packedand shipped to food wholesalers and retailers located throughoutthe United States and to more than 30 foreign countries. TheCompany owns and operates two cold storage and packing facilitieslocated in California. On January 30, 2003 (the "Petition Date"), SWII and certainof its subsidiaries (Sun Desert Inc., Coachella Growers, and SunWorld/Rayo) filed voluntary petitions for relief under Chapter 11of the Bankruptcy Code. The filing was made in the United StatesBankruptcy Court, Central District of California, RiversideDivision ("Bankruptcy Court"). Included in the ConsolidatedFinancial Statements are subsidiaries operated outside the UnitedStates, which have not commenced Chapter 11 cases or othersimilar proceedings elsewhere, and are not debtors. The assetsand liabilities of such non-filing subsidiaries are notconsidered material to the Consolidated Financial Statements.SWII sought bankruptcy protection in order to access a seasonalfinancing package of up to $40 million to provide working capitalthrough the 2003-2004 growing seasons. As a debtor-in-possession, Sun World is authorized tocontinue to operate as an ongoing business, but may not engage intransactions outside the ordinary course of business without theapproval of the Bankruptcy Court. Under the Bankruptcy Code,actions to collect pre-petition indebtedness, as well as mostother pending litigation, are stayed and other contractualobligations against Sun World may not be enforced. In addition,under the Bankruptcy Code, Sun World may assume or rejectexecutory contracts, including lease obligations. Partiesaffected by these rejections may file claims with the Court inaccordance with the reorganization process. Absent an order ofthe Court, substantially all pre-petition liabilities are subjectto settlement under a plan of reorganization to be voted upon bycreditors and equity holders and approved by the BankruptcyCourt. The four Sun World entities referred to above are the jointproponents of the Debtors' Joint Plan of Reorganization DatedNovember 24, 2003 (the "Plan"). The Plan provided for therestructuring of Sun World's balance sheet by providing for SunWorld to issue equity interests in the Reorganized Company to theholders of its First Mortgage Notes in full satisfaction of theirmortgage note claims; for the payment in full of convenienceclaims and trade claims; and for Sun World to issue equityinterests in the Reorganized Company to entities holding certainother unsecured claims in full satisfaction of those claims. Theholders of Sun World's secured First Mortgage Notes were unableto reach agreement on various Plan issues, and the Plan aspresented was not confirmable. Thereafter, following an extensivemarketing process, Sun World entered into, subject to Courtapproval, an asset purchase agreement ("APA") in December 2004with BDCM Opportunity Fund, L.P. ("BDCM""), a major holder of theSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. First Mortgage Notes, under which BDCM would acquiresubstantially all of the Company's assets Page 91subject to overbids at a Court authorized auction. Following the auction on January 13, 2005, BDCM was declared the winning bidder and the Court approved on January 14, 2005, an amended APA under which BDCM agreed to acquire substantially all of the Company's assets in exchange for cash and credit consideration of $127.8 million, plus payment and assumption of certain liabilities totaling an estimated $14 million, including the trade claims, which approximates net book value of the acquired assets as of December 31, 2004. Thereafter, BDCM assigned its rights under the APA to Sun World International LLC ("SW LLC"), a subsidiary of BDCM. Theagreement with SW LLC closed on February 25, 2005. The Companyplans to file an amended Plan to distribute the remainingconsideration left in the Company (estimated at approximately $50million after interim distributions/credits to the holders ofFirst Mortgage Notes of approximately $78 million upon closing asauthorized by the Court). The financial statements of the Company have been preparedusing accounting principles applicable to a going concern, whichassumes realization of assets and settlement of liabilities inthe normal course of business and in accordance with Statement ofPosition 90-7, "Financial Reporting by Entities in ReorganizationUnder the Bankruptcy Code". Accordingly, all pre-petitionliabilities subject to compromise have been segregated in theConsolidated Balance Sheet and classified as "Liabilities subjectto compromise under reorganization proceedings", at the estimatedamount of allowable claims. The financial statements of theCompany do not purport to reflect or to provide for all of theconsequences of an ongoing Chapter 11 reorganization.Specifically, but not all-inclusive, the financial statements ofthe Company do not present: (a) the realizable value of assets ona liquidation basis or the availability of such assets to satisfyliabilities, (b) the amount which will ultimately be paid tosettle liabilities and contingencies which may be allowed in theChapter 11 reorganization, or (c) the effect of changes which maybe made resulting from a Plan of Reorganization. Theappropriateness of using the going-concern basis is dependentupon, among other things, confirmation of a Plan ofReorganization, future profitable operations, the ability tocomply with debtor-in-possession financing agreements and theability to generate sufficient cash from operations to meetobligations. NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES---------------------------------------------------PRINCIPLES OF CONSOLIDATION The consolidated financial statements include the accounts ofSWII and its subsidiaries, all of which are wholly-owned. Allsignificant inter-company transactions have been eliminated.BANKRUPTCY ACCOUNTING Since the Chapter 11 bankruptcy filing, the Company hasapplied the provisions of SOP 90-7, which does not significantlychange the application of accounting principles generallyaccepted in the United States of America; however, it doesrequire that the financial statements for periods including andsubsequent to filing the Chapter 11 petition distinguishtransactions and events that are directly associated with thereorganization from the ongoing operations of Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Page 92the business. As disclosed in the Consolidated Statement of Operations, reorganization items consist of the write off of unamortized debt issuance costs as of the Petition Date in 2003 of $912,000 and professional fees directly associated with the reorganization of $2,949,000 and $3,770,000 in 2004 and 2003, respectively. Payments of professional fees incurred totaled approximately $2,838,000 and $2,963,000 for the years ended December 31, 2004 and 2003, respectively.USE OF ESTIMATES IN PREPARATION OF FINANCIAL STATEMENTS The preparation of financial statements in conformity withgenerally accepted accounting principles requires management tomake estimates and assumptions that affect the reported amountsof assets and liabilities and disclosure of contingent assets andliabilities at the date of the financial statements and thereported amounts of revenues and expenses during the reportingperiod. In preparing these financial statements, management hasmade estimates with regard to revenue recognition and valuationof inventory, long-lived assets, and deferred tax assets. Actualresults could differ from those estimates.REVENUE RECOGNITION The Company recognizes crop sale revenue upon shipment andtransfer of title and risk of loss to customers. Packingrevenues and marketing commissions from third party growers arerecognized when the related services are provided. Proprietaryproduct development revenues are recognized based upon productsales by licensees. Project development and management fees arerecorded when earned under the terms of the related agreement. Revenues attributable to one national retailer totaledapproximately $17,900,000 in 2004, $11,100,000 in 2003 and$9,600,000 in 2002. Revenue for another national retailertotaled $13,300,000 in 2004 and $11,600,000 in 2003. Exportsales accounted for approximately 9.9%, 12.4% and 12.1%, of theCompany's revenues for the years ended December 31, 2004, 2003and 2002, respectively. Service revenues and license revenueswere less than 10% of total revenues for each of the years in thethree-year period ended December 31, 2004.RESEARCH AND DEVELOPMENT The Company incurs costs to research, develop and license tothird parties new varieties of proprietary products. Researchand development costs are expensed as incurred. Such costs wereapproximately $3,195,000 for the year ended December 31, 2004,$2,791,000 for the year ended December 31, 2003 and $2,424,000for the year ended December 31, 2002 and are included in generaland administrative expenses in the Consolidated Statement ofOperations. CASH AND CASH EQUIVALENTS The Company considers all short-term deposits with anoriginal maturity of three months or less to be cash equivalents.The Company invests its excess cash in deposits with Page 93major international banks and short-term commercial paper and,therefore, bears minimal risk. At times these deposits exceedfederally insured limits. Such investments are stated at cost,which approximates fair value, and are considered cashSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. equivalents for purposes of reporting cash flows.RESTRICTED CASH In conjunction with the APA signed with BDCM in December2004, Sun World funded approximately $3.3 million of cash into anescrow account to cover $0.5 million in capped expensereimbursement for actual and reasonable outside legal, financialand other fees and expenses related to the acquisition andapproximately $2.8 million for a liquidated damages payment to bepaid if BDCM terminates the APA on account of an uncured breachby Sun World as defined in the APA.INVENTORIES Growing crops, harvested crops, and materials and suppliesare stated at the lower of cost or market, on a first-in, first-out (FIFO) basis. Growing and harvested crops inventory includesdirect costs and an allocation of indirect costs.PROPERTY, PLANT, AND EQUIPMENT Property, plant, and equipment are stated at cost. The Company capitalizes direct and certain indirect costsof planting and developing orchards and vineyards during thedevelopment period, which varies by crop and usually ranges fromthree to seven years. Depreciation commences in the yearcommercial production is achieved. Permanent land development costs, such as acquisition costs,clearing, initial leveling and other costs required to bring theland into a suitable condition for general agricultural use, arecapitalized and not depreciated since these costs have anindefinite useful life. Depreciation is provided using the straight-line method overthe estimated useful lives of the assets, generally ten to forty-five years for land improvements and buildings, three to twenty-five years for machinery and equipment, and five to thirty yearsfor permanent crops.IMPAIRMENT OF LONG-LIVED ASSETS The Company annually evaluates its long-lived assets,including intangibles, for potential impairment. Whencircumstances indicate that the carrying amount of the asset maynot be recoverable, as demonstrated by estimated future cashflows, an impairment loss would be recorded based on fair value.No assets were considered impaired at December 31, 2004 and 2003(see Note 1). Page 94 During the years ended December 31, 2004, 2003 and 2002, theCompany incurred costs to remove certain underperforming crops,primarily stonefruit, citrus, and wine grapes. The Companyrecorded charges of $1,307,000, $926,000 and $3,497,000 in 2004,2003 and 2002, respectively, in connection with the removal ofthese crops which is shown under the heading "Removal ofunderperforming crops" on the Consolidated Statement ofOperations.INTANGIBLE AND OTHER ASSETS Water rights are stated at cost. All costs directlyattributable to the development of such rights are beingcapitalized by the Company which, to date, have not beenSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. significant. Capitalized loan fees represent costs incurred to obtain debtfinancing. Such costs are amortized over the life of the relatedloan. Trademark development costs represent legal costs incurred toobtain and defend patents and trademarks related to the Company'sproprietary products throughout the world. Such costs arecapitalized and amortized over their estimated useful life, whichranges from 10 to 20 years. In October 1999, the Company entered into a managementagreement with Kingdom Agricultural Development Company (KADCO)to develop and manage up to 100,000 acres of agricultural land insouthern Egypt called the Tushka project. KADCO is controlled byHis Royal Highness Prince Alwaleed Bin Talal Bin AbdulazizAlsaud. As compensation for project development and management,the Company earned a quarterly fee of $312,500 based upon meetingdevelopmental milestones to be paid through an equity interest inKADCO. The management agreement expired on September 30, 2003.The Company will receive licensing revenues from KADCO in thefuture based upon plantings of proprietary varieties at theTushka project. KADCO is currently engaged in a privateplacement to raise the required funds to develop the project.The Company anticipates receiving shares in KADCO for payment ofits project development and management fee in connection with thecompletion of the private placement. The amount of shares to bereceived will be the current per share price used for the privateplacement divided into the total amount of management fee earnedwhich is shown under the heading, "Receivable from KADCO to bepaid in common shares" in Note 6.INCOME TAXES The Company is included in the consolidated federal andcombined state tax returns of Cadiz. The Company's current taxliability is determined as though the Company filed its ownreturns. Income taxes are provided for using an asset andliability approach which requires the recognition of deferred taxassets and liabilities for the expected future tax consequencesof temporary differences between the financial statement and taxbases of assets and liabilities at the applicable enacted taxrates. A valuation allowance is provided when it is consideredmore likely than not that some portion or all of the deferred taxassets will not be realized. Page 95SUPPLEMENTAL CASH FLOW INFORMATION Cash payments for interest for the years ended December31, 2004, 2003 and 2002 were $1,257,000, $1,748,000 and$14,484,000, respectively.NOTE 3 - ACCOUNTS RECEIVABLE----------------------------- Accounts receivable consist of the following (dollars inthousands): DECEMBER 31, 2004 2003 ---- ---- Trade receivables $ 3,719 $ 4,054 Other 2,745 3,447 -------- --------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 6,464 7,501 Less allowance for doubtful accounts (221) (470) -------- -------- $ 6,243 $ 7,031 ======== ======== Substantially all trade receivables are from large domesticnational and regional supermarket chain stores and producebrokers and are unsecured. Other receivables primarily includejuice grape and raisin sales, proceeds due from third partymarketers, receivables for international licensing, and othermiscellaneous receivables.NOTE 4 - INVENTORIES-------------------- Inventories consist of the following (dollars in thousands): DECEMBER 31, 2004 2003 ---- ---- Growing crops $ 9,892 $ 10,427 Materials and supplies 1,992 2,235 Harvested product 194 189 -------- -------- $ 12,078 $ 12,851 ======== ======== Depreciation related to permanent crops and related farmingequipment included in growing crop inventory totaled $1,771,$1,833 and $2,131 at December 31, 2004, 2003 and 2002,respectively. Page 96NOTE 5 - PROPERTY, PLANT, AND EQUIPMENT--------------------------------------- Property, plant, and equipment consist of the following(dollars in thousands): DECEMBER 31, 2004 2003 ---- ---- Land $ 43,600 $ 44,325 Permanent crops 54,088 56,218 Developing crops 10,129 9,413 Buildings 22,734 21,780 Machinery and equipment 16,496 16,531 -------- -------- 147,047 148,267 Less accumulated depreciation (42,400) (40,455) -------- -------- $104,647 $107,812 ======== ======== Depreciation expense for 2004, 2003 and 2002 was $5,630,$6,521 and $6,156, respectively.NOTE 6 - INTANGIBLE AND OTHER ASSETS------------------------------------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Intangible and other assets consist of the following(dollars in thousands): DECEMBER 31, 2004 2003 ---- ---- Water rights $ 2,555 $ 2,559 Deferred loan costs, net - 7 Long-term receivables 369 502 Capitalized trademark development, net 1,909 1,903 Receivable from KADCO to be paid in common shares 5,000 5,000 -------- -------- 9,833 9,971 Valuation allowance (1,500) (1,500) -------- -------- $ 8,333 $ 8,471 ======== ======== Amortization expense of deferred loan costs was $7, $113 and$802 in 2004, 2003 and 2002, respectively, and is included ininterest expense in the Consolidated Statement of Operations.Amortization expense for capitalized trademark development was$297, $352 and $302 in 2004, 2003, and 2002, respectively.Future amortization of capitalized trademark development is asfollows (in thousands): $302 - 2005; $302 - 2006; $294 - 2007;$229 - 2008; $782 - 2009 and thereafter. Page 97NOTE 7 - ACCRUED LIABILITIES---------------------------- Accrued liabilities consist of the following (dollars inthousands): DECEMBER 31, 2004 2003 ---- ---- Payroll and benefits $ 2,611 $ 1,931 Other 382 349 -------- -------- $ 2,993 $ 2,280 ======== ======== NOTE 8 - REVOLVING CREDIT FACILITIES------------------------------------Pre-petition financing: In November 2002, Sun World was notified by its seasonalrevolving lender that it would not renew the Revolving CreditFacility for the 2003 growing season. The seasonal revolverexpired on November 30, 2002. The Company sought and obtainedextensions from its lender through January 31, 2003. During theextension period, the Company sought to obtain seasonal financingfrom several different lenders. Each of these lenders wanted tohave a first position on all of the Company's assets in order tolend outside of a Chapter 11 proceeding. This required theholders of the First Mortgage Notes to modify their agreementSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. with the Company. As outlined in Note 1, the Company was unableto procure the financing with the consent of all parties. OnJanuary 30, 2003, Sun World and certain of its subsidiaries fileda voluntary petition for Chapter 11. At December 31, 2002, $4.4 million was outstanding under theRevolving Credit Facility that was subsequently paid off withproceeds from the DIP financing on January 31, 2003.Debtor-In-Possession (DIP) financing: On January 31, 2003, the Bankruptcy Court approved an interim$15 million dollar DIP financing facility. On March 3, 2003, theBankruptcy Court approved a final DIP financing facilityagreement with the same lender. The DIP financing, as amended,provides for varying commitment levels based upon the Company'sseasonal borrowing requirements with a peak commitment level of$35 million during the June through August time frame. The DIPfinancing during 2004 bore interest at the greater of Prime plus4 percent or 8 percent, and is secured by substantially all of the Company's assets. The DIP financing agreement was amended in November 2004 to (a) extend the maturity date to November 30, 2005; (b) reduce the interest rate to either Prime plus 0% to 1% or LIBOR plus 2% to 3% at the Company's election based upon trailing 12 month EBITDA levels; and (c) eliminate all financial covenants.Borrowing availability is determined based on the lesser of: (1)eligible percentages of inventory and accounts receivable plus aspecified amount starting at $15 million in March 2003 andreduced Page 98by $150,000 per month thereafter; (2) certain multiplesof trailing 12 months EBITDA as defined in the credit agreement;or (3) eligible percentage of the current value of all realproperty. The Company is required to meet certain customarycovenants. Approximately $0 and $4.4 million was outstandingunder the DIP financing facility at December 31, 2004 and 2003,respectively.NOTE 9 - LONG-TERM DEBT----------------------- At December 31, 2004 and 2003, the carrying amount of theCompany's outstanding debt is summarized as follows based uponthe original contractual maturities (dollars in thousands): DECEMBER 31, 2004 2003 ---- ---- Amounts classified under Long-term debt: Series B First Mortgage Notes, interest payable semi-annually, with principal due in April 2004, interest at 11.25% (default interest at 12.25%) $115,000 $115,000 Unsecured term loan, interest payable quarterly, due December 31, 2002, default interest at LIBOR plus 5% 5,000 5,000 Note payable to insurance company, quarterly installments of $120 (including interest), due January 1, 2005, interest at 7.75% 654 654Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Other 77 201 -------- -------- 120,731 120,855 Less: Current portion (722) (125) Amounts subject to compromise under reorganization proceedings (120,000) (120,000) -------- -------- $ 9 $ 730 ======== ======== Pursuant to the Company's various loan agreements, thecontractual maturities of long-term debt outstanding (inthousands) at December 31, 2004 are as follows: 2005 - $120,731and 2006 - $9. Included in these amounts are significant pre-petition obligations for which payments have been suspended as aresult of the Chapter 11. Therefore, the commitments shown abovewill not reflect actual cash outlays in the future period. Page 99 As a result of the Chapter 11, all required principalpayments on pre-petition debt were suspended other than forobligations classified as "Other" above. For the periodsubsequent to the Petition Date, interest on the debt classifiedunder "Liabilities subject to compromise under reorganizationproceedings" was not paid or accrued in accordance with SOP 90-7.Contractual interest on these debt instruments at the defaultrate for the years ending December 31, 2004 and 2003,respectively was $14.0 million and $13.2 million in excess ofrecorded interest of $0 and $1.1 million, respectively includedin the Consolidated Statement of Operations for these debtinstruments. In April 1997, the Company issued $115 million of Series AFirst Mortgage Notes through a private placement. The notes havesubsequently been exchanged for Series B First Mortgage Notes,which are registered under the Securities Act of 1933 and arepublicly traded. Prior to the Chapter 11 bankruptcy filing, theFirst Mortgage Notes were secured by a first lien (subject tocertain permitted liens) on substantially all of the assets ofthe Company and its subsidiaries other than growing crops, cropinventories and accounts receivable and proceeds thereof, whichsecured the Revolving Credit Facility. With the entering intothe DIP Facility as described in Note 8, the note holders nowhave a second position on substantially all of the Company'sassets for so long as the DIP Facility is outstanding. The First Mortgage Notes are also secured by the guarantees ofCoachella Growers, Inc., Sun Desert, Inc., Sun World/Rayo, andSun World International de Mexico S.A. de C.V. (collectively, the"Sun World Subsidiary Guarantors") and by Cadiz. Cadiz alsopledged all of the stock of Sun World as collateral for itsguarantee. See Note 13 for additional discussion of the Cadizguarantee. In December 2000, Sun World entered into a two-year $5million senior unsecured term loan. In connection with obtainingthe loan, 50,000 shares of Cadiz' common stock as well as certainwarrants to purchase shares of Cadiz' common stock were issued.The fair value of the stock and the warrants were recorded as adebt discount and were fully amortized over the life of the loanthrough December 31, 2002. At December 31, 2002, the Company didnot repay the loan and thus, the Company was in default. Withthe default, pursuant to the terms of the agreement, the interestrate was increased by 2%. In connection with the Company'sSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chapter 11 filing, all principal and interest payments on thisobligation have been suspended. Page 100 NOTE 10 - LIABILITIES SUBJECT TO COMPROMISE UNDER REORGANIZATION PROCEEDINGS------------------------------------------------- Under bankruptcy law, actions by creditors to collectindebtedness Sun World owed prior to the Petition Date are stayedand certain other pre-petition contractual obligations may not beenforced against the Company. The Company has received approvalfrom the Bankruptcy Court to pay certain pre-petition liabilitiesincluding employee salaries and wages, benefits, other employeeobligations, and certain grower liabilities entitled to trustprotection under the Perishable Agricultural Commodities Act(PACA). Except for certain secured debt obligations, all pre-petition liabilities have been classified as "Liabilities subjectto compromise under reorganization proceedings" in theConsolidated Balance Sheet. Adjustments to the claims may resultfrom negotiations, payments authorized by Bankruptcy Court order,rejection of executory contracts including leases, or otherevents. Pursuant to an order of the Bankruptcy Court, Sun Worldmailed notices to all known creditors that the deadline forfiling proofs of claim with the Court was August 29, 2003. Anestimated 340 claims were filed as of August 29, 2003. Amountsthat Sun World has recorded are in many instances different fromamounts filed by our creditors. Differences between amountsscheduled by Sun World and claims by creditors are beinginvestigated and resolved in connection with our claimsresolution process. Until the process is complete, the ultimatenumber and amount of allowable claims cannot be ascertained. Theultimate resolution of these claims will be based upon the finalplan of reorganization. Pursuant to the APA (see Note 1), holdersof trade claims totaling an estimated $3.0 million entered into atrade vendor agreement with SW LLC and SW LLC assumed thoseclaims upon closing of the asset purchase. Liabilities subject to compromise under reorganizationproceedings are summarized as follows (dollars in thousands): DECEMBER 31, 2004 2003 ---- ---- Accounts payable $ 4,092 $ 4,311 Interest payable 3,795 3,795 Due to parent company (see note 13) 13,500 13,500 Long-term debt (see note 9) 120,000 120,000 -------- -------- Total $141,387 $141,606 ======== ======== Page 101NOTE 11 - INCOME TAXES---------------------- Significant components of the Company's deferred income taxassets and liabilities as of December 31, 2004 and 2003 are asfollows (dollars in thousands): DECEMBER 31, 2004 2003Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ---- ---- Deferred tax liabilities: Net fixed assets basis difference $ 9,615 $ 9,111 Other 48 48 -------- -------- Total deferred tax liabilities 9,663 9,159 -------- -------- Deferred tax assets: Net operating losses 25,781 28,079 State taxes 1,853 1,853 Reserves and accruals 210 748 Other 886 989 -------- -------- Total deferred tax assets 28,730 31,669 Valuation allowance for deferred tax assets (24,514) (27,957) -------- -------- Net deferred tax liability $ 5,447 $ 5,447 ======== ======== As of December 31, 2004, the Company has net operating loss(NOL) carryforwards of approximately $71.1 million for federalincome tax purposes. Such carryforwards expire in varyingamounts through the year 2023. As of December 31, 2004, theCompany has state NOL carryforwards of approximately $44.6million. These NOL carryforwards expire in varying amountsthrough the year 2014. A reconciliation of the income tax expense (benefit) to thestatutory federal income tax rate is as follows (dollars inthousands): YEAR ENDED DECEMBER 31, 2004 2003 2002 ---- ---- ---- Expected federal income tax expense (benefit) at 34% $ 2,397 $ (3,388) $ (3,350) Loss with no tax benefit provided - 2,696 3,322 Utilization of net operating losses (3,009) - - Federal AMT refund 30 - (73) State income tax 7 2 3 Foreign withholding taxes 52 100 68 Restructuring costs 588 661 - Other non-deductible expenses 24 31 28 -------- -------- -------- Income tax expense (benefit) $ 89 $ 102 $ (2) ======== ======== ======== Page 102NOTE 12 - EMPLOYEE BENEFIT PLANS-------------------------------- The Company participates in the Cadiz Inc. 401(k) Plan for itsemployees. Employees must work 1,000 hours annually and havecompleted one year of service to be eligible to participate inthis plan. The Company matches 100% of the first three percentdeferred by an employee and 50% of the next two percent deferred.For those hourly employees covered under a collective bargainingagreement, contributions are made to a multi-employer pensionplan in accordance with negotiated labor contracts and areSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. generally based on the number of hours worked. Total Companycontributions to these plans (in thousands) totaled $426 in 2004,$296 in 2003 and $266 in 2002.NOTE 13 - RELATED PARTY TRANSACTIONS------------------------------------ In September 1996, the Company and Cadiz entered into a 10-year services agreement which had three separate components: (1)the services agreement itself under which Cadiz providedmanagement and financial services to the Company in exchange foran annual management fee of $1.5 million and reimbursement ofcertain other expenses incurred on behalf of the Company; (2) anagricultural lease of Cadiz-owned irrigated farmland in SanBernardino County consisting primarily of citrus and grapes forwhich the Company paid annual land rent of $250,000; and (3) atax sharing agreement which provided for Cadiz and Sun World tofile a consolidated tax return with Sun World paying to Cadiz anamount equal to its current tax liability as though Sun Worldfiled its own returns. Additionally, the Company had anintercompany revolving credit agreement whereby the Company couldborrow from Cadiz as needed. As of December 31, 2002, $12.2million was owed to Cadiz under the intercompany revolving creditagreement and $1.3 million was payable to Cadiz under theservices agreement. Effective July 1, 2003, the Company and Cadiz agreed to anamended agricultural lease approved by the Bankruptcy Courtwhereby the Company would lease approximately 370 acres of lemonsand table grapes for the 2004 harvest season with rent equal to50% of the net farming profit from the sale of the crops. In November 2003, the Company, Cadiz and holders of themajority of the First Mortgage Notes entered into a settlementagreement with respect to the various claims between the partieswhich was approved by the Bankruptcy Court. The settlementagreement provided for the following: (1) Cadiz would be alloweda general unsecured claim of $13.5 million in full and finalsettlement of all of its claims against the Company; (2) theCompany and Cadiz consented to the termination of all contractsand agreement to which Cadiz and the Company are partiesincluding the services agreement and tax sharing agreementdescribed above but excluding the agricultural lease; (3) Cadizwaived any contention that it was entitled to a recovery onaccount of its equity interest in Sun World. In addition, pursuant to the settlement agreement, Cadizagreed to assign its $13.5 million claim to a trust for thebenefit of those holders of First Mortgage Notes who elect toreceive their Page 103prorata share of this trust. Further, Cadiz agreed to pledge its equity ownership in the Company to the trust. The $13.5 million claim is classified under the caption "Liabilities subject to compromise under reorganization proceedings" on the Consolidated Balance Sheet at December 31, 2004 and 2003. The Company made payments to Cadiz of $0 million for 2004,$0.3 million for 2003, and $1.9 million for 2002, pursuant to theservices agreement (including the agricultural lease) describedabove. NOTE 14 - NON-RECURRING COMPENSATION EXPENSE--------------------------------------------Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. In 2001, Cadiz issued 12,034 deferred stock units to certainsenior managers of Sun World. These deferred stock units wereissued in exchange for the cancellation of 22,600 fully vestedoptions to purchase the Cadiz common stock held by seniormanagers. In accordance with the terms of the Stock OptionExchange Agreements, the number of the deferred stock unitsissued was calculated based on the average closing price for the10 business days following the filing of the Cadiz Annual Reporton Form 10-K for the year ended December 31, 2000 on March 29,2001. Each deferred stock unit is exchangeable for one share ofCadiz common stock at the end of the deferral period elected bythe holder. The Company recorded a one-time charge of $2,953,000in 2001 and no cash was expended in connection with the issuanceof the deferred stock units.NOTE 15 - INTELLECTUAL PROPERTY DEFENSE AND PROFESSIONAL FEES------------------------------------------------------------- The Company is involved with various litigation proceedingsboth domestically and internationally to protect its proprietaryfruit varieties from unauthorized use. The Company is currentlyinvolved in proceedings with domestic growers to enjoin theirunauthorized production of one of the Company's proprietarygrapevines, the Sugraone table grape. During 2002, a Californiastate court issued a ruling adverse to Sun World in one of theseproceedings. In March 2003, the appeals court upheld thedecision reached by the California state court. The Company wroteoff capitalized legal costs related to defending its intellectualproperty rights to this variety as of December 31, 2002 resultingin a charge of $1,097,000. As described in Note 1, the Company tried unsuccessfully torestructure its debt and ultimately filed for Chapter 11 onJanuary 30, 2003. In connection with these efforts, the Companyincurred $614,000 of professional fees. As a result of theunsuccessful debt restructuring, these costs have been writtenoff as of December 31, 2002. Page 104NOTE 16 - CONTINGENCIES----------------------- In the normal course of its agricultural operations, theCompany handles, stores, transports and dispenses productsidentified as hazardous materials. Regulatory agenciesperiodically conduct inspections and, currently, there are nopending claims with respect to hazardous materials. The Company is involved in various other legal andadministrative proceedings and claims. In the opinion ofmanagement, the ultimate outcome of each proceeding or all suchproceedings combined will not have a material adverse impact onthe Company's financial statements. Page 105Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. STATEMENT PURSUANT TO SECTION 906 THE SARBANES-OXLEY ACT OF 2002BY PRINCIPAL EXECUTIVE OFFICER AND PRINCIPAL FINANCIAL OFFICER I, Keith Brackpool, herby certify, to myknowledge, that: 1. the accompanying Annual Report on Form 10-K ofCadiz Inc. for the year ended December 31, 2004 (the"Report") fully complies with the requirements of Section13(a) or 15(d), as applicable, of the Securities andExchange Act of 1934, as amended; and 2. the information contained in the Report fairlypresents, in all material respects, the financial conditionand results of operations of Cadiz Inc. IN WITNESS WHEREOF, the undersigned has executed thisStatement as of the date first written above.Dated: March 31, 2005 /s/ Keith Brackpool ---------------------------------- Keith Brackpool Chairman, Chief Executive Officer and Chief Financial OfficerSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CERTIFICATE OF DESIGNATIONS OF SERIES F PREFERRED STOCK OF CADIZ INC. Pursuant to Section 151 of the General Corporation Law of the State of Delaware CADIZ INC., a corporation organized and existing underthe General Corporation Law of the State of Delaware (the"CORPORATION"), hereby certifies that, pursuant to (i) theauthority conferred upon the Board of Directors by theCertificate of Incorporation of the Corporation and (ii) theprovisions of Section 151 of said General Corporation Law, theBoard of Directors duly adopted a resolution on December 11,2003, which resolution is as follows: RESOLVED, that pursuant to the authority vested in theBoard of Directors of the Corporation by the Certificate ofIncorporation, the Board of Directors does authorize for issuanceOne Hundred Thousand (100,000) shares of Preferred Stock, parvalue $.01 per share, of the Corporation, to be designated"SERIES F PREFERRED STOCK" of the presently authorized shares ofPreferred Stock. The voting powers, designations, preferences,and other rights of the Series F Preferred Stock authorizedhereunder and the qualifications, limitations and restrictions ofsuch preferences and rights are as follows: 1. RANKING. The Series F Preferred Stock shall, with respect to the payment of dividends and upon liquidation, dissolution, or winding up, rank senior and prior to all other capital stockissued by the Corporation. No other class of capital stock ofthe Corporation, preferred or otherwise, shall at any time rankpari passu with the Series F Preferred Stock. 2. DIVIDENDS. (a) In the event any dividends are declared or paid or any other distribution is made on or with respect to the common stock, par value $.01 per share ("COMMON STOCK") of the Corporation, theholders of the Series F Preferred Stock as of the record dateestablished by the Board of Directors for such dividend ordistribution on the Common Stock shall be entitled to receive asadditional dividends (the "ADDITIONAL DIVIDENDS") an amount(whether in the form of cash, securities or other property) equalto the amount (and in the form) of the dividends or distributionthat such holders would have received had the Series F PreferredStock been converted into Common Stock as of the date immediatelyprior to the record date of such dividend or distribution on theCommon Stock, such Additional Dividends to be payable on the samepayment date as the payment date for the dividend on the CommonStock established by the Board of Directors; provided, however,that if the Corporation declares and pays a dividend or makes adistribution on the Common Stock consisting in whole or in partof Common Stock, then no such dividend or distribution shall bepayable in respect of the Series F Preferred Stock on account ofthe portion of such dividend or distribution on the Common Stockpayable in Common Stock and in lieu thereof the anti-dilutionadjustment in Section 5(c)(ii) below shall apply. The recorddate for any such Additional Dividends shall be the record datefor the applicable dividend or distribution on the Common Stock,and any such Additional Dividends shall be payable to theindividual, entity or group (a "PERSON") in whose name the SeriesF Preferred Stock is registered at the close of business on theapplicable record date.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (b) No dividend shall be paid or declared on any share of Common Stock (other than dividends payable in Common Stock for which an adjustment is made pursuant to Section 5(c)(ii) hereof), unless adividend, payable in the same consideration and manner, issimultaneously paid or declared, as the case may be, on eachshare of Series F Preferred Stock in an amount determined as setforth in paragraph (a) above. For purposes hereof, the term"DIVIDENDS" shall include any pro rata distribution by theCorporation, out of funds of the Corporation legally availabletherefor, of cash, property, securities (including, but notlimited to, rights, warrants or options) or other property orassets to the holders of the Common Stock, whether or not paidout of capital, surplus or earnings. (c) Upon the conversion of any shares of Series F PreferredStock to shares of Common Stock pursuant to Section 5, theCorporation will immediately pay such holder who converted sharesof Series F Preferred Stock into shares of Common stock alldividends which the holder of such shares as of the record datefor such dividends would have received had that holder held theCommon Stock for the applicable period to the extent not alreadyreceived by that holder. 3. LIQUIDATION PREFERENCE. (a) In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of Series F Preferred Stock shall be entitled to receive (x) prior and in preference to any distribution of any of the assetsor surplus funds of the Corporation to the holders of the CommonStock or to any other series or class of capital stock of theCorporation, all accrued or declared but unpaid dividends on suchshares and (y) after the payment referred to in the foregoingclause (x) has been received, such assets in amount equal to theamount (and in the form) of the assets that such holders wouldhave received had the Series F Preferred Stock been convertedinto Common Stock as of the date immediately prior to thedistribution of assets of the Corporation pursuant to theliquidation, dissolution of winding up of the Corporation sharingparri passu (on a pro rata basis) with all holders of CommonStock. 4. VOTING. (a) Except as otherwise provided by applicable law and inaddition to any voting rights provided by law, for so long as theSeries F Preferred Stock is outstanding, the holders ofoutstanding shares of the Series F Preferred Stock: (i) shall be entitled to vote together with the holders of the Common Stock as a single class on all matters submitted for a vote of holders of Common Stock, including, without limitation, the election of directors; (ii) shall have such other voting rights as are specified in the Certificate of Incorporation or as otherwise provided by Delaware law; and (iii)shall be entitled to receive notice of any stockholders' meeting in accordance with the Certificate of Incorporation and By-laws of the Corporation. For purposes of the voting rights set forth in thisSection 4(a), each share of Series F Preferred Stock shallentitle the holder thereof to cast one vote for each whole votethat such holder would be entitled to cast had such holderconverted its Series F Preferred Stock into shares of CommonStock as of the date immediately prior to the record date forSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. determining the stockholders of the Corporation eligible to voteon any such matter. (b) From the date this certificate is filed until the thirdanniversary thereof, the holders of the Series F Preferred Stockshall have the exclusive right, voting separately as a singleclass, to elect two (2) members of the Board of Directors of theCorporation (each such member elected by the holders of Series FPreferred Stock, a "SERIES F PREFERRED DIRECTOR"). Following thethird anniversary of the filing of this certificate, the holdersof the Series F Preferred Stock will be entitled to the followingnumber of Series F Directors (all to be elected pursuant to theterms of the previous sentence): If the then outstandingSeries F Preferred Stock is convertible into greater than 10% ofthe common stock (on a Fully-Diluted Basis) there shall be 2Series F Directors, if the outstanding Series F Preferred Stockis convertible into 5%-10% of the common stock on a Fully DilutedBasis, there will be one Series F Director and, if theoutstanding Series F Preferred Stock is convertible into lessthan 5% of the common stock on a Fully-Diluted Basis, there shallbe no Series F Directors. The initial Series F PreferredDirectors shall be as designated by written notice to theCorporation from a majority-in-interest of the Series F PreferredStock and they shall be elected to serve for so long as theshares of Series F Preferred Stock are outstanding. The Series FPreferred Directors shall have the right to nominate theirsuccessors upon their resignation from the Board of Directors ofthe Corporation. A Series F Preferred Director may only beremoved by the written consent or affirmative vote of at least amajority-in-interest of the Series F Preferred Stock. Theholders of at least a majority-in-interest of the Series FPreferred Stock shall have the right to appoint the successor toany Series F Preferred Director who is removed from the Board ofDirectors of the Corporation. At the option of at least amajority-in-interest of the Series F Preferred Stock, the SeriesF Preferred Directors shall be seated on any and/or all of theaudit, nominating and/or compensation committees of theCorporation, subject to any restrictions under applicable law orthe rules and requirements of any securities exchange upon whichany of the Corporation's securities may be listed; provided,however, that the Corporation shall not list its securities onany securities exchange without the consent of at least one ofthe Series F Preferred Directors. Any Series F PreferredDirector seated on any committee pursuant to the terms of thisSection 4(b) may not be removed from any such committee withoutthe consent or affirmative vote of at least a majority-in-interest of the Series F Preferred Stock. (c) For so long as the Series F Preferred Stock is outstanding, the Board of Directors of the Corporation shall not take any action to increase or decrease the number of directors of the Corporation (or the number of members of any committee of the Board of Directors of the Corporation) without the consent oraffirmative vote of at least a majority-in-interest of the SeriesF Preferred Stock; provided, however, that immediately upon fullrepayment of the New Note, the number of directors of theCorporation may be increased to not more than seven (7) withoutthe consent or affirmative vote of the holders of the Series FPreferred Stock; provided further that such increase shall notresult in the removal of either of the Series F PreferredDirectors from the Board of Directors of the Corporation or anycommittee thereof. (d) For so long as the Series F Preferred Stock is outstanding, the Corporation shall not, without the written consent or affirmative vote of at least one of the Series F PreferredDirectors, create, authorize or issue any class, series or sharesof Preferred Stock or any other class of capital stock.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 5. CONVERSION. The holders of Series F Preferred Stock shall have conversion rights as follows: (a) The shares of Series F Preferred Stock shall, immediately after issuance, be convertible into 1,728,955 shares of Common Stock of the Corporation which represents, as of the date of filing of this Certificate, 25% of the Common Stock of theCorporation, on a Fully-Diluted Basis. (b) The outstanding shares of Series F Preferred Stock shallthereafter be convertible from time to time, on a pro-rata basis,into such number of shares of Common Stock of the Corporation asis calculated as of the date of any such conversion by: (i) First, calculating the number of shares of Common Stock of the Corporation which, at the applicable time of conversion, represents 25% of the Common Stock of the Corporation on a Fully- Diluted Basis, and (ii) Second, multiplying the number obtained under subsection (i)above by a fraction, the numerator of which is the number of shares of Series F Preferred Stock outstanding as of the date of such calculation and the denominator of which is the sum of (x) the number of shares of Series F Preferred Stock outstanding as of the date of such calculation plus (y) number of shares of Series F Preferred Stock which had previously been issued by the Corporation but converted into shares of Common Stock prior to the date of such calculation (the result so calculated, the "Conversion Number"); provided, however, that at such time that is three years after the payment in full of the New Note, the shares of Series F Preferred Stock outstanding as of such date shall not be adjusted pursuant to this Section 5(b) but shall continue to be adjusted pursuant to Section 5(c) below. (c) Reorganization, Reclassification, Consolidation, Merger orSale, etc. (i) If the Corporation at any time subdivides (by any stock split, stock dividend (other than stock dividends as to which a dividend is simultaneously paid or declared with respect to Series F Preferred Stock pursuant to Section 2(b) hereof) recapitalization or otherwise) its outstanding shares of its Common Stock into a greater number of shares, the Conversion Number in effect immediately prior to such subdivision will be proportionately increased, and if the Corporation at any time combines (by reverse stock split or otherwise) one or more classes of its outstanding shares of its Common Stock, the Conversion Number in effect immediately prior to such combination will be proportionately decreased concurrently with the effectiveness of such event. (ii) In case the Corporation shall declare a dividend or make any other distribution upon any stock of the Corporation payable in Common Stock or options to purchase shares of Commons Stock or securities convertible into shares of Common Stock for no consideration without making a ratable distribution thereof to holders of Series F Preferred Stock (based upon the number of shares of Common Stock into which such Series F Preferred Stock would be convertible, assuming conversion of the Series F Preferred Stock), then the Conversion Number in effect immediately prior to the declaration of such dividend or distribution shall be proportionately increased, concurrently with the effectiveness of such declaration. (iii) Any capital reorganization, reclassification, consolidation, merger or sale of all or substantially all of the Corporation's assets to another Person which is effected in suchSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. a way that holders of Common Stock are entitled to receive (either directly or upon subsequent liquidation) stock, securities or assets with respect to or in exchange for Common Stock is referred to herein as an "Organic Change." Prior to the consummation of any Organic Change, the Corporation will make appropriate provisions to insure that each of the holders of Series F Preferred Stock will thereafter have the right to acquire and receive such shares of stock, securities or assets as such holder would have received in connection with such Organic Change if such holder had converted its Series F Preferred Stock into shares of Common Stock immediately prior to such Organic Change. The Corporation will not effect any such consolidation, merger or sale, unless prior to the consummation thereof, the successor corporation (if other than the Corporation) resulting from consolidation or merger or the Corporation purchasing such assets assumes by written instrument the obligation to deliver to each such holder such shares of stock, securities or assets as, in accordance with the foregoing provisions, such holder may be entitled to acquire. (d) No fractional shares of Common Stock shall be issued uponconversion of the shares of Series F Preferred Stock. In lieu ofany fractional shares to which the holder of Series F PreferredStock would otherwise be entitled, the Corporation shall pay cashequal to such fraction multiplied by the then effective fairmarket value of the Common Stock (which shall be determined ingood faith by the Board of Directors if there is then no currentmarket for the Common Stock). Conversion of the shares of SeriesF Preferred Stock shall be effected by delivery, to the office ofthe Corporation or to any transfer agent for such shares, of dulyendorsed certificates for the shares being converted and ofwritten notice to the Corporation that the holder elects toconvert such shares. Conversion of the shares of Series FPreferred Stock shall be deemed to occur immediately prior to theclose of business on the date the latter of the shares and thenotice are delivered. Holders of Series F Preferred Stockentitled to receive Common Stock upon conversion of the Series FPreferred Stock shall be treated for all purposes as the recordholders of such shares of Common Stock on the date conversion isdeemed to occur. The Corporation shall not be obligated to issuecertificates evidencing shares of Common Stock issuable uponconversion of the Series F Preferred Stock unless thecertificates evidencing such shares of Series F Preferred Stockbeing converted are either delivered to the Corporation or itstransfer agent as provided above, or the holder notifies theCorporation or its transfer agent that such certificates havebeen lost, stolen or destroyed and executes an agreement, and atthe Corporation's election provides a surety bond or othersecurity, satisfactory to the Corporation to indemnify theCorporation from any loss incurred by it in connection with suchcertificates. The Corporation shall, as soon as practicableafter such delivery, or such agreement and indemnification in thecase of a lost certificate, issue and deliver at such office acertificate or certificates for the number of shares of CommonStock to which the holder of Series F Preferred Stock is entitledand a check payable to the holder of Series F Preferred Stock forany cash due with respect to fractional shares. (e) The issuance of certificates for shares of Common Stock upon conversion of the Series F Preferred Stock shall be made without charge to the holders thereof for any issuance tax in respectthereof, provided that the Corporation shall not be required topay any income or similar taxes of a holder arising in connectionwith a conversion or any tax that may be payable in respect ofany transfer involved in the issuance and delivery of anycertificates in a name other than that of the holder of theSeries F Preferred Stock which is being converted.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (f) The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, transfer of assets,consolidation, merger, dissolution, issue or sale of securitiesor any other voluntary action, avoid or seek to avoid theobservance or performance of any of the terms to be observed orperformed hereunder by the Corporation but will at all times ingood faith assist in the carrying out of all the provisions ofthis Section 5 and in the taking of all such action as may benecessary or appropriate in order to protect the conversionrights of the holders of the Series F Preferred Stock againstimpairment. (g) In the event of any taking by the Corporation of a recordof the holders of any class of securities of the Corporation forthe purpose of determining the holders thereof who are entitledto receive any dividend or distribution, the Corporation shallmail to each holder of Series F Preferred Stock at least ten (10)days prior to the date specified therein, a notice specifying thedate on which any such record is to be taken for the purpose ofsuch dividend or distribution. (h) The Corporation shall reserve and keep available out of itsauthorized but unissued Common Stock such number of shares ofCommon Stock as shall from time to time be sufficient to effectconversion of the Series F Preferred Stock and the issuance ofCommon Stock to the holders of the Series F Preferred Stock. (i) No shares of the Series F Preferred Stock acquired by theCorporation by reason of purchase, conversion or otherwise shallbe reissued, and all such shares shall be cancelled, retired andeliminated from the shares of capital stock which the Corporationshall be authorized to issue. 6. NO RIGHT OF REDEMPTION. The Corporation shall have no rightwhatsoever to redeem all or any number of the outstanding sharesof the Series F Preferred Stock at any time. 7. PREEMPTIVE RIGHTS. (a) Subject to paragraphs (c) and (d), for so long asany shares of the Series F Preferred Stock are outstanding, theCorporation shall not, subsequent to the completion of the NewEquity Financing (as defined in Section 8(f)), issue, sell, orexchange, or agree to issue, sell, or exchange, to any Person orentity, whether from treasury shares, from the issuance ofauthorized but unissued shares, or otherwise, any equitysecurities (or any securities convertible into or excercisable orexchangeable therefor) (any of which, the "CORPORATION EQUITYSECURITIES"), unless the Corporation shall have first offered tosell (the "CORPORATION OFFER") to holders of Series F PreferredStock such number of securities at the same price and on the sameterms (the "CORPORATION OFFER SALE PRICE") and in such quantityas will enable holders of Series F Preferred Stock to maintaintheir percentage ownership of Common Stock of the Corporation ona Fully-Diluted Basis. The Corporation Offer by its terms shallremain open and irrevocable for a period of thirty (30) days fromthe date it is delivered by the Corporation to holders of SeriesF Preferred Stock (the "PREEMPTIVE RIGHTS OFFER PERIOD"). (b) Notice of the intention of the holders of theSeries F Preferred Stock to accept a Corporation Offer madepursuant to this Section 7 shall be evidenced by a writing signedby holders of Series F Preferred Stock and delivered to theCorporation prior to the end of the Preemptive Rights OfferPeriod, setting forth the portion of the Corporation EquitySecurities which the holders of Series F Preferred Stock elect topurchase (the "NOTICE OF ACCEPTANCE"). Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (c) In the event that a Notice of Acceptance is notgiven by holders of Series F Preferred Stock in respect of all orany part of the Corporation Equity Securities, the Corporationshall have sixty (60) days from the expiration of the PreemptiveRights Offer Period to sell or enter into an agreement to sellall or the part of the Corporation Equity Securities set forth inthe Corporation Offer not purchased by the holders of Series FPreferred Stock, as the case may be, to any other person orpersons, on terms and conditions, including, without limitation,price, which are no more favorable to such other person orpersons or less favorable to the Corporation or the holders ofSeries F Preferred Stock than the Corporation Offer Sale Price.Upon the earlier of (i) sixty (60) days from delivery of a Noticeof Acceptance or (ii) the closing of the sale of the securitiesnot accepted in the Notice of Acceptance, the Corporation shallsell to the holders of Series F Preferred Stock the CorporationEquity Securities in respect of which a Notice of Acceptance wasdelivered to the Corporation by the holders of Series F PreferredStock, and which were not sold to any other person, on the termsspecified in the Notice of Acceptance. (d) Any Corporation Equity Securities not purchased bythe holders of Series F Preferred Stock or other person orpersons in accordance with paragraph (c) above may not be sold orotherwise disposed of until they are again offered to the holdersof Series F Preferred Stock under the procedures specified inparagraphs (a), (b) and (c). (e) The rights of holders of Series F Preferred Stockunder paragraphs (a), (b), (c) and (d) shall not apply to thefollowing securities: (i) Corporation Equity Securities issued in any transaction described in Section 5(c); (ii) Corporation Equity Securities issued by the Corporation upon the conversion of any securities which are convertible or exchangeable into capital stock of the Corporation and which are outstanding as of the date hereof; (iii) Corporation Equity Securities issued by the Corporation upon the conversion of any securities which (x) are convertible or exchangeable into capital stock of the Corporation and (y) were issued under the procedures specified in paragraphs (a), (b) and (c); (iv) Corporation Equity Securities issued by the Corporation under the Management Incentive Plan; (v) Corporation Equity Securities issued by the Corporation to any officer, director or employee of the Corporation as remuneration for services rendered to the Corporation; provided, however, that at least one of the Series F Preferred Directors voted to authorize such issuance; (vi) Corporation Equity Securities issued by the Corporation to any consultant pursuant to compensation procedures approved by the Board of Directors of the Corporation including the consent of at least one of the Series F Preferred Directors; (vii) Corporation Equity Securities issued in connection with the acquisition of all or part of another entity or in connection with a joint venture or such other strategic investment, which transaction is approved by at least one of the Series F Preferred Directors; Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (viii)Corporation Equity Securities issued pursuant to the conversion of the Series F Preferred Stock pursuant to the terms hereof; and (ix) Corporation Equity Securities to the extent that such Corporation Equity Securities (and/or any Common Stock issued or issuable with respect to such Corporation Equity Securities) are included within the calculation of "Fully- Diluted Basis" as defined in Section 8(d) hereof (i.e., do not meet the requirements for exclusion from such calculation as set forth in the final paragraph of Section 8(d)). (f) Without limitation of the foregoing, if the Corporationsells any Corporation Equity Securities to any person or personsand if, after giving effect to such transaction and after givingeffect to any election by the holders of the Series F PreferredStock to exercise the preemptive rights granted herein, theConversion Number would be less than such number of shares ofCommon Stock of the Corporation as is calculated as of theapplicable date by: (i) First, calculating the number of shares of Common Stock of the Corporation which, at the applicable date represents 12.5% of the Common Stock of the Corporation on a Fully-Diluted Basis, and (ii) Second, multiplying the number obtained under subsection (i) above by a fraction, the numerator of which is the number of shares of Series F Preferred Stock outstanding as of the date of such calculation and the denominator of which is the sum of (x) the number of shares of Series F Preferred Stock outstanding as of the date of such calculation plus (y) number of shares of Series F Preferred Stock which had previously been issued by the Corporation but converted into shares of Common Stock prior to the date of such calculation (the number so calculated, the "MINIMUM CONVERSION NUMBER"); then the Conversion Number shall automatically be adjusted as of the applicable date so that it is equal to the Minimum Conversion Number. 8. DEFINITIONS: (a) "BANK" means ING Capital, LLC, a Delaware limitedliability company. (b) "CASH COLLATERAL ACCOUNT" means an interest-bearing cash collateral account established under the terms ofthe New Note. (c) "CRE" means Cadiz Real Estate LLC, a Delawarelimited liability Corporation. (d) "FULLY-DILUTED BASIS" means, with respect to the calculationof the number of shares of Common Stock into which the Series FPreferred Stock is convertible, the sum of (i) all Common Stockoutstanding at the time of such determination (including allCommon Stock issued pursuant to the first $4 million of NewEquity Financing), (ii) all Common Stock issuable upon theexchange, exercise or conversion of all warrants, options,convertible securities or other such instruments then outstanding(whether or not such instruments are then exercisable) including,but not limited to, the equity securities issued under theManagement Equity Incentive Plan, but excluding (x) 16,600 sharesof Common Stock issuable upon exercise of outstanding warrantswith an exercise price in excess of $25, (y) shares of CommonStock issuable 55,550 outstanding stock options with an exerciseprice in excess of $25, and (z) 20,000 shares of Common Stockconditionally issuable to a consultant to the Company uponSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. achievement of certain financial targets, and (iii) all otherCommon Stock issuable as a result of any anti-dilutionadjustments and pre-emptive or similar rights granted to anyother holder of the Corporation's Common Stock; provided,however, that such calculation shall not include: (A) the issuance by the Corporation of the next $4.6 million in Corporation Equity Securities after the issuance by the Corporation of the first $4 million of Corporation Equity Securities pursuant to its New Equity Financing; provided further that the $4.6 million of Corporation Equity Securities shall be issued on terms no less favorable to the Corporation than the first $4 million of New Equity Financing; and (B) the issuance by the Corporation of any Corporation Equity Securities subsequent to the consummation of the New Equity Financing; (C) the issuance by the Corporation of any Corporation Equity Securities pursuant to the conversion of the Series F Preferred Stock pursuant to the terms hereof; or (D) the issuance by the Corporation of any Corporation Equity Securities concurrently with the New Equity Financing in settlement of third party claims; and provided that in each issuance of Corporation Equity Securities referred to in (B) above, cash in the amount of at least 35% of the net proceeds from such issuance of Corporation Equity Securities shall have been either paid directly to the Bank on account of the New Note or deposited into the Cash Collateral Account, which cash may be used by the Corporation or CRE to pay interest payments next due on the New Note in their order of maturity or to prepay principal outstanding under the New Note, provided further that the Corporation shall not deposit cash into the Cash Collateral Account if, as a result of such deposit, the amount on deposit would exceed 8% of the then-outstanding principal balance on the New Note times the number of years from the date of such deposit through September 30, 2006. (e) "MANAGEMENT EQUITY INCENTIVE PLAN" means that certain planpursuant to which continuing employees of the Corporation shallbe issued Common Stock and/or granted securities convertible intoCommon Stock in an aggregate amount of up to 15% of theoutstanding capital of the Corporation, on a fully-diluted basis,after giving effect to the issuance of the Series F PreferredStock and after the issuance by the Corporation of $8.6 millionin Common Stock in the New Equity Financing. (f) "NEW EQUITY FINANCING" means at least $8.6 million equityfinancing raised by the Corporation concurrently with orimmediately prior to the issuance of the New Note. (g) "NEW NOTE" means that certain new note or new notes in theprincipal amount of (i) $35 million, plus (ii) any remainingbalance not fully paid of the Bank' out-of-pocket expenses(including reasonable attorneys' fees) incurred in connectionwith the restructuring of the Corporation's debt obligations owedto the Bank. 9. TRANSFERABILITY. All outstanding shares of the Series FPreferred Stock may be transferred to any one person or entity atany time and it shall be the obligation of the Company torecognize and effectuate such transfer. In the event that anyholder of Series F Preferred Stock desires to transfer less than100% of the then outstanding Series F Preferred Stock, suchholder may only do so by first converting such shares of Series FPreferred Stock to be sold into common stock pursuant toSection 5 hereof.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. IN WITNESS WHEREOF, CADIZ INC. has caused thisCertificate to be signed by Keith Brackpool, its Chief ExecutiveOfficer, and attested by Jennifer Hankes Painter, its Secretary,this 15th day of December, 2003. CADIZ INC. By: /s/ Keith Brackpool ----------------------------------- Name: Keith Brackpool Title: Chief Executive Officer ATTEST: By: /s/ Jennifer Hankes Painter ----------------------------------- Name: Jennifer Hankes Painter Title: SecretarySource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. FIRST AMENDMENT TO 2003 RESTATED CREDIT AGREEMENT AND CONSENT TO OFFERING This First Amendment to 2003 Restated Credit Agreement andConsent to Offering (this "Seventh Amendment"), dated as of November30, 2004, is entered into by and among (a) CADIZ INC. ("Cadiz")(f/k/a Cadiz Land Company, Inc.) in its own capacity and assuccessor by merger to Cadiz Valley Development Corporation, andCADIZ REAL ESTATE LLC ("CRE"), as co-borrowers (collectively, the"Borrowers"), (b) ING Capital, LLC ("ING") (f/k/a ING Baring (U.S.)Capital LLC and ING Baring (U.S.) Capital Corporation), a Delawarecorporation, as administrative agent (in such capacity, the"Administrative Agent"), and (c) the Lender(s) (the "Lenders" and,along with the Administrative Agent, the "Lender Parties") party tothat Sixth Amended and Restated Credit Agreement dated as ofDecember 15, 2003 (as amended and restated from time to time, the"Revolving Credit Agreement"), among the Borrowers, the Lenders andthe Administrative Agent. This Seventh Amendment amends theRevolving Credit Agreement. R E C I T A L S ---------------- A. This Seventh Amendment refers to that certain Revolving CreditAgreement. B. Pursuant to that certain Revolving Credit Agreement, dated asof November 25, 1997 (the "1997 Revolving Credit Agreement"), amongCadiz, the Lenders party thereto and the Administrative Agent, asagent for such Lenders, such Lenders agreed to provide a revolvingcredit facility to Cadiz Borrower. C. Pursuant to that certain First Amendment to Credit Agreement,dated as of September 28, 1999, by and between Cadiz, Lenders andthe Administrative Agent (the "First Amendment Agreement"), theparties agreed to amend certain terms of the 1997 Revolving CreditAgreement. D. Pursuant to that certain Second Amendment to Credit Agreement,dated as of December 22, 1999, by and between Cadiz, Lenders and theAdministrative Agent (the "Second Amendment Agreement"), and theother Second Amendment Documents, as defined in the Second AmendmentAgreement (collectively, the "Second Amendment Documents"), theparties agreed to amend certain terms of the 1997 Revolving CreditAgreement, as amended and in effect at that time. E. Pursuant to that certain Third Amendment to Credit Agreement,dated as of December 22, 2000, by and between Cadiz Borrower,Lenders and the Administrative Agent (the "Third AmendmentAgreement"), as amended by that certain First Amendment to ThirdAmendment to Credit Agreement dated as of October 22, 2001 betweenBorrower, Lenders and the Administrative Agent, and the other ThirdAmendment Documents, as defined in the Third Amendment Agreement(collectively, the "Third Amendment Documents"), the parties agreedto amend certain terms of the 1997 Revolving Credit Agreement, asamended and in effect at that time. F. Pursuant to that certain Fourth Amendment to Credit Agreement,dated as of January 31, 2002, by and between Cadiz Borrower, Lendersand the Administrative Agent (the "Fourth Amendment Agreement"), andthe other Fourth Amendment Documents, as defined in the FourthAmendment Agreement (collectively, the "Fourth AmendmentDocuments"), the parties agreed to amend certain terms of the 1997Revolving Credit Agreement, as amended and in effect at that time. G. Pursuant to that certain Fifth Amended and Restated CreditAgreement, dated as of March 7, 2002, by and between Cadiz Borrower,Lenders and the Administrative Agent (the "Fifth AmendmentSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Agreement"), and the other documents executed or delivered inconnection therewith (collectively, the "Fifth AmendmentDocuments"), the parties agreed to amend certain terms of the 1997Revolving Credit Agreement, as amended and in effect at that time; H. Pursuant to that certain Sixth Amended and Restated CreditAgreement, dated as of December 15, 2003, by and between Cadiz andCRE, as borrowers, Lenders and the Administrative Agent (the "SixthAmendment Agreement"), and the other documents executed or deliveredin connection therewith (collectively, the "Sixth AmendmentDocuments"), the parties agreed to amend certain terms of theRevolving Credit Agreement, as amended and in effect at that time. I. Cadiz and CRE have requested that the Revolving CreditAgreement, as amended and in effect at this time, be amended toreflect the restructuring of the Loan Obligations on the terms setforth herein. J. The Lenders and the Administrative Agent are willing to amendthe Revolving Credit Agreement, as amended and in effect at thistime, on the terms and subject to the conditions and requirementsset forth in this Seventh Amendment and the other documents executedor delivered in connection herewith to, among other things,(a) confirm the obligations of Borrowers in favor of Lenders andAdministrative Agent under the Revolving Credit Agreement, asamended and in effect at this time; (b) consent to the Offering, and(c) provide for the conversion of 99,000 shares of the Series FPreferred Stock issued by Cadiz to the Lenders into 1,711,665 sharesof Common Stock; (d) amend the interest rate on the LoanObligations; (e) provide for the further extension of the MaturityDate of the Notes and other modifications thereof, (f) provide forthe immediate repayment of all outstanding Term Loan Obligations,and (g) establish a $2.4 million credit for use in the CashCollateral Account as consideration for the Offering-ING Units, allof the foregoing upon the terms and conditions set forth herein andin the other Seventh Amendment Documents. K. The parties acknowledge that the Borrowers have previouslyfully drawn on the Revolving Loans and the availability providedunder the Revolving Credit Agreement and that there are no undrawnCommitments under the Revolving Credit Agreement. NOW THEREFORE, in consideration of foregoing and for othergood and valuable consideration, the receipt and sufficiency ofwhich are hereby acknowledged, the parties hereto agree as follows: AGREEMENT SECTION 1. Definitions. All capitalized terms used but not defined herein shallhave the meanings assigned to such terms in the Revolving CreditAgreement, as amended by this Seventh Amendment. The followingterms shall have the following meanings when used herein (all termsdefined in this Section 1 or in other provisions of this SeventhAmendment in the singular shall have the same meaning in the pluraland vice versa). "NEW CADIZ SERIES F PREFERRED STOCK CERTIFICATE": meansthe certificate of Series F Preferred Stock issued by Cadiz to INGpursuant to Section 8 of the Seventh Amendment with the rights,privileges and preferences as set forth in the Revised PreferredStock Certificate of Designations, in the form as attached hereto inExhibit I. "OFFERING": means the offering by Cadiz of $20,000,000 to$24,000,000 of its common stock, $0.01 par value, in order (i) toSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. reduce the outstanding balance on the Loan Obligations to$25,000,000 and (ii) to provide additional working capital, whichOffering shall be effected pursuant to documentation in form andsubstance satisfactory to the Administrative Agent in its reasonablediscretion. "OFFERING MATERIALS CERTIFICATE": means the OfferingMaterials Certificate delivered by the Borrowers to theAdministrative Agent in the form as attached hereto in Exhibit J, "OFFERING REGISTRATION RIGHTS AGREEMENT": means theOffering Registration Rights Agreement in the form as attachedhereto in Exhibit K, "REGISTRATION RIGHTS AGREEMENT AMENDMENT" means theamendment to the Registration Rights Agreement in the form asattached hereto in Exhibit H. "REVISED PREFERRED STOCK CERTIFICATE OF DESIGNATIONS":means the revised Preferred Stock Certificate of Designations issuedby Cadiz to ING pursuant Seventh Amendment in the form as attachedhereto in Exhibit M, which Revised Preferred Stock Certificate ofDesignations shall be in form and substance acceptable to ING. "REVOLVING CREDIT AGREEMENT" means the Agreement. "SEVENTH AMENDMENT DOCUMENTS": means the SeventhAmendment and all of the other documents executed in connectiontherewith or relating thereto and schedules and exhibits thereto. "SEVENTH AMENDMENT EFFECTIVE DATE": means the date onwhich the conditions specified in Section 7 are satisfied (or waivedin writing by the Administrative Agent). "TERM LOAN PAYOFF LETTER": means the Term Loan PayoffLetter among the parties hereto in the form as attached hereto inExhibit N, SECTION 2. AMENDMENTS. Subject to the satisfaction of the conditions precedentspecified in Section 7 hereof, and effective as of the SeventhAmendment Effective Date, the Revolving Credit Agreement shall beamended as follows: Section 2.01 References in the Agreement to "this Agreement" (andindirect references such as "hereunder", "hereby", "herein" and"hereof") shall be deemed to be references to the Agreement asamended and in effect from time to time, including as amended by theSeventh Amendment and the Seventh Amendment Documents. Section 2.02 Section 1.01 of the Revolving Credit Agreement shallbe amended by deleting and replacing the current definitions of"Agreement", "Loan Documents", "Permitted Investments", "MaturityDate" and "PIK Portion Rate" with the following: "AGREEMENT" means the Sixth Amended and Restated Credit Agreement, dated as of December 15,2003, among Borrowers, the Lenders party hereto, and the Administrative Agent, as amended and in effect from time to time. "LOAN DOCUMENTS": means this Agreement, each Security Document, each Note, the First Amendment Agreement, the Second Amendment Documents, the Third Amendment Documents, the Fourth Amendment Documents, the Fifth Amendment Documents, the Sixth Amendment Documents and the Seventh Amendment Documents, and any other document, instrument or agreement delivered, executed or to be executed under orSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. in connection with any of the foregoing. "MATURITY DATE" means March 31, 2010. "PERMITTED INVESTMENTS" means: (a) Cash Equivalents; (b) transactions permitted pursuant to the provisions of Sections 5.10 and 5.11 hereof; and (c) acquisitions (by merger or purchase of assets) where 100% of the purchase price is paid in equity of the Borrowers, provided, however, that (i) any such acquisition must be reasonably acceptable to the Lender Parties and (ii) any equity interests so acquired must be pledged to the Administrative Agent as provided in Section 5.10 of the Agreement. "PIK PORTION RATE " means (a) for the period between the Seventh Amendment Effective Date and March 31, 2008, 4% and (b) for all Interest Periods from and after April 1, 2008, 6%. Section 2.03 Section 1.01 of the Revolving Credit Agreement shallbe amended by adding the following definitions: "ING-OFFERING CASH COLLATERAL" has the meaning ascribed to such term in Section 2.27 of the Agreement. "MANDATORY WARRANT PREPAYMENT" has the meaning ascribed to such term in Section 2.21(e) of the Agreement. "OFFERING" has the meaning ascribed to such term in the Seventh Amendment. "OFFERING-ING COMMON STOCK" has the meaning ascribed to such term in Section 2.27 of the Agreement. "OFFERING-ING UNITS" means, collectively, the Offering-ING Common Stock and the Offering-ING Warrants. "OFFERING-ING WARRANTS" has the meaning ascribed to such term in Section 2.27 of the Agreement. "OFFERING WARRANTS" means any warrants and other equity interests (excluding Common Stock of Cadiz Borrower) issued under the Offering, including, but not limited to, the Offering-ING Warrants. "REPAYMENT FEE" means (a) in the event that ING (or ING's nominee, as the case may be) does not sell, in its sole discretion, all of its Offering-ING Units to any Entity on or before March 31, 2005, an amount equal to the amount of any remaining ING-Offering Cash Collateral after application of Section 2.28(a) of the Agreement, and (b) if ING (or ING's nominee, as the case may be), in its sole discretion, sells all of its Offering-ING Units to any Entity (but excluding any sale or transfer to any Affiliate of ING) on or before March 31, 2005, an amount equal to the amount of any remaining ING-Offering Cash Collateral after application of Sections 2.28(a) and 2.28(b) of the Agreement. "REQUIRED CASH COLLATERAL AMOUNT" means, as of any Interest Payment Date, an amount in cash equal to the Cash Portion due on all Loans on the next Interest PaymentSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Date. "SEVENTH AMENDMENT" means that certain First Amendment to 2003 Restated Credit Agreement and Consent to Offering, dated as of November 30, 2004, by and among (a) the Borrowers, as borrowers, (b) the Lenders, as lenders, and (c) the Administrative Agent, as administrative agent. "SEVENTH AMENDMENT DOCUMENTS" has the meaning ascribed to such term in the Seventh Amendment. "SEVENTH AMENDMENT EFFECTIVE DATE" has the meaning ascribed to such term in the Seventh Amendment. Section 2.04 Section 1.01 of the Revolving Credit Agreement shallbe amended by deleting the definitions of "FIRST EXTENSIONREQUIREMENTS", "MaxIMUM CASH COLLATERAL AMOUNT", "SECOND EXTENSIONREQUIREMENTS", and "THIRD EXTENSION REQUIREMENTS". Section 2.05 The Revolving Credit Agreement shall be amended bydeleting Section 2.01 in its entirety and inserting the followingrevised Section 2.01 in lieu thereof: (a) TRANCHE A LOANS. The parties hereby acknowledge and agree that each Lender has made loans (the "Tranche A Loans") to the Borrowers from time to time during the Availability Period in an aggregate principal amount equal to each Lender's Tranche A Commitment. The parties hereby further acknowledge and agree that prior to the Seventh Amendment Effective Date, the Borrowers have borrowed the principal amount of $15,020,000 of Tranche A Loans from the Lenders and, as of the Seventh Amendment Effective Date the principal amount of $15,000,000 of Tranche A Loans remains outstanding. Each Lender's Tranche A Loans are the joint and several obligation of the Borrowers to repay such Tranche A Loans and are evidenced by a revised and restated Tranche A Loan Note payable to the order of such Lender, and, as of the Seventh Amendment Effective Date, has been duly and validly executed and delivered by the Borrowers, payable to the order of such Lender, which Tranche A Loan Note shall replace the Tranche A Loan Note issued in connection with the Sixth Amendment Documents. Each Revolving Loan Note shall be dated as of the Seventh Amendment Effective Date (or the later date of any Assignment and Acceptance). The Borrowers acknowledge and agree that the principal amount of Tranche A Loans outstanding on the Seventh Amendment Effective Date is equal to $15,000,000. (b) TRANCHE B LOANS. The parties hereby acknowledge and agree that each Lender has made loans (the "Tranche B Loans") to the Borrowers from time to time during the Availability Period in an aggregate principal amount equal to each Lender's Tranche B Commitment. The parties hereby further acknowledge and agree that prior to the Seventh Amendment Effective Date, the Borrowers have borrowed the principal amount of $10,000,000 of Tranche B Loans from the Lenders, which Tranche B Loans remain outstanding on the Seventh Amendment Effective Date. Each Lender's Tranche B Loans are the joint and several obligation of the Borrowers to repay such Tranche B Loans and are evidenced by a revised and restated Tranche B Loan Note payable to the order of such Lender, and, as of the Seventh Amendment Effective Date, has been duly and validly executed and delivered by the Borrowers, payable to the order of such Lender, which Tranche B Loan Note shall replace the Tranche B Loan Note issued in connection with the Sixth Amendment Documents. Each Note shall beSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. dated as of the Seventh Amendment Effective Date (or the later date of any Assignment and Acceptance). The Borrowers acknowledge and agree that the principal amount of Tranche B Loans outstanding on the Seventh Amendment Effect Date is equal to $10,000,000. Section 2.06 Section 2.12 of the Revolving Credit Agreement shallbe amended by adding the following sentence at the end of thecurrent Section 2.12: In addition to any other obligations provided herein, on the date on which the Revolving Loan Obligations are being paid in full, the Borrowers shall satisfy the Repayment Fee as provided in Section 2.28(c) hereof. Section 2.07 The Revolving Credit Agreement shall be amended bydeleting Subsection 2.14(a) in its entirety and inserting thefollowing revised Subsection 2.14(a) in lieu thereof: (a) In its sole discretion, as provided in this section, Borrowers may elect to pay accrued interest on a Borrowing on an Interest Payment Date (or, in the case of a prepayment under Section 2.11 of the Agreement, on the Prepayment Date) for such Borrowing either: (i) at the PIK&Cash Payment Rate through the remittance of both (A) the Cash Portion, which is a payment in cash corresponding to an interest rate of 4% per annum plus (B) the PIK Portion, which is the payment in kind (the payment of interest in the form of additional principal added to the applicable Note) corresponding to an interest rate equal to the PIK Portion Rate (such election, a "PIK&Cash Payment Election"); or (ii) at the Cash Payment Rate through the remittance of the Cash Payment Amount, which is a payment on cash corresponding to an interest rate of 8% (such election, a "Cash Payment Election"). Section 2.08 The Revolving Credit Agreement shall be amended bydeleting Section 2.16 in its entirety and inserting the followingrevised Section 2.16 in lieu thereof: Section 2.16. CASH COLLATERAL ACCOUNT . In accordance with Section 4.01, the Cadiz Borrower has agreed to establish the Cash Collateral Account and to grant to Lenders perfected first priority security interests therein, all upon the terms and subject to the terms and conditions of the Cash Collateral Account Agreement. Subject to the terms of this Section 2.16 and Sections 2.27 and 2.28 of the Agreement, the Lender Parties may utilize the amount (or any portion thereof) in the Cash Collateral Account as provided in the Cash Collateral Account Agreement. Subject to the restrictions on the use and application of the ING-Offering Cash Collateral, to the extent that the amount in the Cash Collateral Account exceeds the Required Cash Collateral Amount, the Borrowers may utilize such excess (or any portion thereof) to pay the interest payments next due on the Loan Obligations, and if all interest due and owing has been paid, to pay amounts due under the Agreement in accordance with the application of proceeds provisions of Section 2.21(c) of this Agreement. On each Interest Payment Date after the Seventh Amendment Effective Date, and during each Interest Period after the after theSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Seventh Amendment Effective Date, to the extent that the amount in the Cash Collateral Account is less than the Required Cash Collateral Amount, then the Borrowers immediately shall deposit the amount of such deficiency into the Cash Collateral Account, with the amount in such account subject to the Cash Collateral Account Agreement and this Agreement. Provided that no Event of Default has occurred and is continuing, but subject to the terms of Sections 2.27 and 2.28 of this Agreement, on the final Maturity Date, Cadiz Borrower may utilize any remaining cash in the Cash Collateral Account to repay the Loan Obligations in accordance with the application of proceeds provisions of Section 2.21(c) of this Agreement. Section 2.09 The Revolving Credit Agreement shall be amended bydeleting Subsection 2.21(a) in its entirety and inserting thefollowing revised Subsection 2.21(a) in lieu thereof: (a) CERTAIN MANDATORY PREPAYMENTS FOR EQUITY CONTRIBUTION. Subject to Sections 2.21(b) and (e) below, to the extent, if any, that either Borrower raises, collects, or receives, proceeds (whether cash or otherwise) from any Equity Issuance in any manner after the Seventh Amendment Effective Date, then the Borrowers shall prepay the Loan Obligations in an aggregate amount equal to 35% of such cumulative gross proceeds to prepay the Lender's outstanding Loan Obligations (such amount of proceeds, the "MANDATORY EQUITY PREPAYMENT"). Section 2.10 Section 2.21 of the Revolving Credit Agreement shallbe amended by adding the following new subsections (e), (f) and (g)at the end of such Section 2.21. (e) OFFERING WARRANTS. Unless ING (or ING's nominee, as the case may be), in its sole discretion, sells all of its Offering-ING Units to any Entity (but excluding any sale or transfer to any Affiliate of ING) on or before March 31, 2005, to the extent that either Borrower raises, collects, or receives, proceeds from the exercise of any Offering Warrants in any manner after the Seventh Amendment Effective Date, then the Borrowers shall prepay the Loan Obligations in an aggregate amount equal to 100% of such cumulative gross proceeds to prepay the Lender's outstanding Loan Obligations (such amount of proceeds, the "MANDATORY WARRANT PREPAYMENT"). All proceeds of the Mandatory Warrant Prepayments shall be applied toward the mandatory prepayment required under Section 2.21(f) of the Agreement. If ING (or ING's nominee, as the case may be), in its sole discretion, sells all of its Offering-ING Units to any Entity (but excluding any sale or transfer to any Affiliate of ING) on or before March 31, 2005, then from and after the date that ING (or ING's nominee, as the case may be) actually receives the proceeds of such sale the additional prepayment requirements set forth in this Section 2.21(e) will thenceforth cease to be in effect, but the other sections in Section 2.21 of the Agreement shall remain effective (including, without limitation, the provisions of Section 2.21(a)). (f) MANDATORY PREPAYMENT OF $10 MILLION OF TRANCHE A LOANS ON OR BEFORE MARCH 31, 2008. In addition to any other payments or prepayments required to be made under the Loan Documents, after the Seventh Amendment Effective Date and prior to or on March 31, 2008 the Borrowers shall make a $10,000,000 principal payment to the Administrative Agent on account of the Loans, which $10,000,000 principalSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. prepayment shall be applied in the manner set forth in Subsection (c)(iii) and (iv) of Section 2.21(c) of the Agreement; provided, however, that the foregoing $10,000,000 mandatory repayment amount required under this Section 2.21(f) of the Agreement shall be reduced by the total amount of prepayments under Sections 2.11 and 2.21(a) made prior to March 31, 2008; provided, further, that such mandatory repayment under this Section 2.21(f) shall not be reduced below $0.. (g) REDUCTION IN COMMITMENTS. All payments of principal under Section 2.21 of the Agreement shall effect a permanent reduction of (a) the Tranche A Commitments in an amount equal to the principal amount of the Tranche A Loans so prepaid, and (b) the Tranche B Commitments in an amount equal to the principal amount of the Tranche B Loans so prepaid. Any reduction of the Commitments required under this Section 2.21(g) shall apply as a proportional and permanent reduction of the Commitments of each of the Lenders. If the aggregate outstanding principal amount of the Loans exceeds the Commitments, Borrowers shall immediately prepay such Loans to the extent necessary to eliminate such excess. Section 2.11 The Revolving Credit Agreement shall be amended bydeleting Section 2.27 in its entirety and inserting the followingrevised Section 2.27 and new Section 2.28 in lieu thereof: Section 2.27. OFFERING OPTION FOR ING AND UTILIZATION OF PROCEEDS OF SUCH OFFERING TO SATISFY CASH PORTION FOR CERTAIN INTEREST PERIODS. The Lenders and the Administrative Agent hereby grant the Borrowers the following option, and the Borrowers hereby exercise such option: notwithstanding anything else contained in this Agreement, (a) the Borrowers shall deliver on the Seventh Amendment Effective Date (i) to the transfer agent for the Cadiz Common Stock irrevocable instructions for the delivery to ING (or ING's nominee) of a stock certificate representing 200,000 shares of Common Stock of Cadiz Borrower underlying 40,000 units under the Offering, which units shall have an aggregate value of $2,400,000 under the Offering (the "OFFERING-ING COMMON STOCK"), and (ii) to ING (or ING's nominee) of warrants (the "OFFERING-ING WARRANTS") to purchase 40,000 shares of Cadiz Common Stock and other rights provided to a subscriber of $2,400,000 worth of units under the Offering, (b) in exchange for the Offering-ING Units, ING shall grant a $2,400,000 credit to be utilized for obligations arising under the Agreement solely as provided in Section 2.28 of the Agreement (the "ING-OFFERING CASH COLLATERAL"), and (c) for each of the five Interest Periods between the Seventh Amendment Effective Date and the Interest Period ending on March 31, 2007, the Borrowers have elected to make, and shall be deemed to have made for purposes of Section 2.14 of the Agreement, the PIK&Cash Payment Election. The ING- Offering Cash Collateral shall be reflected as a deemed deposit into the Cash Collateral Account and shall be credited in calculating whether the Borrowers should deposit further cash into the Cash Collateral Amount to satisfy the Required Cash Collateral Amount requirement set forth in Section 2.16 of the Agreement. ING (or ING's nominee,as the case may be) shall be treated as a purchaser under the Offering (and all documents, agreements, certificates arising in connection therewith) of all Offering-ING Units and shall be entitled to receive a duly executed subscription agreement, warrant certificate and the Offering Registration Rights Agreement in respect thereof. As of any date, the sole evidence ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the amount, if any, of the ING-Offering Cash Collateral shall be a record maintained by the Administrative Agent setting and shall be conclusive as among the Borrowers, the Administrative Agent and the Lenders absent manifest error. Section 2.28. USE AND APPLICATION OF ING-OFFERING CASH COLLATERAL. The ING-Offering Cash Collateral shall be utilized solely in respect of Revolving Loan Obligations and solely as follows: (a) prior to any other application of the ING-Offering Cash Collateral as provided in Sections 2.28(b) or (c) of the Agreement, the Borrowers shall utilize the ING-Offering Cash Collateral to satisfy, to the extent available, the payment of the Cash Portion interest when due under the Agreement, and the amount of ING-Offering Cash Collateral shall be reduced by the amount so utilized, (b) if ING (or ING's nominee, as the case may be), in its sole discretion, sells its Offering- ING Units to any Entity (but excluding any sale or transfer to any Affiliate of ING) on or before March 31, 2005, then in any subsequent prepayment-in-full or repayment-in-full of the Revolving Loan Obligations, the Borrowers may utilize the ING-Offering Cash Collateral (to the extent not previously utilized to satisfy the Cash Portion interest obligation as provided in Section 2.28(a) of the Agreement) to satisfy the Revolving Loan Obligations, and the amount of ING-Offering Cash Collateral shall be reduced by the amount so utilized, and (c) on any date on which all of the Revolving Loan Obligations are being paid in full, the Borrowers shall utilize the remaining ING-Offering Cash Collateral to satisfy the Repayment Fee and the amount of ING-Offering Cash Collateral shall be reduced by the amount so utilized. Notwithstanding anything to the contrary herein, at no time shall either the Administrative Agent, ING (or its nominee) or any of the Lenders be required to deposit moneys into the Cash Collateral Account or be transferred to either of the Borrowers or any other party as a result of the any of the matters set forth in Sections 2.27 or 2.28 of the Agreement. Section 2.12 Section VII of the Revolving Credit Agreement shallbe amended by (a) deleting the "or" at the end of subclause VII(q),and (b) adding the following new clauses VII(s) and (t) as follows: (s) the failure of Cadiz Borrower (or the transfer agent for the Common Stock of Cadiz Borrower) to deliver to ING on or before the tenth (10) Business Day after the Seventh Amendment Effective Date both (i) a stock certificate representing 1,711,665 shares of Common Stock of Cadiz Borrower issuable upon the conversion of Series F Preferred Stock as provided in Section 8 of the Seventh Amendment, and (ii) a stock certificate representing 200,000 shares of Common Stock of Cadiz Borrower, which is the Offering-ING Common Stock issuable in accordance with Section 2.27 of the Agreement; (t) The failure to of the Borrowers to maintain Cash in the Cash Collateral account in the amount required under Section 2.16 of the Agreement, which failure has not been cured within three (3) days after the due date thereof; SECTION 3. CONSENT. Subject to, and effective as of, the occurrence of theSeventh Amendment Effective Date, the Lender Parties consent to theSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Offering. Except as expressly provided herein, the Lender Partiesand the Borrowers agree that (a) this consent does not affect in anyway the Lender Parties' security interests, rights and remedies asprovided under the Security Documents and the other Loan Documents,(b) the Lender Parties have expressly reserved any and all of itsrights and remedies, including under the Loan Documents and underapplicable law, waiving none of its rights by the execution of thisconsent, and (c) this consent is also without prejudice to, andshall not act as a waiver of, any of the Lender Parties' rights andremedies with respect to any Default or Event of Default which mayhave occurred and which may be continuing. SECTION 4. CERTAIN ACKNOWLEDGEMENTS. The Borrower hereby expressly acknowledges and agrees thatas of the Seventh Amendment Effective Date, the outstandingprincipal under the Loan Documents is in the amount of$25,000,000.00. SECTION 5. NO SATISFACTION. The Borrower hereby expressly acknowledges and agrees thatnothing in this Seventh Amendment or in any document or instrumentexecuted in connection with or pursuant to this Seventh Amendmentshall constitute a satisfaction of or a novation as to all or anyportion of Borrowers' indebtedness under the Revolving CreditAgreement. Borrower hereby unconditionally reaffirms, reconfirmsand restates its obligation to pay in full the indebtedness arisingunder the Revolving Credit Agreement or any of the Loan Documents tothe Administrative Agent and/or the Lenders, as the case may be, theRevolving Loan Obligations or the other or Loan Obligations.Borrowers as to the Revolving Loan Obligations and the other or LoanObligations hereby further acknowledges and agrees that it has nodefenses to the enforcement of such obligations (or any portionthereof), nor any counter-claims or claims of offset whatsoever withrespect to the Revolving Loan Obligations and/or the other or LoanObligations and that neither this Seventh Amendment nor theconsummation of the transactions contemplated herein will give riseto any such defenses, counter-claims or claims of offset. SECTION 6. REPRESENTATIONS AND WARRANTIES; UNDERTAKINGS. The Borrower represents and warrants to the Lender Partiesthat the representations and warranties set forth in Loan Documentsare true and complete in all material respects on the date hereof asif made on and as of the date hereof (except to the extent any suchrepresentation and warranty stated to relate to a specific earlierdate is true and correct as of such earlier date) and as if eachreference therein to that document included reference to the LoanDocuments as amended from time to time (including as amended by theSeventh Amendment Documents). The Borrower further represents andwarrants that (a) it is in compliance with all of the affirmative,negative and financial covenants set forth in the Loan Documents asof the date hereof, (b) all audited financial statements and allfinancial statements provided to the Securities and ExchangeCommission (as part of filings on Form 10-K, Form 10-Q or other SECforms) delivered to the Administrative Agent through the date hereofhave been complete and correct in all material respects and fairlypresented the financial condition of the Borrower and theirSubsidiaries as at such dates and the results of its operations forthe periods covered thereby, all in accordance with GAAPconsistently applied, (c) on the date hereof no Event of Default ordefault (other than those that have been previously cured or waived)under any Revolving Credit Document has occurred, (d) the executionand delivery by it of this Seventh Amendment and the other SeventhSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Amendment Documents has been duly authorized by all requisitecorporate action (including, but not limited to, any consentrequired to be obtained by any shareholder), and it has obtained orwill obtain prior to the Seventh Amendment Effective Date anyrequired approvals of third parties for the execution and deliveryof such documents, (e) Administrative Agent and the Lenders haveperformed or complied with all material obligations required to beperformed or complied with by it under the Loan Documents and, as ofthe date hereof, there are no amounts due and owing byAdministrative Agent or the Lenders under the Loan Documents, (f) tothe Borrower's knowledge, upon due inquiry, Administrative Agent andthe Lenders have not engaged in any acts, conduct or omissions thatcould result in the Administrative Agent and the Lenders receiving asmaller distribution on account of the Revolving Loan Obligations,and (g) all shares of Common Stock to be issued under the Offering-ING Warrants have been duly and validly reserved and all suchshares, as well as the shares of Common Stock that will be issued toING on the date hereof pursuant to Sections 2.27 and 8 hereof arenot subject to any preemptive or similar rights (whether arising bycontract, law, charter documents or otherwise), other than as mayarise in favor of ING pursuant to the Series F Certificate ofDesignations. Each of the parties hereto represents and warrantsthat such party has full authority and legal power to execute thisSeventh Amendment and each of the other Seventh Amendment Documentsthat it has executed and that this Seventh Amendment and each of theLoan Documents (as amended by the Seventh Amendment Documents)constitute valid and binding obligations of such party. SECTION 7. CONDITIONS PRECEDENT. This Amendment shall become effective on the date on whichthe Administrative Agent shall notify the Borrowers that thefollowing conditions have been satisfied in the AdministrativeAgent's sole discretion: A. the Administrative Agent shall have received counterpartsof this Seventh Amendment and the other Seventh Amendment Documents(in recordable form, where appropriate) duly executed and deliveredby the Borrower in form and substance satisfactory to AdministrativeAgent (in Administrative Agent's absolute discretion), including,but not limited to, the following: (1) this Seventh Amendment; (2) The Amended and Restated Tranche A Revolving Credit Note between Borrowers and ING, in the form as attached hereto in Exhibit A; (3) The Amended and Restated Tranche B Revolving Credit Note between Borrowers and ING in the form as attached hereto in Exhibit B; (4) Sixth Amended and Restated Pledge and Security Agreement between Borrowers and ING, in the form as attached hereto in Exhibit C; (5) Sixth Modification of the Revolver Deed of Trust, in the form as attached hereto in Exhibit D; (6) Sixth Modification of the Revolver SWFG Deed of Trust, in the form as attached hereto in Exhibit E; (7) Sixth Modification of the Revolver Piute Deed of Trust, in the form as attached hereto in Exhibit F; (8) a copy of the Revised Preferred Stock Certificate of Designations evidencing to theSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. satisfaction of the Lender Parties that such document has been properly filed with the Secretary of State of the State of Delaware; (9) The 1934 Act Compliance Letter duly executed by Cadiz, in the form as attached hereto in Exhibit G; (10) The Registration Rights Agreement Amendment in the form as attached hereto in Exhibit H; (11) The New Cadiz Series F Preferred Stock Certificate in the form attached hereto as Exhibit I; (12) The Offering Materials Certificate in the form attached hereto as Exhibit J; (13) The Offering Registration Rights Agreement in the form attached hereto as Exhibit K; (14) The Offering-ING Warrants in the form attached hereto as Exhibit L; and (15) a copy of the instructions given to the transfer agent for the Cadiz Common Stock evidencing to the satisfaction of the Lender Parties that such transfer agent has been irrevocably instructed to issue (a) shares of Common Stock of Cadiz to ING in accordance with Section 8 hereof and (b) shares of Common Stock of Cadiz to ING in accordance with Section 2.27 of the Agreement; (B) Each of the Borrowers, to the extent that it is a partythereto, shall have confirmed in writing that the followingdocuments remain valid and binding agreements and/or instruments,which written confirmation is in form and substance satisfactory tothe Administrative Agent, in its sole discretion, and that Borrowersand, as applicable, their Participating Subsidiaries remain bound bythe terms and provisions of the following documents: (1) the Pledge and Security Agreement and the Mortgages, and/or any amendments to any such existing Loan Documents; (2) the Cadiz Reaffirmation Agreement; and (3) the other Loan Documents, as amended from time to time. C. the Administrative Agent shall have received an opinionfrom each of the Borrowers' counsel in form and substancesatisfactory to the Administrative Agent (A) that such Borrower isin good standing in the States of Delaware and California, (B) as tothe due authorization, execution and delivery of this SeventhAmendment, the other Seventh Amendment Documents and the other LoanDocuments, (C) that this Seventh Amendment, the other SeventhAmendment Documents and the other Loan Documents constitute valid,binding and enforceable obligations of such Borrower, and (D) as tosuch other matters as the Administrative Agent shall reasonablyrequest, in form and substance reasonably satisfactory to suchBorrower and the Lender Parties; D. ING shall have received payment in full of the Term LoanObligations through the receipt of $10,976,675.92, which paymentshall be made by the Borrowers from the proceeds of the Offering; E. The Borrowers shall have paid the Administrative Agent theprincipal amount of $2,074,678 as a repayment of a portion of theRevolving Loan Obligations. After giving effect to such repayment,the outstanding principal balance of the Revolving Loan ObligationsSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. shall be $25,000,000.00; F. the Administrative Agent shall have received certifiedcopies of the resolutions (in form and content satisfactory toAdministrative Agent) of the Board of Directors of Cadiz approvingand authorizing this Seventh Amendment and the other SeventhAmendment Documents, and the effectuation of the transactionscontemplated herein and/or therein, as the case may be, and any andall actions to be taken by Borrowers in furtherance and inconnection with this Seventh Amendment and/or the other SeventhAmendment Documents; F. the Administrative Agent shall have received from theDelaware Secretary of State a Certificate of Good Standing withrespect to each of the Borrowers and a certificate evidencing thateach Borrower is qualified to do business in California, all ofwhich certificates must be in form and content satisfactory toAdministrative Agent; G. the Administrative Agent shall have received certificates(in form and content satisfactory to Administrative Agent) of theChief Executive Officer of each Borrower, certifying as to the namesand signatures of the officers authorized to sign this SeventhAmendment and the other documents to be executed and delivered onits behalf pursuant to this Seventh Amendment; H. to the best of Borrower's knowledge, all real propertytaxes with respect to the property encumbered by any of the INGCollateral, as well as all real property taxes affecting theproperty encumbered by any and all deeds of trust pledged orassigned to Administrative Agent as security for the Revolving LoanObligations (or any of them), shall have been paid prior to the dateany fine, penalty, interest, late-charge or loss may be added tosuch taxes or charged against such real property or other INGCollateral for the non-payment or late-payment of such taxes; I. Each Borrower shall have caused appropriate officers ofBorrower to execute and deliver to Administrative Agent suchadditional certificates with respect to matters relating to thetransactions contemplated herein as Administrative Agent mayrequire; J. Each Borrower shall have executed and delivered or causedthe appropriate third parties to execute and/or deliver (inrecordable form, where appropriate, and otherwise in form andcontent satisfactory to Administrative Agent) such other documents,instruments, agreements and writings as Administrative Agent mayrequire in connection with the creation or continuation of anysecurity interest(s) granted to Administrative Agent in furtheranceof the transactions contemplated by this Seventh Amendment or asAdministrative Agent may otherwise require in connection with theconsummation of such transactions (including, without limitation,estoppel certificates, guaranty waivers, security agreements;pledges; assignments; subordination agreements; endorsements;certificates; certifications; reports; and studies); K. the Borrowers shall have paid to the Administrative Agentall interest that accrued under the Revolving Credit Agreementthrough and including the Seventh Amendment Effective Date in theamount of $367,012.30 as of November 30, 2004 plus a per diem amountat the rate of $8,563.62 for each day that the Seventh AmendmentEffective Date occurs after November 30, 2004 (which per diem rateincludes amounts due under the Term Loan Obligations and RevolvingLoan Obligations); and L. The representations and warranties of each Borrower setforth in this Seventh Agreement and each other Seventh AmendmentDocument shall be true and correct on and as of the SeventhSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Amendment Effective Date. M. No Default shall have occurred and be continuing aftergiving effect to the transactions set forth in this SeventhAmendment and the other Seventh Amendment. N. After giving effect to the transactions set forth in thisSeventh Amendment and the other Seventh Amendment Documents, eachBorrower shall have performed or observed and be continuing toperform each term, covenant or agreement contained in any LoanDocument. O. The Administrative Agent shall have received all fees,preferred stock, common stock and other amounts due and payable onor prior to the Seventh Amendment Effective Date, including, to theextent invoiced, reimbursement or payment of all out-of-pocketexpenses required to be reimbursed or paid by the Borrowershereunder. P. All governmental and third party approvals necessary or,in the discretion of the Administrative Agent, advisable inconnection with the Transaction, the financing contemplated herebyand the continuing operations of the Borrowers shall have beenobtained and be in full force and effect, and all applicable waitingperiods shall have expired without any action being taken orthreatened by any competent authority which would restrain, preventor otherwise impose adverse conditions on the transactions or thefinancing under the Seventh Amendment. Q. the Lender Parties shall have received a "date down andmodification" endorsement to each of the mortgagee title insurancepolicies (collectively, the "TITLE POLICIES") issued for the benefitof the Lender Parties with respect to the Cadiz Deeds of Trust, andthe CVDC Deeds of Trust, which endorsements shall (i) be issued bythe Chicago Title Insurance Company for the benefit of the Lenderand its successors and assigns, (ii) insure the amendments to theCadiz Deeds of Trust and the CVDC Deeds of Trust required to bedelivered pursuant to Section 7 of the Seventh Amendment and thecontinued priority of the Cadiz Deeds of Trust and the CVDC Deeds ofTrust granted to the Lender, (iii) confirm that all real propertytaxes with respect to the property encumbered by the Cadiz Deeds ofTrust and the CVDC Deeds of Trust have been paid prior to the dateof the Title Policies, along with any fine, penalty, interest, latecharge or similar fine or penalty with respect to the payment ofsuch taxes, (iv) be otherwise in form and substance satisfactory tothe Lender in its sole discretion; R. all real property taxes with respect to the propertyencumbered by the Cadiz Deeds of Trust and the CVDC Deeds of Trusthave been paid prior to the date of the Title Policies, along withany fine, penalty, interest, late charge or similar fine or penaltywith respect to the payment of such taxes, and S. the Lender Parties shall have received confirmation, inform and substance satisfactory to the Lender Parties, that(i) Borrowers have paid (a) all premiums for the endorsements to theTitle Policies required pursuant to Section 7(Q) hereof, (b) allrecording and filing fees relating to the recording of the RevolverDeeds of Trust required to be delivered pursuant to this Section 7of this Seventh Amendment, and (c) amounts sufficient to satisfy allreal property taxes with respect to the property encumbered by theRevolver Deeds of Trust and Mortgages, along with any fine, penalty,interest, late charge or similar fine or penalty with respect to thepayment of such taxes, to Chicago Title Insurance Company withinstructions to utilize such funds to pays such taxes, fines,penalties, interest, late charges or similar fines or penalties, and(ii) all amendments to the Revolver Deeds of Trust and Mortgagesrequired to be delivered pursuant to this Section 7 of this SeventhSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Amendment, each in form and substance satisfactory to AdministrativeAgent and as executed and ready for recordation, have been dulydelivered to Chicago Title Insurance Company; T. the Administrative Agent shall have received such otherdocuments as the Administrative Agent may reasonably request; U. each of the Borrowers and the Lender Parties shall havedelivered to each other, each (as applicable) as executed by suchparty: (i) the Term Loan Payoff Letter in the form as attachedhereto in Exhibit N; (ii) the Waiver of Certain Preemptive Rights inthe form as attached hereto in Exhibit O; and (iii) the SubscriptionAgreement in the form as attached hereto in Exhibit P; and V. each of the items required to be effected and deliveredunder Section 8 hereof has contemporaneously occurred with theoccurrence of the Seventh Amendment Effective Date.Each of the conditions set forth in this Section 7 shall be waivableby Administrative Agent in its sole and absolute discretion, itbeing understood and agreed that any such waiver shall only be validif made in writing by Administrative Agent.For purposes of the payments referenced in Subsections (D), (E) and(K) of this Section 7, each of the parties hereto acknowledge andagree that the Borrowers shall utilize the $700,000 currently in theCash Collateral Account, which amount shall be transferred from theCash Collateral Account to the Administrative Agent (as it sodirects) as a partial payment of such obligations. SECTION 8. CONVERSION OF SERIES F SHARES. Section 8.01 OBLIGATIONS OF ING ON SEVENTH AMENDMENT EFFECTIVEDATE, On the Seventh Amendment Effective Date, ING, in its capacityas the holder of the Cadiz Series F Preferred Stock Certificate,shall (a) deliver to Cadiz on the Unanimous Written Consent ofSeries F Holders, in the form as annexed hereto as Exhibit Q, (b)exercise its right to convert 99% of the Series F Shares that itholds to Common Stock of Cadiz in accordance with the terms of theRevised Preferred Stock Certificate of Designations, and (c) inconnection with the conversion described in Section 8.01(b), deliverits original Cadiz Series F Preferred Stock Certificate to Cadiz inexchange for the 1,711,665 shares of Common Stock of Cadiz and 1,000shares of Cadiz Series F Preferred Stock. Section 8.02 OBLIGATIONS OF CADIZ ON SEVENTH AMENDMENT EFFECTIVEDATE. On the Seventh Amendment Effective Date, Cadiz shall, inconnection with the conversion described in Section 8.01(b), (a)deliver evidence that it has irrevocably instructed the transferagent for Cadiz Common Stock to issue 1,711,665 shares of CommonStock of Cadiz to ING, and (b) deliver to ING 1,000 shares of CadizSeries F Preferred Stock in the form of the New Cadiz Series FPreferred Stock Certificate. SECTION 9. DELIVERY OF TERM LOAN PAYOFF LETTER. Upon the occurrence of the Seventh Amendment EffectiveDate, the Lender Parties shall deliver the Term Loan Payoff Letterto the Borrowers as executed by the Lender Parties. On or as soonas practicable after the ninety-first day after the SeventhAmendment Effective Date, the Lender Parties shall release anySecurity Documents that solely secured the repayment of Term LoanObligations. Notwithstanding the prior sentence, any SecurityDocuments that secure, in whole or in part, the Revolving LoanObligations shall not be subject to the provisions of the priorsentence and such Security Documents shall remain in full force andeffect with respect to the Revolving Loan Obligations.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. SECTION 10. GENERAL RELEASE. In consideration of the amendments, waivers, consents, andthe other terms and provisions of this Seventh Amendment and theother Seventh Amendment Documents, Borrower, on behalf of itself,its agents, successors, assigns, subsidiaries, partners andAffiliates hereby fully release and forever discharge theAdministrative Agent, the Lenders and each of their agents,consultants, heirs, successors, assigns, Affiliates, directors,officers, employees, shareholders, executives, servants, attorneys,accountants, representatives and other related persons(collectively, the "Released Parties") from any and all rights,claims, demands, actions, causes of action, costs, losses, suits,liens, debts, damages, judgments, executions and demands of everynature, kind and description whatsoever, whether now known orunknown, either at law, in equity or otherwise, which Cadiz or anyof its agents, successors, assigns, subsidiaries, partners and/orAffiliates ever had or may have against the Administrative Agent,the Lenders or the other Released Parties, including, withoutlimitation, all claims arising under or in connection with theLoans, the other Revolver Obligations, the Revolving CreditAgreement, the Seventh Amendment Documents, the other LoanDocuments, and/or in connection with the dealings between theparties up to and including the closing of the transactionscontemplated in this Seventh Amendment and all claims which havearisen or may arise in any other way whatsoever; provided thatnothing herein shall be deemed to release the Administrative Agent,the Lenders or any other Released Party from any liability orobligations arising in connection with facts or circumstances whichoccur or arise for the first time after the Seventh AmendmentEffective Date of the transaction contemplated by this SeventhAmendment. It is further understood and agreed that the foregoinggeneral release extends to all claims of every kind and naturewhatsoever, known, suspected or unsuspected, liquidated orcontingent, foreseen or unforeseen, and Cadiz and its agents,successors, assigns, subsidiaries, partners and Affiliates herebywaive all rights under Section 1542 of the California Civil Code.Section 1542 of the California Civil Code provides as follows: "A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THECREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIMEOF EXECUTING THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLYAFFECTED HIS SETTLEMENT WITH DEBTOR." SECTION 11. WAIVER OF ANTI-DEFICIENCY PROTECTION. Each Borrower hereby waives, as to this Seventh Amendmentand any and all Loan Documents heretofore executed in connectionwith any of the Loans, the other Revolving Loan Obligations, theAgreement, the Seventh Amendment Documents, and the other LoanDocuments, any defense, protection or right under: (a) California Code of Civil Procedure ("CCP") Section580(d) concerning the bar against rendition of a deficiency judgmentafter foreclosure under a power of sale; (b) CCP Section 580(a) purporting to limit the amount ofa deficiency judgment which may be obtained following exercise of apower of sale under a deed of trust; and (c) CCP Section 726 concerning exhaustion of collateral,the form of foreclosure proceedings with respect to real propertysecurity located in California and otherwise limiting the amount ofSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. a deficiency judgment which may be recovered following completion ofjudicial foreclosure by reference to the "fair value" of theforeclosed collateral. SECTION 12. ADVICE OF COUNSEL. Each of the parties acknowledges that it has entered intothis Seventh Amendment and the other Seventh Amendment Documentsvoluntarily and that it has had the full opportunity to obtain andconsult with counsel of its own choice to advise it in thenegotiations for, and in execution of, this Seventh Amendment andthe documents to be executed pursuant hereto. Each of the partiesfurther acknowledges that it has read this Seventh Amendment, thatit is fully aware of the contents of this Seventh Amendment and itslegal effect and that it has not relied upon any advice,representation or warranty of any kind whatsoever from the otherparty or its counsel. SECTION 13. NOTICES. All notices, elections, consents, approvals, demands,objections, requests or other communications which the parties maybe required or desire to give pursuant to, under, or by virtue ofthis Seventh Amendment, the other Seventh Amendment Documents, or inthe Loan Documents must be in writing and sent by (a) personaldelivery, (b) overnight courier service, (c) certified mail, returnreceipt requested, postage prepaid, or (d) telecopy or otherfacsimile transmission (provided that if sent by telecopy or otherfacsimile transmission, such must also sent by express mail orcourier (for next business day delivery)), addressed as follows: if to the Borrowers, to it at: Cadiz Inc. Attn: Chief Financial Officer 777 S. Figueroa Street Suite 4250 Los Angeles, California 90017 Telephone No.: 213-271-1600 Facsimile No.: 213 271-1614 with a copy to: Howard Unterberger, Esq. Miller & Holguin 1801 Century Park East Seventh Floor Los Angeles, CA 90067 Telephone No.: 310-556-1990 Facsimile No.: 310-557-2205 if to the Administrative Agent, to it at: ING Capital, LLC 1325 Avenue of the Americas New York, New York 10019 Attention: Joan Chiappe, Vice President, Pam Kaye and Annette Miller-Lewis and Norma Cruz Reference: Cadiz Telephone No.: 646-424-6000 Facsimile No.: 646- 424 8260 with a copy to: Cadwalader, Wickersham & TaftSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. 100 Maiden Lane New York, New York 10038 Attention: Michael J. Edelman, Esq. Telephone No.: 212-504-6000 Facsimile No.: 212-504-6666 if to ING, as a Lender, to it at: ING Capital, LLC 1325 Avenue of the Americas New York, New York 10019 Attention: Joan Chiappe, Vice President Reference: Cadiz Telephone No.: 646-424-6000 Facsimile No.: 646- 424 8260 with a copy to: Cadwalader, Wickersham & Taft 100 Maiden Lane New York, New York 10038 Attention: Michael J. Edelman, Esq. Telephone No.: 212-504-6000 Facsimile No.: 212-504-6666The parties may designate another addressee or change its addressfor notices and other communications hereunder by a notice given tothe other parties in the manner provided in this paragraph. Anotice or other communication sent in compliance with the provisionsof this paragraph shall be deemed given and received on the date itis delivered to the other party by telecopy, personal delivery,overnight courier service, or certified mail. SECTION 14. LOAN DOCUMENTS REMAIN BINDING EXCEPT AS EXPRESSLYAMENDED OR MODIFIED BY SEVENTH AMENDMENT DOCUMENTS. Except as specifically and expressly provided hereinand/or in the other Seventh Amendment Documents, the Loan Documentsshall remain unchanged and in full force and effect. Withoutlimiting the obligations of the Borrower under any of the LoanDocuments, as amended by the Seventh Amendment Documents, Cadizagrees to pay or reimburse the Administrative Agent on demand forall reasonable out-of-pocket costs and expenses of theAdministrative Agent (including, without limitation, the reasonablefees and expenses of counsel to the Administrative Agent) inconnection with the negotiation, preparation, execution and deliveryof this Seventh Amendment and the Seventh Amendment Documents. SECTION 15. GOVERNING LAW; DISPUTE RESOLUTION. A. THIS SEVENTH AMENDMENT, THE RIGHTS AND OBLIGATIONS OF THEPARTIES UNDER THIS SEVENTH AMENDMENT, AND ANY CLAIM OR CONTROVERSYDIRECTLY OR INDIRECTLY BASED UPON OR ARISING OUT OF THIS SEVENTHAMENDMENT OR THE TRANSACTIONS CONTEMPLATED BY THIS SEVENTH AMENDMENT(WHETHER BASED ON CONTRACT, TORT, OR ANY OTHER THEORY), INCLUDINGALL MATTERS OF CONSTRUCTION, VALIDITY AND PERFORMANCE, SHALL IN ALLRESPECTS BE GOVERNED BY AND INTERPRETED, CONSTRUED AND DETERMINED INACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF CALIFORNIA(WITHOUT REGARD TO ANY CONFLICTS OF LAW PROVISION THAT WOULD REQUIRETHE APPLICATION OF THE LAW OF ANY OTHER JURISDICTION). B. Each of the Borrower and the Administrative Agent and theLenders submit to and accept the exclusive jurisdiction of anyUnited States federal court sitting in the Central District ofCalifornia or any other court of appropriate jurisdiction sitting inSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. the County of Los Angeles, City of Los Angeles with respect to anyaction, suit or proceeding arising out of or based upon this SeventhAmendment or any matter relating hereto and waives any objection itmay have to the laying of venue in any such court or that such courtis an inconvenient forum or does not have personal jurisdiction overit. Each of the Borrower and the Administrative Agent and theLenders agree that service of process in any such action, suit orproceeding may be validly made upon it by certified or registeredU.S. Mail, postage prepaid, to the address set forth in Section 13hereof. Each of the parties hereto waives any right it may have totrial by jury in any proceeding arising out of this SeventhAmendment. The Parties irrevocably agree that, should either Partyinstitute any legal action or proceeding in any jurisdiction(whether for an injunction, specific performance, damages orotherwise) in relation to this Seventh Amendment, no immunity (tothe extent that it may at any time exist, whether on the grounds ofsovereignty or otherwise) from such action or proceeding shall beclaimed by it or on its behalf, any such immunity being herebyirrevocably waived, and each Party irrevocably agrees that it andits assets are, and shall be, subject to such legal action orproceeding in respect of its obligations under this SeventhAmendment. SECTION 16. METHOD OF PAYMENTS. All payments made by Borrower to the Administrative Agenton account of the Revolving Loan Obligations shall be made in thelawful currency of the United States of America by wire transfer ofimmediately available funds to the Administrative Agent inaccordance with the wire instructions set forth on Schedule Ahereto. SECTION 17. MISCELLANEOUS. A. Survival. All representations, warranties, covenants andother provisions made by the parties hereto shall be considered tohave been relied upon by the parties hereto and shall survive theexecution, performance and delivery of this Seventh Amendment. B. Successors and Assigns. This Seventh Amendment and theother Seventh Amendment Documents, including, without limitation,the representations, warranties, covenants and indemnities containedherein or in the other Seventh Amendment Documents, as the case maybe, (i) shall inure to the benefit of and be enforceable by theparties hereto and their respective successors and permittedassigns, and (ii) shall be binding upon and enforceable against theparties hereto and their respective successors and assigns. C. Further Assurances. Each of the parties hereto agrees toexecute and deliver, or to cause to be executed and delivered, allsuch instruments, and to take all such action, as the other partymay reasonably request in order to consummate the transactions andtransfers contemplated hereunder and to effectuate the intent andpurposes of this Seventh Amendment. D. Counterpart Execution; Telecopies. This Seventh Amendmentmay be executed in one or more counterparts, each of which shall bean original but all of which, taken together, shall constitute oneagreement binding all of the parties hereto. Transmission bytelecopier of an executed counterpart of this Seventh Amendmentshall be deemed to constitute due and sufficient delivery of suchcounterpart, and the parties hereto hereby agree to deliver to eachother an original of such counterpart promptly after delivery of thefacsimile. E. Amendments; Waivers. Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. (1) No amendment of any provisionof this Seventh Amendment or any other Seventh Amendment Documentshall be effective unless it is in writing and signed by theAdministrative Agent, the Lenders (as the case may be) and theBorrower and no waiver of any provision of this Seventh Amendment orany other Seventh Amendment Document, nor consent to any departureby the Administrative Agent, the Lenders or the Borrower therefrom,shall be effective unless it is in writing and signed by the partyaffected thereby, and then such waiver or consent shall be effectiveonly in the specific instance and for the specific purpose for whichgiven. (2) No failure on the part of any party to exercise, andno delay in exercising, any right hereunder or under any otherSeventh Amendment Document shall operate as a waiver thereof by suchparty, nor shall any single or partial exercise of any righthereunder or thereunder, as the case may be, preclude any other orfurther exercise thereof or the exercise of any other right. Therights and remedies of each party provided herein or in the otherSeventh Amendment Documents (x) are cumulative and are in additionto, and not exclusive of, any rights or remedies provided by law(except as otherwise expressly set forth herein) and (y) are notconditional or contingent on any attempt by such party to exerciseany of its rights under any other related document against the otherparty or any other entity. F. Integration. This Seventh Amendment and the other SeventhAmendment Documents constitute the entire agreement andunderstanding between the parties hereto with respect to the subjectmatter hereof and supersede all prior agreements, understandings orrepresentations pertaining to the subject matter hereof, whetheroral or written. G. Severability. Any provision of this Seventh Amendmentthat is invalid or unenforceable in any jurisdiction shall, as tosuch jurisdiction, be ineffective to the extent of such invalidityor unenforceability without rendering invalid or unenforceable theremaining provisions of this Seventh Amendment or affecting thevalidity or enforceability of any provisions of this SeventhAmendment in any other jurisdiction. H. Conflict. In the event that any of the terms andprovisions of this Seventh Amendment conflicts with any of the termsand provisions of the other Seventh Amendment Documents, the termsand provisions of this Seventh Amendment shall, as betweenAdministrative Agent, the Lenders and Borrower, govern and control. I. Costs Borne by Non-Prevailing Party. In the event of anydispute with respect to this Seventh Amendment, the prevailing partyshall be entitled to recover from the non-prevailing party all costsand attorneys' fees. J. Captions; Paragraph Headings. The captions and paragraphheadings used herein are for convenience only and shall not be usedto interpret any term hereof. IN WITNESS WHEREOF, the Administrative Agent, the Lenders andthe Borrower have executed this Seventh Amendment by their dulyauthorized officers as of the date first set forth above. CADIZ INC., as the Borrower By: /s/ Keith BrackpoolSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. -------------------------------------- Name: Keith Brackpool Title: CEO CADIZ REAL ESTATE LLC, a Borrower By: /s/ Richard E. Stoddard -------------------------------------- Name: Richard E. Stoddard Title: CEO ING CAPITAL, LLC, as the Administrative Agent and a Lender By: /s/ Geoffrey Arens ------------------------------------ Name: Geoffry Arens Title: Managing Director SCHEDULE A: WIRE INSTRUCTIONS FOR ING AS THE ADMINISTRATIVE AGENT Chase Manhattan Bank New York, New York ABA No.: 021 000 021 Account No.: 9301035763 Account Name: ING Capital Attention: J. Chiappe Reference: CadizSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ING CAPITAL, LLC SECOND AMENDED AND RESTATED TRANCHE A NOTE$15,000,000.00 Dated as of November 30.2004 FOR VALUE RECEIVED, each of (a) CADIZ INC. (f/k/a Cadiz LandCompany, Inc.) ("CADIZ"), a Delaware corporation and (b) CADIZREAL ESTATE LLC ("CRE", and along with Cadiz, collectively, the"BORROWERS", and each individually, a "BORROWER"), a Delawarelimited liability company, promise to pay, jointly and severally,to the order of ING CAPITAL, LLC (the "TRANCHE A LENDER") (f/k/aING Baring (U.S.) Capital LLC, a Delaware limited liabilitycompany), as agent for Middenbank Curacao N.V., at the place andin the currency and manner designated in the Credit Agreementreferred to below, in immediately available funds, the principalsum of FIFTEEN MILLION Dollars ($15,000,000.00), in lawful moneyof the United States of America, and to pay interest on theunpaid principal amount of such Tranche A Loans at the place andin the currency and manner designated in the Credit Agreement,for the period commencing on November 30, 2004 until such TrancheA Loan shall be paid in full, at the rates per annum and on thedates provided in the Credit Agreement. The date, amount, prepayment, interest rate and maturitydate of each Tranche A Loan made by the Tranche A Lender to theBorrowers, and each payment made on account of the principalthereof, shall be recorded by the Tranche A Lender on its booksand, prior to any transfer of this Tranche A Note, endorsed bythe Tranche A Lender on the schedule attached hereto or anycontinuation thereof, provided that the failure of the Tranche ALender to make any such recordation or endorsement shall notaffect the obligations of the Borrower to make a payment when dueof any amount owing under the Credit Agreement or hereunder inrespect of the Tranche A Loans made by the Tranche A Lender. This Tranche A Note is one of the Tranche A Notes referredto in (a) the First Amendment to 2003 Restated Credit Agreementand Consent to Offering (the "Seventh Amendment"), dated as ofNovember 30, 2004 among Borrowers, the Lenders party thereto, andING Capital, LLC, as Administrative Agent, and (b) the SixthAmended and Restated Credit Agreement dated as of December 15,2003 (as modified, supplemented or otherwise modified and ineffect from time to time, the "CREDIT AGREEMENT"), amongBorrowers, the Lenders party thereto, and ING Capital, LLC, asAdministrative Agent, and evidences Tranche A Loans made by theTranche A Lender thereunder. Terms used but not defined in thisTranche A Note have the respective meanings assigned to them inthe Credit Agreement. Any holder of this Tranche A Note shall have all rightsprovided to a Tranche A Lender under the Credit Agreement. The Credit Agreement provides for the acceleration of thematurity of this Tranche A Note upon the occurrence of certainevents and for prepayments of Loans upon the terms and conditionsspecified therein. Except as permitted by Section 9.04 of the Credit Agreement,this Tranche A Note may not be assigned by the Tranche A Lenderto any other Person. This Tranche A Note includes the indebtedness heretoforeevidenced by that certain Amended and Restated Tranche A NoteSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. dated as of September 30, 2003, as amended and in effect prior tothe date hereof, made by Borrowers, as borrowers, in favor ofTranche A Lender in the principal amount of Fifteen MillionTwenty Thousand and 00/100 Dollars (US $15,020,000.00) (the"Prior Note") and this Tranche A Note amends and restates thePrior Note in its entirety. The obligations of the Borrowers under this Tranche A Noteshall constitute one joint and several direct and generalobligation of all of the Borrowers. Notwithstanding anything tothe contrary contained herein, each of the Borrowers shall bejointly and severally, with the other Borrower, directly andunconditionally liable to the Tranche A Lender for allobligations hereunder and shall have the obligations of co-makerwith respect to this ` Tranche A Note and the obligationshereunder, it being agreed that the advances to each Borrowerinure to the benefit of all Borrowers, and that the Tranche ALender is relying on the joint and several liability of theBorrowers as co-makers in extending and continuing the extensionof the Tranche A Note as provided hereunder. Each Borrowerhereby unconditionally and irrevocably agrees that upon defaultin the payment when due (whether at stated maturity, byacceleration or otherwise) of any principal of, or interest on,this Note payable to the Tranche A Lender, it will forthwith paythe same, without notice or demand. This Tranche A Note shall be governed by, and construed inaccordance with, the law of the State of California. EACH PARTYHERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BYAPPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANYLEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF ORRELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACHPARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT ORATTORNEY OF ANY OTHER PARTY HERETO OR TO THE OR TO THE CREDITAGREEMENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCHOTHER PERSON OR PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEKTO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT ANDTHE OTHER PARTIES HERETO OR TO THE CREDIT AGREEMENT HAVE BEENINDUCED TO ENTER INTO, AS APPLICABLE, THIS NOTE AND THE CREDITAGREEMENT BY, AMONG OTHER THINGS, THE FOREGOING MUTUAL WAIVERSAND CERTIFICATIONS. CADIZ INC., a Delaware corporation, as a Borrower By: /s/ Keith Brackpool --------------------------- Name: Keith Brackpool Title: CEO CADIZ REAL ESTATE LLC, a Delaware limited liability company, as a Borrower By: /s/ Richard E. Stoddard --------------------------- Name: Richard E. Stoddard Title: CEOSCHEDULE OF TRANCHE A LOANSSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. This Tranche A Note evidences Tranche A Loans made under thewithin-described Credit Agreement to the Borrowers, on the dates,in the principal amounts set forth below, subject to the paymentsand prepayments of principal set forth below: PRINCIPAL AMOUNT UNPAID AMOUNT PAID OR PRINCIPAL NOTATIONDATE OF LOAN PREPAID AMOUNT MADE BY As of date $15,000,000.00 $0.00 $15,000,000.00 As agreedhereof by all partiesSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. ING CAPITAL, LLC SECOND AMENDED AND RESTATED TRANCHE B NOTE$10,000,000.00 Dated as of November 30,2004 New York, New York FOR VALUE RECEIVED, each of (a) CADIZ INC. (f/k/a Cadiz LandCompany, Inc.) ("CADIZ"), a Delaware corporation and (b) CADIZREAL ESTATE LLC ("CRE", and along with Cadiz, collectively, the"BORROWERS", and each individually, a "BORROWER"), a Delawarelimited liability company, promise to pay, jointly and severally,to the order of ING CAPITAL, LLC (the "TRANCHE B LENDER") (f/k/aING Baring (U.S.) Capital LLC, a Delaware limited liabilitycompany), as agent for Middenbank Curacao N.V., at the place andin the currency and manner designated in the Credit Agreementreferred to below, in immediately available funds, the principalsum of TEN MILLION Dollars ($10,000,000.00), in lawful money ofthe United States of America, and to pay interest on the unpaidprincipal amount of such Tranche B Loans at the place and in thecurrency and manner designated in the Credit Agreement, for theperiod commencing on November 30, 2004 until such Tranche B Loanshall be paid in full, at the rates per annum and on the datesprovided in the Credit Agreement. The date, amount, prepayment, interest rate and maturitydate of each Tranche B Loan made by the Tranche B Lender to theBorrowers, and each payment made on account of the principalthereof, shall be recorded by the Tranche B Lender on its booksand, prior to any transfer of this Tranche B Note, endorsed bythe Tranche B Lender on the schedule attached hereto or anycontinuation thereof, provided that the failure of the Tranche BLender to make any such recordation or endorsement shall notaffect the obligations of the Borrower to make a payment when dueof any amount owing under the Credit Agreement or hereunder inrespect of the Tranche B Loans made by the Tranche B Lender. This Tranche B Note is one of the Tranche B Notes referredto in (a) the First Amendment to 2003 Restated Credit Agreementand Consent to Offering (the "Seventh Amendment"), dated as ofNovember 30, 2004 among Borrowers, the Lenders party thereto, andING Capital, LLC, as Administrative Agent, and (b) the SixthAmended and Restated Credit Agreement dated as of December 15,2003 (as modified, supplemented or otherwise modified and ineffect from time to time, the "CREDIT AGREEMENT"), amongBorrowers, the Lenders party thereto, and ING Capital, LLC, asAdministrative Agent, and evidences Tranche B Loans made by theTranche B Lender thereunder. Terms used but not defined in thisTranche B Note have the respective meanings assigned to them inthe Credit Agreement. Any holder of this Tranche B Note shall have all rightsprovided to a Tranche B Lender under the Credit Agreement. The Credit Agreement provides for the acceleration of thematurity of this Tranche B Note upon the occurrence of certainevents and for prepayments of Loans upon the terms and conditionsspecified therein. Except as permitted by Section 9.04 of the Credit Agreement,this Tranche B Note may not be assigned by the Tranche B Lenderto any other Person. This Tranche B Note includes the indebtedness heretoforeevidenced by that certain Amended and Restated Tranche B NoteSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. dated as of September 30, 2003, as amended and in effect prior tothe date hereof, made by Borrowers, as borrowers, in favor ofTranche B Lender in the principal amount of Ten Million and00/100 Dollars (US $10,000,000.00) (the "PRIOR NOTE") and thisTranche B Note amends and restates the Prior Note in itsentirety. The obligations of the Borrowers under this Tranche B Noteshall constitute one joint and several direct and generalobligation of all of the Borrowers. Notwithstanding anything tothe contrary contained herein, each of the Borrowers shall bejointly and severally, with the other Borrower, directly andunconditionally liable to the Tranche B Lender for allobligations hereunder and shall have the obligations of co-makerwith respect to this ` Tranche B Note and the obligationshereunder, it being agreed that the advances to each Borrowerinure to the benefit of all Borrowers, and that the Tranche BLender is relying on the joint and several liability of theBorrowers as co-makers in extending and continuing the extensionof the Tranche B Note as provided hereunder. Each Borrowerhereby unconditionally and irrevocably agrees that upon defaultin the payment when due (whether at stated maturity, byacceleration or otherwise) of any principal of, or interest on,this Note payable to the Tranche B Lender, it will forthwith paythe same, without notice or demand. This Tranche B Note shall be governed by, and construed inaccordance with, the law of the State of California. EACH PARTYHERETO HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BYAPPLICABLE LAW, ANY RIGHT IT MAY HAVE TO A TRIAL BY JURY IN ANYLEGAL PROCEEDING DIRECTLY OR INDIRECTLY ARISING OUT OF ORRELATING TO THIS NOTE OR THE TRANSACTIONS CONTEMPLATED HEREBY(WHETHER BASED ON CONTRACT, TORT OR ANY OTHER THEORY). EACHPARTY HERETO (A) CERTIFIES THAT NO REPRESENTATIVE, AGENT ORATTORNEY OF ANY OTHER PARTY HERETO OR TO THE OR TO THE CREDITAGREEMENT HAS REPRESENTED, EXPRESSLY OR OTHERWISE, THAT SUCHOTHER PERSON OR PARTY WOULD NOT, IN THE EVENT OF LITIGATION, SEEKTO ENFORCE THE FOREGOING WAIVER AND (B) ACKNOWLEDGES THAT IT ANDTHE OTHER PARTIES HERETO OR TO THE CREDIT AGREEMENT HAVE BEENINDUCED TO ENTER INTO, AS APPLICABLE, THIS NOTE AND THE CREDITAGREEMENT BY, AMONG OTHER THINGS, THE FOREGOING MUTUAL WAIVERSAND CERTIFICATIONS. CADIZ INC., a Delaware corporation, as a Borrower By: /s/ Keith Brackpool --------------------------- Name: Keith Brackpool Title: CEO CADIZ REAL ESTATE LLC, a Delaware limited liability company, as a Borrower By: /s/ Richard E. Stoddard --------------------------- Name: Richard E. Stoddard Title: CEOSCHEDULE OF TRANCHE B LOANSSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. This Tranche B Note evidences Tranche B Loans made under thewithin-described Credit Agreement to the Borrowers, on the dates,in the principal amounts set forth below, subject to the paymentsand prepayments of principal set forth below: Principal Amount Unpaid Amount Paid or Principal NotationDate of Loan Prepaid Amount Made By As of date $10,000,000.00 $0.00 $10,000,000.00 As agreedhereof by all partiesSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. AMENDMENT NO. 1 TO LIMITED LIABILITY COMPANY AGREEMENT OF CADIZ REAL ESTATE LLC This AMENDMENT NO. 1 TO LIMITED LIABILITY COMPANY AGREEMENT("Amendment") is entered into as of October 29, 2004 by andbetween Cadiz Inc. ("Cadiz") and M. Solomon & Associates, Inc.(the "Independent Member"). The parties to this Amendment arehereinafter sometimes referred to collectively as the "Parties". RECITALS: WHEREAS, the Parties have entered into a Limited LiabilityCompany Agreement of Cadiz Real Estate LLC dated as of December11, 2003 (the "LLC Agreement"); and WHEREAS, Section 4.1 of the LLC Agreement provides that themanagement of Cadiz Real Estate LLC (the "Company") shall bevested in a Board of Managers; and WHEREAS, the Parties wish to amend the LLC Agreement inorder to provide the Board of Managers with the authority toappoint officers of the Company, including a Chairman and a ChiefExecutive Officer, with the powers typically associated with suchpositions; and WHEREAS, pursuant to Section 9.1 of the LLC Agreement, foras long as any amounts due under the terms of the New Note areoutstanding, any amendment to the LLC Agreement (including thisAmendment) requires the prior written consent of (i) the lendersholding at least 66% of the interest in the New Note or suchhigher supermajority as may be required pursuant to the terms ofthe New Note, and (ii) the Independent Member; and WHEREAS, the consent to this Amendment of the IndependentMember is evidenced by such Independent Member's execution ofthis Amendment; and WHEREAS, the consent to this Amendment of ING Capital LLC,as the holder of 100% of the interest in the New Note, is setforth following the signatures of Cadiz and the IndependentMember to this Amendment; NOW THEREFORE, in consideration of the above recitals, thepromises and the mutual representations, warranties, covenantsand agreements herein contained, the Parties hereby agree asfollows: 1. AMENDMENT OF LLC AGREEMENT. Subject to Section 2 ofthis Amendment, the LLC Agreement is hereby amended by adding newSection 4.1(d) to read in full as follows: "(d) OFFICERS. i. APPOINTMENT OF OFFICERS. The Managers may appointofficers at any time. The officers of Company, if deemednecessary by the Managers, may include a chairman, chiefexecutive officer/president, vice president, secretary, and chieffinancial officer. The officers shall serve at the pleasure ofthe Managers, subject to all rights, if any, of an officer underany contract of employment. Any individual may hold any numberof offices. No officer need be a resident of the State ofCalifornia or citizen of the United States. The officers shallexercise such powers and perform such duties as specified in thisAgreement and as shall be determined from time to time by theSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Managers. ii. REMOVAL, RESIGNATION AND FILLING OF VACANCY OFOFFICERS. Subject to the rights, if any, of an officer under acontract of employment, any officer may be removed, either withor without cause, by the Managers at any time. Any officer mayresign at any time by giving written notice to the Managers. Anyresignation shall take effect at the date of the receipt of thatnotice or at any later time specified in that notice; and, unlessotherwise specified in that notice, the acceptance of theresignation shall not be necessary to make it effective. Anyresignation is without prejudice to the rights, if any, of theCompany under any contract to which the officer is a party. Avacancy in any office because of death, resignation, removal,disqualification or any other cause shall be filled in the mannerprescribed in this Agreement for regular appointments to thatoffice. iii. SALARIES OF OFFICERS. All officers and agents of theCompany shall receive such compensation, if any, as may bedetermined by the Managers from time to time. iv. DUTIES AND POWERS OF THE CHAIRMAN. The chairman, ifsuch an officer be appointed, shall, if present, preside atmeetings of the Members and Managers, and exercise and performsuch other powers and duties as may be from time to time assignedto him by the Managers or prescribed by this Agreement. If thereis no president, the chairman shall in addition be the chiefexecutive officer of the Company and shall have the powers andduties prescribed in Section (v) below. v. DUTIES AND POWERS OF THE CHIEF EXECUTIVEOFFICER/PRESIDENT. Subject to such supervisory powers, if any,as may be given by the Managers to the chairman, if there be suchan officer, the president shall be the chief executive officer ofthe Company, and shall, subject to the control of the Managers,have general and active management of the business of the Companyand shall see that all orders and resolutions of the Members andManagers are carried into effect. He or she shall have thegeneral powers and duties of management usually vested in theoffice of president of a corporation and shall have such otherpowers and duties as may be prescribed by the Managers or thisAgreement. The president shall execute bonds, mortgages andother contracts requiring a seal, under the seal of the Company,except where required or permitted by law to be otherwise signedand executed, and except where the signing and execution thereofshall be expressly delegated by the Managers to some otherofficer or agent of the Company. vi. DUTIES AND POWERS OF OTHER OFFICERS. Any otherofficers of the Company as may be appointed by the Managers, suchas, vice president, secretary, and chief financial officer, shallperform such other duties and have such other powers as theManagers may from time to time prescribe. vii. ACTS OF OFFICERS AS CONCLUSIVE EVIDENCE OF AUTHORITY.Any note, mortgage, evidence of indebtedness, contract,certificate, statement, conveyance, or other instrument inwriting, and any assignment or endorsement thereof, executed orentered into between the Company and any other person, whensigned by the chairman of the board, the president or any vicepresident and any secretary, any assistant secretary, the chieffinancial officer, or any assistant treasurer of the Company, isnot invalidated as to the Company by any lack of authority of thesigning officers in the absence of actual knowledge on the partof the other person that the signing officers had no authority toexecute the same.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. viii.SIGNING AUTHORITY OF OFFICERS. Subject to anyrestrictions imposed by the Managers, any officer, acting alone,is authorized to sign contracts and obligations and endorseinstruments on behalf of the Company." 2. EXISTING LLC AGREEMENT. Except as otherwise amended ormodified herein or hereby, the provisions of the LLC Agreement(including, without limitation, the affirmative and negativecovenants set forth in Sections 4.3 and 4.4 of the LLC Agreement)are hereby reaffirmed and shall remain in full force and effect.Notwithstanding anything herein to the contrary, any and allactions which require the consent and/or approval pursuant to theLLC Agreement of the Independent Member, Independent Managerand/or the lenders holding at least 66% of the interest in theNew Note or such higher supermajority as may be required pursuantto the terms of the New Note shall, notwithstanding thisAmendment, continue to require such consent and/or approval. IN WITNESS WHEREOF, each of the Parties has caused thisAmendment No. 1 to Limited Liability Company Agreement to beexecuted and delivered by their duly authorized officers as ofthe date first above written."CADIZ"CADIZ INC.By: /s/ Keith Brackpool ---------------------------------- Keith Brackpool Chief Executive Officer"INDEPENDENT MEMBER"M. SOLOMON & ASSOCIATES, INC.By: /s/ Michael H. Solomon ---------------------------------- Michael H. Solomon PresidentCONSENT OF HOLDER OF NEW NOTE:Pursuant to Section 9.1 of the LLC Agreement, the undersigned, asthe holder of 100% of the interest in the New Note, herebyconsents to the foregoing Amendment.ING CAPITAL LLCBy: /s/ Geoffrey Arens ---------------------------------- Name: Geoffrey Arens Title: M.D.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. RESOLUTIONS ADOPTED BY THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS OF CADIZ INC. WHEREAS, it is in the best interests of this Company thatthis Company implement a program to retain key personnel(including both employees and consultants) and to provideadditional incentives to those personnel; and WHEREAS, the Board of Directors of this Company (the"Board") has previously authorized the creation by this Companyof a Management Equity Incentive Plan (the "Management EquityIncentive Plan" or the "Plan") for this purpose; and WHEREAS, pursuant to such Board authorization, a total of1,471,051 shares of this Company's common stock have been setaside and reserved for issuance under the Plan; WHEREAS, a total of 717,373 shares (the "Initial AllocationShares") have been allocated for issuance under the Plan pursuantto the direction of an initial allocation committee (the "InitialAllocation Committee") consisting of Keith Brackpool, RickStoddard and the Chairman of the Compensation Committee of thisBoard of Directors; WHEREAS, the Board has further previously authorized thatthe 754,678 shares (the "Subsequent Allocation Shares") whichhave been reserved for issuance under the Plan but which are notincluded within the Initial Allocation Shares be issuable underthe Plan pursuant to the direction of, and upon such vesting andother conditions as may be established by, this CompensationCommittee; WHEREAS, it is in the best interests of this Company and itsshareholders that the Compensation Committee establish thevesting and other conditions upon which the Subsequent AllocationShares shall be issuable; NOW, THEREFORE, BE IT RESOLVED, that the SubsequentAllocation Shares be issued under the Plan pursuant to thedirection of an allocation committee (the "Subsequent AllocationCommittee") consisting of Keith Brackpool, Rick Stoddard and theChairman of the Compensation Committee of this Board ofDirectors; FURTHER RESOLVED, that one-half (i.e. 377,339) of theSubsequent Allocation Shares so issued under the Plan pursuant tothe direction of the Subsequent Allocation Committee shall be inthe form of shares of common stock, and that one-half (i.e.377,339) of the Subsequent Allocation Shares so issued under thePlan pursuant to the direction of the Subsequent AllocationCommittee shall be in the form of options to purchase commonstock at the price of $12 per share (i.e. the effective price pershare obtained by the Company in its private placement of Unitscompleted November 30, 2004); and FURTHER RESOLVED, that the Subsequent Allocation Shares,whether issued in the form of shares of common stock or commonstock options, be subject to vesting conditions, with the vestingperiod deemed to commence on December 7, 2004 irrespective of theactual initial grant date for any Subsequent Allocation Shares,so that 1/3 of any award grant shall vest immediately, with theremaining 2/3 of any award subject to vesting in two equalinstallments upon December 7, 2005 (or the date of grant, iflater) and December 7, 2006 (or the date of grant, if later),Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. respectively, (subject to continued status as an employee orconsultant to this Company as of the respective vesting date, butalso subject to immediate vesting in full of any theretoforeunvested shares upon any termination without cause); and FURTHER RESOLVED, that if the issuance of any SubsequentAllocation Shares in the form described in the foregoingresolutions shall be deemed, under the rules and regulations ofany exchange upon which this Company's common stock is traded orunder the rules and regulations of the Securities and ExchangeCommission, to require the prior approval of the stockholders ofthe Company, then this Committee shall adjust the form ofSubsequent Allocation Shares so as to provide a substantiallyequivalent means of compensation to the recipient in a mannerwhich does not require such stockholder approval; and FURTHER RESOLVED, that the Subsequent Allocation Committeeshall have the right to award all or any part of the SubsequentAllocation Shares under the Plan to members of the SubsequentAllocation Committee (as well as other key personnel) without theneed for further approval of this Compensation Committee or theBoard; and FURTHER RESOLVED, that the Subsequent Allocation Committeeor the recipients of Subsequent Allocation Shares under the Planmay designate such trusts or other nominees to hold such sharesas may be reasonably appropriate for tax planning purposes; FURTHER RESOLVED, that with respect to the SubsequentAllocation Shares, the Subsequent Allocation Committee shall havethe authority to prepare, execute and administer anydocumentation with respect to the Plan and the issuance ofsecurities pursuant to the Plan as the Subsequent AllocationCommittee and/or counsel to the Company may deem necessary ordesirable; FURTHER RESOLVED, that any officer of the Company be andhereby is authorized, empowered and directed, for an on behalf ofthis Company, to take such actions as may be necessary orappropriate to effectuate the foregoing resolutions; FURTHER RESOLVED, that any and all actions heretofore takenby any officer of the Company to the foregoing effect and allagreements, documents or writings related thereto, are herebyauthorized, approved, ratified and confirmed in all respects; andany and all actions hereafter taken or to be taken by any suchofficers in furtherance of the objects set forth in any of thepreceding resolutions, and all agreements, documents or writingrelating thereto, are hereby authorized, approved, ratified andconfirmed in all respects.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CADIZ INC. 2004 MANAGEMENT BONUS PLAN The Compensation Committee of Cadiz Inc. (the"Corporation") acted on December 7, 2004 to establish thisexecutive officer compensation plan pursuant to which atotal of 10,000 shares of the Corporation's common stock(valued at $12.00 per share) shall be issued to Mr. KeithBrackpool, Chairman and Chief Executive and FinancialOfficer of the Corporation, as a performance bonus. Suchshares shall be issued immediately following theeffectiveness of a Form S-8 registration statement under theSecurities Act of 1933. In addition, Mr. Brackpool shall beawarded a cash bonus of $120,000 with immediate effect.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CONSULTING AGREEMENT THIS CONSULTING AGREEMENT (the "Agreement") is enteredinto as of August 1, 2002, by and between Richard E.Stoddard ("Consultant") and Cadiz Inc., a Delawarecorporation ("Cadiz"). WHEREAS, Consultant desires to provide to Cadiz, andCadiz desires to obtain from Consultant, consulting servicesrelating to the business operations of Cadiz; NOW, THEREFORE, the parties agree as follows: 1. TERM. Cadiz hereby engages Consultant to provideconsulting services to Cadiz, and Consultant accepts suchengagement, for a term of two (2) years (the "Term")commencing as of the date of this Agreement (the"Commencement Date"). 2. DUTIES. During the Term, Consultant shall serveas a Consultant to Cadiz. Consultant shall render advisoryand consulting services to Cadiz of the type customarilyperformed by persons serving in similar limited consultingcapacities, consistent with the knowledge and experiencepossessed by Consultant. The Consultant's services shallinclude assisting Cadiz with the implementation of the Cadizwater program and other Cadiz water related matters and, inparticular, providing advice and assistance to Cadizmanagement, Cadiz counsel and outside counsel regardingwater strategy, the handling and settlement of litigation,and MWD and third party contract negotiations, as well asproviding such other advice and assistance as the Board ofDirectors or the Chief Executive Officer of Cadiz mayreasonably request. Consultant shall be granted such titleas the Board of Directors of Cadiz may designate, subject toacceptance of such title by Consultant. Consultant shallalso, if invited, serve as a member of the Board ofDirectors of Cadiz as provided in Section 6 below, subjectto acceptance of such position by Consultant. For purposesof performing consulting services for Cadiz, Cadiz shallmake available to Consultant office space at the offices ofCadiz in Santa Monica, California, or at such other locationor locations as Cadiz and Consultant may agree. 3. NECESSARY SERVICES. a. PERFORMANCE OF DUTIES. Consultant shallperform his duties in a diligent and reasonable mannerconsistent with professional standards in the field. b. HOURS OF SERVICE. The parties acknowledge andagree that Consultant's fulfillment of his obligations toCadiz hereunder will require Consultant's services forapproximately one-half of Consultant's available workinghours per week. c. NON-EXCLUSIVEDUTIES. Nothing in thisAgreement shall preclude Consultant from acting as aconsultant to or employee of any other business or entity,except that: (i) Consultant may not engage in anyactivity which materially detracts from the performance ofConsultant's duties hereunder; and (ii) Consultant may not render any servicesto, or engage in any activity for, another entity in anySource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. capacity whatsoever (whether as an owner, employee,independent contractor or otherwise) which is in any waycompetitive with the business, as then being conducted, ofCadiz or any affiliate of Cadiz; provided, however, thatCadiz acknowledges that Consultant is providing and maycontinue to provide services on a priority basis to KaiserVentures LLC ("Kaiser") as Chairman and CEO of Kaiser. Cadizacknowledges that it has been advised by Consultant ofConsultant's obligations and duties to Kaiser and furtheracknowledges that at present and as currently contemplatedConsultant's duties to Kaiser do not interfere withConsultant's obligations to Cadiz as contemplated by thisAgreement. Notwithstanding the foregoing, Cadiz andConsultant agree in the event that in the judgment of eitherCadiz or Consultant the provision of Consultant's duties toKaiser interfere with Consultant's obligations to Cadizunder this Agreement, then Cadiz and Consultant shallnegotiate in good faith adjustments to this Agreement asnecessary to preserve, to the extent possible, the intentand purpose of this Agreement. 4. COMPENSATION. In consideration of the services tobe provided by Consultant pursuant to this Agreement, Cadizshall pay compensation to Consultant as follows: a. BASE CASH COMPENSATION. Base cashcompensation of $150,000 annually, payable in equal monthlyinstallments. Cadiz may make payment of cash compensationto Consultant in advance as a retainer to be applied against50% of next succeeding monthly installments of basecompensation until fully utilized. In the event of atermination of this Agreement pursuant to subparagraphs (i)or (iii) of paragraph 9(a) below at a time when any portionof a retainer remains outstanding and unutilized, Consultantagrees to make repayment of any such unutilized amount toCadiz within 20 calendar days of termination. In addition,should counsel to Cadiz determine that an outstandingadvance payment of cash compensation to a director orexecutive officer of Cadiz would violate the provisions ofthe Sarbanes-Oxley Act of 2002, then Consultant agrees tomake repayment of any unutilized amount of such retainer toCadiz immediately prior to (and as a condition to) anyfuture appointment of Consultant as a director or executiveofficer of Cadiz. The retainer payment shall be subject tosuch further confirming documentation as may be mutuallyagreed upon between Cadiz and Consultant. The parties agreethat the retainer payment may be subject to repayment and/ortermination upon the satisfaction by Cadiz of certainfinancial milestones to be agreed upon by Cadiz andConsultant from time to time. . b. ADDITIONAL CASH COMPENSATION. In light ofConsultant's status as an independent contractor to Cadiz,the parties acknowledge that no payroll or employment taxesof any kind shall be withheld or paid by Cadiz with respectto payments to Consultant during the Term, and that Cadizshall make no additional benefits available to Consultant.Nevertheless, Cadiz shall pay to Consultant, with eachpayment of base cash compensation, additional cashcompensation in an amount equal to 8% of the amount of suchpayment of base cash compensation. Such additional paymentis intended to be paid in lieu of the aggregate amount ofpayroll and/or employment taxes and benefits (including, butnot limited to, FICA, federal personal income taxwithholding, state income tax withholding, stateunemployment insurance tax, Medicare withholding, disabilityinsurance and 401(k) or similar retirement contributions)that would be paid by Cadiz on behalf of an executiveSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. employee of Cadiz receiving equivalent base cashcompensation as set forth in subsection (a) above. c. EQUITY-BASED COMPENSATION. Consultantacknowledges and agrees that Cadiz contemplates theadoption, following the execution of this Agreement, of anew compensation plan or program for senior management (the"Compensation Plan"). Cadiz agrees that following adoptionof the Compensation Plan Consultant shall be invited toparticipate in the Compensation Plan. Consultant'sparticipation in the Compensation Plan shall be negotiatedbetween Consultant and Cadiz in good faith at a levelconsistent with that of a member of senior management withcomparable duties and responsibilities. Cadiz and Consultantacknowledge and agree that the receipt by Consultant ofequity-based compensation under the Compensation Plan inform and amount satisfactory to Consultant is an integralpart of the compensation to be received by Consultant forservices to be performed under this Agreement. Accordingly,should Consultant not, within one hundred twenty (120) daysof the effective date of this Agreement, be offered equitybased compensation pursuant to the Compensation Plan whichConsultant deems satisfactory in Consultant's sole andabsolute discretion, then Consultant shall have the right toterminate this Agreement pursuant to Section 9(a)(v) below. d. BONUS COMPENSATION. Following the conclusionof each fiscal year during the term of this Agreement, theBoard shall make a good faith evaluation of the performanceof Consultant during such year, on the basis of whichConsultant shall receive a bonus in an amount to bedetermined at the discretion of the Board. Such evaluationshall be conducted, and the bonus amount determined, in amanner consistent with that which would be utilized by theBoard in establishing a discretionary bonus for a member ofsenior management with comparable duties andresponsibilities. e. PAYMENT OF TAXES. Consultant acknowledges andagrees that Consultant is obligated to report as income allcompensation received by Consultant pursuant to thisAgreement and Consultant acknowledges the obligation to payall self-employment tax and other taxes thereon and that hewill not be eligible for any employee benefits. Consultantfurther agrees to indemnify Cadiz and hold it harmless tothe extent of any obligation imposed on Cadiz: (i) to paywithholding taxes or similar items; or (ii) resulting fromConsultant's being determined not to be an independentcontractor. As may be appropriate, Cadiz shall report thepayments made hereunder by (a) filing the appropriate 1099forms and (b) making any other reports required by law. 5. REIMBURSEMENT OF EXPENSES. Cadiz will reimburseConsultant during both the Term for any appropriatelydocumented, reasonable and necessary travel and otherbusiness expenses incurred by Consultant in the course ofproviding services pursuant to this Agreement, including forairline travel between Consultant's home in Colorado andCadiz's offices as requested by Cadiz or as otherwisenecessary or appropriate for the performance of Consultant'sduties hereunder, and for meals, transportation and lodgingrelated thereto. Notwithstanding the foregoing, for as longas Consultant continues to provide services for Kaiser,Cadiz shall be responsible for only one-half of the cost ofairline transportation between Colorado and SouthernCalifornia and for one-half of the cost of a rental car forground transportation while Consultant is in SouthernCalifornia. Consultant confirms and agrees that he will onlySource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. seek reimbursement for the foregoing reasonable andnecessary expenses consistent with the foregoing terms andconsistent with Cadiz's expense reimbursement policies andprocedures. 6. MEMBERSHIP ON THE BOARD OF DIRECTORS. Inconnection with Consultant's continuing service to Cadiz, the Board of Directors of Cadiz anticipates that it shall invite Consultant to serve as a member of the Board of Directors of Cadiz to serve until Cadiz's next Annual Meeting of Stockholders or until his successor is elected andqualified. In addition, Cadiz may invite Consultant fromtime to time to serve as a director of one or moresubsidiaries of Cadiz. Nothing in this Agreement shall beconstrued to grant Consultant the right to continue to serveas a director of Cadiz or any of its subsidiaries. ShouldConsultant accept the position of director of Cadiz and/orits subsidiaries, Consultant shall not while this Agreementis in effect be entitled to separate compensation for hisservices as a director of Cadiz or its subsidiaries. Upon termination of this Agreement, Consultant agreesto provide a letter of resignation from the Board ofDirectors of Cadiz and/or any subsidiaries thereofeffective, in each case, upon such termination, unlessCadiz, acting through its Board of Directors, requests inwriting that Consultant withdraw such resignation andConsultant agrees in writing to withdraw such resignationprior to the termination of this Agreement. 7. INDEPENDENT CONTRACTOR. Cadiz and Consultant agreethat the relationship among the parties shall be that ofindependent contractor. Cadiz and Consultant acknowledgethat during the term of this Agreement, Consultant will notbe acting as an officer or employee of Cadiz (althoughConsultant shall serve, if invited, as a director of Cadizas provided in Section 6 hereof). However, in his role asConsultant, Consultant is not, and will not, be responsiblefor any management decisions on behalf of Cadiz, and may notcommit Cadiz to any action. Consultant understands andacknowledges that this Agreement shall not create or implyany agency relationship among the parties, and Consultantwill not commit Cadiz in any manner except when a commitmenthas been specifically authorized in writing by Cadiz or tothe extent Consultant is acting in his authorized capacityas director. 8. CONFIDENTIALITY AND TRADE SECRETS. For purposes ofthis Section 8, the term "Cadiz" shall collectively refer toCadiz and any affiliate thereof. a. CONFIDENTIAL INFORMATION. Consultant shallkeep in strictest confidence all information relating to thebusiness, affairs, customers and suppliers of Cadiz(collectively hereinafter referred to as "Trade Secrets")which Consultant may acquire during the performance ofservices and duties hereunder and which is not otherwisegenerally known to the public. During the term of thisAgreement, and at all times thereafter, Consultant shall notpublish, communicate, divulge, disclose or use, whether ornot for its own benefit, any such information without theprior written consent of Cadiz. b. ONGOING OBLIGATION. The provisions in thisSection 8 shall be binding during the term of this Agreementand at all times thereafter, regardless of the circumstancesor reasons for termination of this Agreement. In the eventthe provisions in this Section 8 are more restrictive thanSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. permitted by the laws of the jurisdiction in whichenforcement of this provision is sought, such provisionsshall be interpreted to extend only over the maximum periodof time, range of activities or geographic area as to whichit may be enforceable. 9. TERMINATION. a. TERMINATION EVENTS. Notwithstanding theprovisions of Section l above, this Agreement shallterminate: i. At the election of Cadiz, upon the deathor permanent disability of Consultant, "permanentdisability" being defined as any continuous loss of one-half('is) or more of the time spent by Cadiz in the usual weeklyperformance of his duties as a result of physical or mentalillness for a continuous period in excess of ninety (90)days. ii. At the election of Cadiz, at such time,if any, as Cadiz ceases to conduct business for any reasonwhatsoever. iii. At the election of the Cadiz, uponthe breach by, Consultant of any term or condition of thisAgreement or upon the dismissal of Consultant by Cadiz forcause. For purposes of this Agreement, Cadiz shall have"cause" to terminate Consultant's employment if he (1)engages in one or more acts constituting a felony; (2)engages in one or more acts involving fraud or serious moralturpitude; (3) misappropriates Cadiz assets or engages ingross misconduct materially injurious to Cadiz or itsaffiliates or subsidiaries; or (4) willfully fails to complywith the written instructions of the Board of Directors orChief Executive Officer of Cadiz. iv. At the election of Consultant, upon abreach by Cadiz of this Agreement. v. At the election of Consultant, in theevent that Consultant shall not, within one hundred twenty(120) days of the effective date of this Agreement, havebeen offered equity based compensation pursuant to theCompensation Plan which Consultant deems satisfactory inConsultant's sole and absolute discretion, as furtherdescribed in Section 4(c) above. b. PAYMENTS FOLLOWING TERMINATION. Followingtermination of this Agreement for any reason other thanpursuant to Section 9(a)(iv) above, Cadiz shall have noobligation to make payments to, or bestow benefits upon,Consultant after the date of termination (otherwise than asrequired by law), except for theretofore accrued and unpaidcompensation under Section 4; provided, however, that thetermination of this Agreement shall not affect the right ofConsultant to exercise any rights to purchase or otherwiseacquire securities of the Cadiz which may have vested infull prior to the date of termination. c. RETURN OF COMPANY'S PROPERTY. If thisAgreement is terminated for any reason, Cadiz may, at itsoption, require Consultant to vacate his offices prior tothe effective date of a termination and to cease allactivities on Cadiz's behalf. Consultant agrees that on thetermination of this Agreement in any manner, he willimmediately deliver to Cadiz all notebooks, brochures,documents, memoranda, reports, files, books, correspondence,Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. customer lists, or other written or graphical records, andthe like, relating to the business or work of Cadiz, whichare or have been in his possession or under his control andwhich have not been returned to the Cadiz. Consultant herebyexpressly acknowledges that all such materials referencedabove are the property of Cadiz. d. PUBLIC IDENTIFICATION. If this Agreement isterminated for any reason, Consultant shall immediately andforever thereafter cease to hold himself out to any person,firm, partnership, corporation or other entity as anindependent contractor or representative of Cadiz or of anyentity owned by, or affiliated with, Cadiz. 10. CONFLICTING OBLIGATIONS. Consultant certifies thatConsultant has no outstanding agreement or obligation thatis in conflict with any of the provisions of this Agreement,or that would preclude Consultant from fully complying withthe provisions hereof, and further certifies that Consultantwill not enter into any such conflicting agreement duringthe term of this Agreement. 11. INJUNCTIVE RELIEF. Consultant acknowledges that abreach by Consultant of the provisions of Sections 3(c) and8 of this Agreement will cause Cadiz irreparable injury. Itis, therefore, expressly acknowledged that the provisions ofSections 3(c) and 8 may be enforced by injunction and otherequitable remedies, without bond. Such relief shall not beexclusive, but shall be in addition to any other rights orremedies Cadiz may have for such breach. 12. LITIGATION AND ATTORNEYS FEES. In the event of anylitigation between the parties hereto in connection withthis Agreement or to enforce any provision or righthereunder, the unsuccessful party to such litigation shallpay to the successful party therein all costs and expenses,including but not limited to reasonable attorneys' feesincurred therein by such successful party, which costs,expenses and attorneys' fees shall be included as a part ofany judgment rendered in such action in addition to anyother relief to which the successful party may be entitled. 13. ADDITIONAL ACKNOWLEDGMENTS. a. Consultant understands that the terms of thisAgreement may be required to be disclosed in, or filed as anexhibit to, Cadiz' annual proxy statement or other reportsfiled publicly with the U.S. Securities and ExchangeCommission. b. Consultant acknowledges and agrees thatConsultant has fully read and understands this Agreement,has been advised to and has been given the opportunity toconsult with his attorney concerning this Agreement, has hadany questions regarding its effect or the meaning of itsterms answered to Consultant's satisfaction and, intendingto be legally bound hereby, has freely and voluntarilyexecuted this Agreement. c. Cadiz and Consultant acknowledge and agreethat Consultant is serving as a consultant to Cadiz at therequest of Cadiz and as such Consultant is to be deemed an"Agent" of Cadiz for purposes of the indemnity provisionsset forth in Article VI of the Bylaws of Cadiz. Accordingly,Consultant shall be entitled to indemnification from Cadizto the full extent to which an Agent is entitled toindemnification pursuant to the provisions of Article VI ofthe Bylaws of Cadiz.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. d. Cadiz and Consultant acknowledge and agreethat upon the receipt by Consultant of equity-basedcompensation under the Compensation Plan in form and amountsatisfactory to Consultant pursuant to Section 4(c) above orotherwise prior to the expiration of the term of thisAgreement, it may be beneficial to the parties to engageConsultant as an employee of Cadiz, rather than as aConsultant to Cadiz. Each party agrees to enter into goodfaith discussions concerning such a change in status at therequest of the other and, if such a change is agreed upon,to enter into a new agreement (or modification of thisAgreement) setting forth the terms and conditions of suchemployment; provided, however that neither party shall havean obligation to agree to a change in status if such achange would result in a diminution in the benefits of suchparty or an increase in the obligations of such party asotherwise provided for in this Agreement. 14. GENERAL PROVISIONS. a. This Agreement shall be binding upon andinure to the benefit of the parties hereto and theirsuccessors and assigns. However, neither party may assign ordelegate any rights or obligations hereunder without firstobtaining the written consent of the other party hereto. b. This Agreement is the entire agreementbetween the parties hereto with respect to the subjectmatter hereof and supersedes all prior oral and writtenagreements and negotiations between the parties. c. The headings of the several paragraphs inthis Agreement are inserted solely for the convenience ofthe parties and are not a part of and are not intended togovern, limit or aid in the construction of any term orprovision hereof. d. This Agreement may not be modified except bya written instrument signed by all parties hereto. e. All clauses and covenants contained in thisAgreement are severable, and in the event any of them shallbe held to be invalid by any court, such clauses orcovenants shall be limited as permitted under applicablelaw, or, if the same are not susceptible to such limitation,this Agreement shall be interpreted as if such invalidclauses or covenants were not contained herein. f. This Agreement is made with reference to thelaws of the State ofCalifornia and shall be governed by and construed inaccordance therewith. Any litigation concerning or toenforce the provisions of this Agreement shall be brought inthe courts of the State of California. IN WITNESS WHEREOF, the parties hereto have executedthis Agreement as of the date first above written. Cadiz: Cadiz Inc. By: /s/ Keith Brackpool ----------------------------- Keith BrackpoolSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. Chief Executive Office By: /s/ Murray H. Hutchison ----------------------------- Murray H. Hutchison Chair, Compensation Committee Consultant /s/ Richard E. Stoddard ----------------------------------- Richard E. Stoddard EXTENSION OF CONSULTING AGREEMENTThis Extension of Consulting Agreement ("Extension") isentered into as of the 1st day of January, 2004, by andbetween Richard E. Stoddard ("Consultant") and Cadiz Inc., aDelaware corporation ("Cadiz").Whereas, Consultant and Cadiz entered into a ConsultingAgreement dated August, 2002:Whereas, Consultant and Cadiz have continued such agreementby Extension dated June 1, 2003 and desire to continue saidconsulting agreement again:Now therefore, the parties agree as follows: 1. Term, Duties and Necessary Services. These provisions shall remain unchanged from the original agreement provided, however, in addtion, Consultant agrees to serve as an officer or member of the Board of Managers of any Cadiz subsidiaries as determined from time to time by Cadiz. 2. Compensation. On the effective date of this agreement, Consultant shall be paid a monthly amount equal to $20833 payable on the 20th day of each month, beginning January 20, 2004, and will continue on a month to month basis until terminated by either party. The parties acknowledge that Consultant shall not be paid benefits or participate in any Cadiz benefit plans. 3. Current Equity Grant. The Parties acknowledge that Consultant was included in the most recent equity grant set forth in Board resolutions attached. 4. Future Equity Participation. The Parties acknowledge that Consultant is eligible to participate as a member of the key management team in any further equity grants considered by the compensation committee of the Board of Cadiz. 5. Original Contract. All other provisions of the original Consulting Agreement, where not inconsistent with this Extension, shall remain in full force and effect.In Witness Whereof, the parties hereto have executed thisAgreement as of the date first above written.Cadiz Inc.Source: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. /s/ Keith Brackpool---------------------------------Keith Brackpool, Chairman and CEOConsultant /s/ Richard Stoddard---------------------------------Richard E. StoddardSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. EXHIBIT 21.1 CADIZ INC. SUBSIDIARIES OF THE COMPANYRancho Cadiz Mutual Water CompanySun World International, Inc.Cadiz Real Estate LLCSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002I , Keith Brackpool, certify that: 1. I have reviewed this annual report on Form 10-K of Cadiz Inc.; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonable likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and b) Any fraud, whether or not material, that involvesSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results. management or other employees who have a significant role in the registrant's internal control over financial reporting.Dated: March 31, 2005 /s/ Keith Brackpool --------------------------------- Keith Brackpool Chairman, Chief Executive Officer and Chief Financial OfficerSource: CADIZ INC, 10-K, March 31, 2005Powered by Morningstar® Document Research℠The information contained herein may not be copied, adapted or distributed and is not warranted to be accurate, complete or timely. The user assumes all risks for any damages or losses arising from any use of this information,except to the extent such damages or losses cannot be limited or excluded by applicable law. Past financial performance is no guarantee of future results.