Tejon Ranch Co.
Annual Report 2016

Plain-text annual report

UNITED STATESSECURITIES AND EXCHANGE COMMISSIONWASHINGTON, D.C. 20549FORM 10-K (Mark One)xANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934For the fiscal year ended December 31, 2016Or ¨TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF1934For the transition period from to Commission File Number: 1-7183 TEJON RANCH CO. (Exact name of Registrant as specified in its charter) Delaware 77-0196136(State or other jurisdiction ofincorporation or organization) (IRS EmployerIdentification No.)P.O. Box 1000, Lebec, California 93243(Address of principal executive offices)Registrant’s telephone number, including area code: (661) 248-3000Securities registered pursuant to Section 12(b) of the Act:Title of Each Class Name of Exchange of Which RegisteredCommon Stock New York Stock ExchangeSecurities registered pursuant to Section 12(g) of the Act:None____________________________________________________ Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ¨ No xIndicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ¨ No xIndicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filingrequirements for the past 90 days. Yes x No ¨Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web Site, if any, every Interactive Data File requiredto be submitted and posted pursuant to Rule 405 of Regulation S-T ((§232.405of this chapter) during the preceding 12 months (or for shorter period that theregistrant was required to submit and post such files). Yes x No ¨Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, andwill not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. xIndicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):Large accelerated filer¨ Accelerated filerx Non-accelerated filer¨ Smaller reporting company¨Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No xThe aggregate market value of registrant’s Common Stock, par value $.50 per share, held by persons other than those who may be deemed to be affiliates ofregistrant on June 30, 2016 was $404,004,456 based on the last reported sale price on the New York Stock Exchange as of the close of business on that date.The number of the Company’s outstanding shares of Common Stock on February 28, 2017 was 20,823,789.____________________________________________________ DOCUMENTS INCORPORATED BY REFERENCEPortions of the Proxy Statement for the Annual Meeting of Stockholders relating to the directors and executive officers of the Company are incorporated byreference into Part III.TABLE OF CONTENTS PART I3ITEM 1.BUSINESS4ITEM 1A.RISK FACTORS17ITEM 1B.UNRESOLVED STAFF COMMENTS22ITEM 2.PROPERTIES23ITEM 3.LEGAL PROCEEDINGS25ITEM 4.MINE SAFETY DISCLOSURES25 PART II26ITEM 5.MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIES26ITEM 6.SELECTED FINANCIAL DATA26ITEM 7.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS26ITEM 7A.QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK45ITEM 8.FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA47ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE47ITEM 9A.CONTROLS AND PROCEDURES47ITEM 9B.OTHER INFORMATION47 PART III47ITEM 10.DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE47ITEM 11.EXECUTIVE COMPENSATION47ITEM 12.SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDERMATTERS48ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE48ITEM 14.PRINCIPAL ACCOUNTING FEES AND SERVICES48 PART IV49ITEM 15.EXHIBITS, FINANCIAL STATEMENT SCHEDULES49SIGNATURES54ITEM 15(a)(1) - FINANCIAL STATEMENTS57ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES572PART IForward-Looking StatementsThis annual report on Form 10-K contains forward-looking statements, including statements regarding strategic alliances, the almond, pistachio and grapeindustries, the future plantings of permanent crops, future yields and prices, water availability for our crops and real estate operations, future prices,production and demand for oil and other minerals, future development of our property, future revenue and income of our jointly-owned travel plaza andother joint venture operations, potential losses to the Company as a result of pending environmental proceedings, the adequacy of future cash flows to fundour operations, market value risks associated with investment and risk management activities and with respect to inventory, accounts receivable and ourown outstanding indebtedness and other future events and conditions. In some cases these statements are identifiable through the use of words such as“anticipate,” “believe,” “estimate,” “expect,” “intend,” “plan,” “project,” “target,” “can,” “could,” “may,” “will,” “should,” “would,” and similarexpressions. We caution you not to place undue reliance on these forward-looking statements. These forward-looking statements are not a guarantee offuture performances and are subject to assumptions and involve known and unknown risks, uncertainties and other important factors that could cause theactual results, performance or achievements of the Company, or industry results, to differ materially from any future results, performance, or achievementimplied by such forward-looking statements. These risks, uncertainties and important factors include, but are not limited to, market and economic forces,availability of financing for land development activities, competition and success in obtaining various governmental approvals and entitlements for landdevelopment activities. No assurance can be given that the actual future results will not differ materially from the forward-looking statements that we makefor a number of reasons including those described above and in Part I, Item 1A, “Risk Factors” of this report.As used in this annual report on Form 10-K, references to the “Company,” “Tejon,” “TRC,” “we,” “us,” and “our” refer to Tejon Ranch Co. and itsconsolidated subsidiaries. The following discussion should be read in conjunction with the consolidated financial statements and the accompanying notesappearing elsewhere in this annual report on Form 10-K. 3ITEM 1. BUSINESSCompany OverviewWe are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing,employment, and lifestyle needs of Californians and create value for our shareholders. Current operations consist of land planning and entitlement, landdevelopment, commercial sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, income portfoliomanagement, farming, and ranch operations.These activities are performed through our five segments:Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of Los Angelesand, at its most northerly border, is 15 miles east of Bakersfield. We create value by securing entitlements for our land, facilitating infrastructuredevelopment, strategic land planning, monetization of land through development, and conservation, in order to maximize the highest and best use for ourland. We are involved in several joint ventures, which facilitate the development of portions of our land.4Business Objectives and StrategiesOur primary business objective is to maximize long-term shareholder value through the monetization of our land-based assets. A key element of our strategyis to entitle and then develop large-scale residential and master plan real estate communities to serve the growing populations of Southern and CentralCalifornia. We are currently engaged in commercial sales and leasing at our fully operational commercial/industrial center Tejon Ranch Commerce Center, orTRCC. All of these efforts are supported by diverse revenue streams generated from other operations, including farming, mineral resources and our variousjoint ventures.5Percentage of Total Revenue and Other Income by Segment:6The following table shows the revenues from continuing operations, segment profits and identifiable assets of each of our continuing segments for the lastthree years:FINANCIAL INFORMATION ABOUT SEGMENTS(Amounts in thousands of dollars) Year Ended December 31, 2016 2015 2014Revenues and Other IncomeReal estate—commercial/industrial (2)$9,438$8,272$7,845Mineral Resources 14,153 15,116 16,255Farming (3)18,64823,83623,435Ranch operations (2)3,3383,9233,534Segment revenues45,57751,14751,069Gain on sale of real estate 1,044 — —Investment income457528 696Other income158381526Revenues and other income$47,236$52,056$52,291Equity in earnings of unconsolidated joint ventures 7,098 6,324 5,294Total revenues and other income (1) $54,334 $58,380 $57,585Segment Profits (Losses) and Net IncomeReal estate—commercial/industrial (2)$2,338$1,578$639Real estate—resort/residential (3) (1,630) (2,349) (2,608)Mineral Resources 6,357 7,720 9,837Farming (3)(25)4,8527,185Ranch operations (2)(2,396) (2,189)(2,464)Segment profits (4)4,6449,61212,589Gain on sale of real estate1,044——Investment income457528696Other income158381526Corporate expenses(12,550)(12,808)(10,646)Operating income before equity in earnings of unconsolidated joint ventures(6,247)(2,287)3,165Equity in earnings of unconsolidated joint ventures7,0986,3245,294Income before income taxes8514,0378,459Income tax provision 336 1,125 2,697Net income 5152,9125,762Net income/(loss) attributable to noncontrolling interest (43) (38) 107Net income attributable to common stockholders $558$2,950$5,655Identifiable Assets by Segment (5) Real estate—commercial/industrial $65,290 $67,550 $67,640Real estate—resort/residential 243,963 228,064 212,534Mineral Resources 45,066 46,025 47,434Farming 36,895 32,542 34,464Ranch operations 3,893 4,313 4,295Corporate 44,594 53,425 65,556Total assets $439,701$431,919$431,923(1) Refer to Note 16, Operating Segments and Related Information of the Notes to the Consolidated Financial Statements for additional detail related to segment revenues.(2) During the fourth quarter of 2015, the Company reclassified revenues and expenses previously classified as commercial/industrial into a new segment called Ranch Operations.Ranch operations comprise of grazing leases, game management and other ancillary services supporting the ranch.7(3) During the fourth quarter of 2014, the Company determined hay crop sales previously recorded in the resort/residential revenues segment fit most appropriately with our farmingrevenues segment. The Company has reclassified prior periods to conform to the current year presentation.(4) Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, andincome taxes.(5) Total Assets by Segment include both assets directly identified with those operations and an allocable share of jointly used assets. Corporate assets consist of cash and cashequivalents, refundable and deferred income taxes, land, buildings and improvements.Real Estate Development OverviewOur real estate operations consist of the following activities: real estate development, commercial sales and leasing, land planning and entitlement, incomeportfolio management and conservation.Interstate 5, one of the nation’s most heavily traveled freeways, brings in excess of 75,000 vehicles per day through our land, which includes 16 miles ofInterstate 5 frontage on each side of the freeway and the commercial land surrounding four interchanges. The strategic plan for real estate focuses ondevelopment opportunities along the Interstate 5 and State Road 138 corridors, which includes TRCC in Kern County, Centennial at Tejon Ranch, orCentennial, a master planned community on our land in Los Angeles County, Mountain Village at Tejon Ranch, or MV, a resort and residential communityin Kern County, and Grapevine at Tejon Ranch, or Grapevine, a master planned community on our land in Kern County. TRCC includes developments eastand west of Interstate 5 at TRCC-East and TRCC-West, respectively.The chart below is a continuum of the real estate development process highlighting each project's current status and key milestones to be met in movingthrough the real estate development process in California. The real-estate development process may be subject to delays arising from California's regulatoryenvironment and litigation.Our real estate activities within our commercial/industrial segment include: entitling, planning, and permitting of land for development; construction ofinfrastructure; the construction of pre-leased buildings; the construction of buildings to be leased or sold; and the sale of land to third parties for their owndevelopment. The commercial/industrial segment also includes activities related to communications leases, and landscape maintenance fees. Our real estateoperations within our resort/residential segment at this time include costs for land entitlement, land planning and pre-construction engineering, and landstewardship and conservation activities.8Operating SegmentsReal Estate - Commercial/IndustrialConstruction:During 2016, our commercial retail activity continued to grow as new leases came on line with Habit Burger and Baja Fresh. In addition, our TA/Petro jointventure completed construction of a new Shell gas station and convenience store that commenced operations during the first quarter of 2016. Lastly, we haveentered into two joint venture operating agreements with Majestic Realty Co., or Majestic, a Los Angeles based commercial/industrial developer, to pursuethe development, construction, leasing, and management of an approximately 480,000 square foot industrial building on the Company’s property at TRCC-East and to own and manage a 652,000 square foot, fully leased, industrial building in TRCC-West.During 2015, we completed the construction of a multi-tenant commercial building within TRCC-East. The multi-tenant building was leased to Starbucksand Pieology, a quick service pizza offering. During 2015 we also completed construction on a real estate pad in TRCC-East and entered into a ground leasewith Carl's Jr. All three restaurants were fully operational at December 31, 2015. We also began construction of a second multi-tenant building to be occupiedby Habit Burger and Baja Fresh.9The following is a summary of the Company's retail and industrial real estate developments as of December 31, 2016:($ in thousands) ProjectCost to DateEstimated Cost toCompleteTotal Estimated Cost atCompletionEstimated CompletionDateTejon Ranch Commerce Center$78,386$69,881$148,267TBDLess: Reimbursements from TRPFFA164,86260,450125,312TBDTRCC Development Costs, net$13,524$9,431$22,955 1The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and Tejon-Castac Water District, or TCWD, to finance public infrastructure within the Company’sKern County developments. TRPFFA, through bond sales, will reimburse the Company for qualifying infrastructure costs at TRCC. The following table summarizes total development entitlements for TRCC as of December 31, 2016:(in square feet)IndustrialCommercial RetailTotal entitlements received19,300,941956,309Total entitlements used4,237,149616,915Entitlement available15,063,792339,394Leasing:Within our commercial/industrial segment, we lease land to various types of tenants. We currently lease land to two auto service stations with conveniencestores, 13 fast-food operations, two full-service restaurants, one motel, an antique shop, and a United States Postal Service facility.In addition, the Company leases several microwave repeater locations, radio and cellular transmitter sites, and fiber optic cable routes; and 32 acres of land toPastoria Energy Facility, L.L.C., or PEF, for an electric power plant.The sale and leasing of commercial/industrial real estate is very competitive, with competition coming from numerous and varied sources around California.Our most direct regional competitors are in the Inland Empire region of Southern California, Northern Los Angeles to include both the San Fernando Valleyand Santa Clarita Valley, and areas north of us in the San Joaquin Valley of California. The principal factors of competition in this industry are price,availability of labor, proximity to the port complex of Los Angeles/Long Beach and customer base. A potential disadvantage to our development strategy isour distance from the ports of Los Angeles and Long Beach in comparison to the warehouses and distribution centers located in the Inland Empire, a largeindustrial area located east of Los Angeles which continues its expansion eastward beyond Riverside and San Bernardino to include Perris, Moreno Valley,and Beaumont. Strong demand for large distribution facilities is driving development farther east in a search for large entitled parcels. During 2016, vacancyrates in the Inland Empire approximated 4.1%, primarily due to an increase in the development of buildings for lease. Without this increase in newdevelopment in the Inland Empire the vacancy rate would have declined in that region. The low vacancy rates have also led to an increase in lease rates of12% within the Inland Empire. As lease rates increase in the Inland Empire, we may begin to have greater pricing advantages due to our lower land basis.10The following table summarizes information with respect to lease expirations as of December 31, 2016.Year of Lease Expiration Number of Expiring Leases RSF of Expiring Leases Annualized Base Rent1 Percentage of Annual MinimumRent2017 8 52,314 $335 6.29%2018 3 55,321 $134 2.51%2019 — — — —2020 3 55,595 $269 5.04%2021 3 60,722 $123 2.30%2022 — — — —2023 2 4,640 $193 3.63%2024 — — — —2025 2 4,613 $260 4.87%2026 3 4,645 $247 4.64%2027 — — — —Thereafter2 6 1,589,915 $3,771 —1 - Annualized base rent is calculated as monthly base rent (cash basis) per the lease, as of the reporting period, multiplied by 12. Annualized base rent shown in thousands. 2 - This amount includes 32 acres of the PEF ground lease. Please refer to Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” for information regarding our 2016commercial/industrial activity.For the year ended December 31, 2016 we had no leases that expired, nor did we have any material lease renewals.Joint Ventures:During 2016, we entered into a joint venture operating agreement with Majestic Realty Co., a Los Angeles based commercial/industrial developer to pursuethe development, construction, leasing, and management of an approximately 480,000 square foot industrial building on the Company’s property at TejonRanch Commerce Center East. In addition, we entered into a second limited liability company agreement with Majestic Realty Co. for the purchase of,ownership of, and management of a fully leased, 651,909 square foot industrial building located at Tejon Ranch Commerce Center.We are also involved in multiple joint ventures with several partners. Our joint venture with TravelCenters of America, or TA/Petro, owns and operates twotravel and truck stop facilities, restaurants, and five separate gas stations with convenience stores within TRCC-West and TRCC-East. We are involved inthree joint ventures with Rockefeller Development Group which includes the following: Five West Parcel LLC, which owns a 606,000 square foot buildingin TRCC-West that is fully leased to Dollar General, 18-19 West LLC, which owns 61.5 acres of land for future development within TRCC-West, andTRCC/Rock Outlet Center LLC that operates the Outlets at Tejon.Real Estate - Resort/ResidentialOur resort/residential segment activities include land entitlement, land planning and pre-construction engineering and land stewardship and conservationactivities. We have three major resort/residential communities within this segment: MV, which has entitlement approvals and is in the tentative tract mapprocess; Centennial, which received preliminary zoning within the Antelope Valley Area Plan, or AVAP, and has begun the specific plan process in LACounty for approvals of phase one entitlement; and Grapevine, which is on land owned within Kern County that has entitlement approvals and is in thelitigation and permitting phase of the process. The entitlement process precedes the regulatory approvals necessary for land development and routinely takesseveral years to complete. The Conservation Agreement we entered into with five major environmental organizations in 2008 is designed to minimizeopposition from environmental groups to these projects and eliminate or reduce the time spent in litigation once governmental approvals are received.Litigation by environmental groups has been a primary cause of delay and loss of financial value for real estate development projects in California.11Mountain Village at Tejon Ranch:MV is planned to be an exclusive, very low-density, resort-based community that will provide owners and guests with a wide variety of recreationalopportunities, lodging and spa facilities, golf facilities, a range of housing options, and other exclusive services and amenities that are designed todistinguish MV as the resort community of choice for the Southern California market. MV is being developed by Tejon Mountain Village LLC, or TMVLLC, a wholly owned subsidiary of the Company. MV encompasses 5,082 acres for a mixed use development to include housing, retail, and commercialindustrial components. MV is entitled for 3,450 homes, 160,000 square feet of commercial development, 750 hotel keys, and more than 21,335 acres of openspace.In November 2015, the Board of Directors of the Company approved a detailed business plan that will guide the ultimate development and marketing of MV.The Board also authorized the management team to move forward with the creation of Tentative Tract Maps, which is estimated to be completed in late 2017.During July 2014, the Company acquired full ownership of TMV LLC through the purchase of DMB TMV LLC's interest in the former joint venture for$70,000,000 in cash.The Company's decision to obtain full ownership of MV reflects the Company's growth as a fully integrated real estate company and demonstrates our beliefin the future success of the development.MV is fully entitled and all necessary permits have been issued to begin development once the mapping process is complete. Timing of MV development inthe coming years will be dependent on the continued improvement of the economy and an improvement in the second home real estate market. In moving theproject forward we will focus on the completion of the mapping process, consumer and market research studies and fine tuning of development business plansas well as defining the capital funding sources for this development.Centennial at Tejon Ranch:The Centennial development is a large master-planned community development encompassing approximately 12,323 acres of our land within Los AngelesCounty. Upon completion of Centennial, it is estimated that the community will include approximately 19,333 homes, and 10.1 million square feet ofcommercial development. Centennial will also incorporate business districts, schools, retail and entertainment centers, medical facilities and othercommercial office and light industrial businesses that, when complete, would create a substantial number of jobs. Centennial is being developed byCentennial Founders, LLC, a consolidated joint venture in which we have a 84.07% ownership interest as of December 31, 2016. In 2016, Lewis InvestmentCompany withdrew from the joint venture. The surviving members (TRC, TRI Pointe Homes and CalAtlantic) absorbed the equity of Lewis InvestmentCompany based on their respective proportionate interest in the joint venture at the time of the withdrawal. The withdrawal was deemed an equity transactionbetween members and had no earnings impact to the Company. Centennial is envisioned to be an ecologically friendly and commercially viabledevelopment.During the fourth quarter of 2014, the Los Angeles County Board of Supervisors approved the Antelope Valley Area Plan, or AVAP. The AVAP is designed toguide future development and conservation in the northern-most region of unincorporated Los Angeles County. Centennial is included in the AVAP as partof the west Economic Opportunity Area, or EOA, where future development would be directed. This particular EOA is located along Highway 138 andencompasses the vast majority of Centennial's proposed boundaries. In June 2015, the Los Angeles County Board of Supervisors gave final approval for theAVAP. The AVAP provides Centennial with land use and zoning for residential and commercial development.We are currently preparing the project level Environmental Impact Report, or EIR, and specific plan for Los Angeles County and anticipate the filing of thosedocuments during 2017.Grapevine at Tejon Ranch:Grapevine is an approximately 15,315-acre potential development area located on the San Joaquin Valley floor area of our lands, adjacent to TRCC. The2008 Conservation Agreement allows for the development of up to 12,400 acres in this area. We are currently focusing on approximately 8,010 acres for amixed use development to include housing, retail, and commercial industrial components. Grapevine has received approval for 12,000 to 14,000 homes, 5.1million square feet for commercial development, and more than 3,367 acres of open space and parks. On December 6, 2016, the Kern County Board ofSupervisors unanimously approved the EIR for the development of the Grapevine community. Subsequently, Kern County was sued related to the approvaland we are working with Kern County to defend the approved EIR. The entire litigation and permitting process will take several years and the investment ofseveral million dollars to successfully complete.12The greatest competition for the Centennial and Grapevine communities will come from California developments in the Santa Clarita Valley, Lancaster,Palmdale, and Bakersfield. The developments in these areas will be providing similar housing product as our developments. The principal factors ofcompetition in this industry are pricing of product, amenities offered, and location. We will attempt to differentiate our developments through our uniquesetting, land planning and different product offerings. MV will compete generally for discretionary dollars that consumers will allocate to recreation andsecond homes, so its competition will range over a greater area and variety of projects.As we embark on the aforementioned master planned communities, we understand that it can take up to 25 years, or greater, to complete from commencementof construction. The entitlement process for development of property in California is complex, lengthy (spanning multiple years) and costly, involvingnumerous state and county regulatory approvals. We are unable to determine anticipated completion dates for our real estate development projects withcertainty because the time for completion is heavily dependent on the regulatory approvals necessary for land development. Also, as a real estate developer,we are cognizant of the micro- and macro-economic factors that have a significant influence on the real estate sector. As a developer, one would be at aneconomic disadvantage to bring product to market with no willing or able buyers. This ebb and flow of the economy also plays into the timing of ourcompletion date. Costs will also fluctuate over the life of these projects as a result of the cost of labor and raw materials and the timing of approvals and otheractivity. The uncertainty of estimated costs to completion is compounded by the potential impact of inflation, which will fluctuate with the equally uncertaincompletion dates for our projects.The following is a summary of the Company's residential real estate developments as of December 31, 2016:Community:Mountain VillageGrapevineCentennialResortLocation:Kern CountyKern CountyLos AngelesResidentialEntitlement Status1:EntitledEntitled2In ProgressTotalEntitlement Area (acres):26,4178,01012,32346,750Housing Units:3,45012,00019,33334,783Commercial Development (sqft)3:160,0005,100,00010,100,00015,360,000Open Areas (acres):21,3353,3675,62430,326Costs to Date4:$126,096$23,917$89,381$239,394(1) Estimated completion anticipated to be 25 years, or greater, from commencement of construction. To-date construction has not begun.(2) Kern County was sued related to the approval of the EIR and we are working with Kern County to defend the approved EIR.(3) MV also has approval for up to 750 lodging units and 350,000 square feet of facilities in support of two 18-hole golf courses.(4) Total estimated project costs are difficult to accurately forecast with any certainty at this time due to finalization of entitlement and mapping processes, as well as final engineeringfor the developments, and capital funding structure selected. Dollars presented in thousands.Mineral ResourcesMineral resources consist of oil and gas royalties, rock and aggregate royalties, royalties from a cement operation leased to National Cement, and themanagement of water assets and water infrastructure. We continue to look for opportunities to grow our mineral resource revenues through expansion ofleasing and encouraging new exploration. Within our water assets we are expanding our resources through new well drilling programs, while at the same timelooking for opportunities to continue to purchase water as we have in the past. We will look to sell excess water over our internal needs on a temporary basisuntil that water is needed by us in our real estate and agricultural operations.We are cautiously optimistic that we could see new production activity later in 2017 as oil prices stabilize in the mid-$50 per barrel range. We expect theimproved oil prices will provide some improvements to our 2017 royalty revenues as compared to 2016 royalty revenues. We however are not expectingwater sales for 2017 to be comparable to prior years due to the large amount of rain and snow in California in late 2016 and early 2017. Water sales for 2017could be significantly lower than 2016.We lease certain portions of our land to oil companies for the exploration and production of oil and gas. We however do not engage in any oil exploration orextraction activities. As of December 31, 2016, approximately 7,300 acres were committed to producing oil and gas leases from which the operators producedand sold approximately 301,000 barrels of oil and 238,000 MCF (each MCF being 1,000 cubic feet) of dry gas during 2016. Our share of production, basedupon average royalty rates during the last three years, has been 114, 149, and 179, barrels of oil per day for 2016, 2015, and 2014, respectively.Approximately 273 active oil wells were located on the leased land as of December 31, 2016. Royalty rates on our leases averaged approximately 13% of oilproduction in 2016.13Estimates of oil and gas reserves on our properties are unknown to us. We do not make such estimates, and our lessees do not make information concerningreserves available to us.We have approximately 2,000 acres under lease to National Cement Company of California, Inc., or National, for the purpose of manufacturing Portlandcement from limestone deposits found on the leased acreage. National owns and operates a cement manufacturing plant on our property with a capacity ofapproximately 1,000,000 tons of cement per year. The amount of payment that we receive under the lease is based upon shipments from the cement plant,which increased during 2016 compared to 2015. The improvement in shipments is due to an increase in road construction activity as compared to the prioryears. The term of this lease expires in 2026, but National has options to extend the term for successive periods of 20 and 19 years. Proceedings underenvironmental laws relating to the cement plant are in process. The Company is indemnified by the current and former tenants and at this time we have nocost related to the issues at the cement plant. See Item 3, “Legal Proceedings,” for a further discussion.We also lease 521 acres to Granite Construction and Griffith Construction for the mining of rock and aggregate product that is used in construction of roadsand bridges. The royalty revenues we receive under these leases are based upon the amount of product produced at these sites.Our royalty interests are contractually defined and based on a percentage of production and are received in cash. Our royalty revenues fluctuate based onchanges in the market prices for oil, natural gas, and rock and aggregate product, the inevitable decline in production of existing wells and quarries, and otherfactors affecting the third-party oil and natural gas exploration and production companies that operate on our lands including the cost of development andproduction.In August 2015, we entered into an agreement with PEF our current lessee under a power plant lease. Beginning in 2016, PEF may purchase from us up to2,000 acre feet of water and from January 2017 through July 2030, PEF may purchase from us up to 3,500 acre feet of water per year, with an option to extendthe term. PEF is under no obligation to purchase water from us in any year, but is required to pay us an annual option payment equal to 30% of the maximumannual payment. The price of the water under the agreement is $1,056 per acre foot of annual water in 2017, subject to 3% annual increases for the duration ofthe lease agreement. The Company's commitments to sell water can be met through current water assets.Farming OperationsIn the San Joaquin Valley, we farm permanent crops including the following acreage: wine grapes—1,649; almonds—1,683; and pistachios—1,053. Wemanage the farming of alfalfa and forage mix on 775 acres in the Antelope Valley and we periodically lease 1,000 acres of land that is used for the growing ofvegetables.We sell our farm commodities to several commercial buyers. As a producer of these commodities, we are in direct competition with other producers within theUnited States, or U.S., and throughout the world. Prices we receive for our commodities are determined by total industry production and demand levels. Weattempt to improve price margins by producing high quality crops through proven cultural practices and by obtaining better prices through marketingarrangements with handlers.Sales of our grape crop typically occur in the third and fourth quarters of the calendar year, while sales of our pistachio and almond crops also typically occurin the third and fourth quarter of the calendar year, but can occur up to a year or more after each crop is harvested.In 2016, we sold 47% of our grape crop to one winery, 23% to a second winery and the remainder to three other customers. These sales are under long-termcontracts ranging from one to 12 years. In 2016, our almonds were sold to various commercial buyers, with the largest buyer accounting for 41% of ouralmond revenues. We sold pistachios to two customers with the largest accounting for 79% of our pistachio revenues. We do not believe that we would beadversely affected by the loss of any or all of these large buyers because of the markets for these commodities, the large number of buyers that would beavailable to us, and the fact that the prices for these commodities do not vary based on the identity of the buyer or the size of the contract.Our almond, pistachio, and wine grape crop sales are highly seasonal with a majority of our sales occurring during the third and fourth quarters. Nut and grapecrop markets are particularly sensitive to the size of each year’s world crop and the demand for those crops. Large crops in California and abroad can rapidlydepress prices. Crop prices, especially almonds, are also adversely affected by a strong U.S. dollar which makes U.S. exports more expensive and decreasesdemand for the products we produce. The value of the U.S. dollar in prior years has helped to maintain strong almond prices in overseas markets, but we arenow seeing this change as the U.S. dollar has strengthened against the Euro. The full potential impact of an increasing U.S. dollar to our pricing and revenueis not known at this time but we have seen a decline in almond prices.14Weather conditions, such as warmer than normal winter temperatures, could impact the number of tree and vine dormant hours, which are integral to tree andvine growth. We will not know if there has been a negative impact on 2017 production until late spring or early summer of 2017. We have also seen heavyrains and strong winds during the bloom period for almonds, which could negatively impact 2017 production.Our water entitlement for 2017, available from the California State Water Project, or SWP, when combined with supplemental water, is adequate for ourfarming needs. The State Department of Water Resources, or DWR, has announced its estimated water supply delivery at 60% of full entitlement. We expect2017 rainfalls to provide some relief from the drought California has been experiencing. However, we are cognizant that rainfall in 2017 may not besufficient to compensate for the drought we have experienced in California over the last several years. The current 60% allocation of state SWP water is notenough for us to farm our crops, but our additional water resources, such as groundwater and surface sources, and those of the water districts we are in, shouldallow us to have sufficient water for our farming needs. It is too early in the year to determine the impact of improved 2017 water supplies and the effects of2016 drought on 2017 California crop production for almonds, pistachios, and wine grapes. See discussion of water contract entitlement and long-termoutlook for water supply under Item 2, “Properties.” Also see Note 6, (Long-Term Water Assets) of the Notes to Consolidated Financial Statements foradditional information regarding our water assets.Ranch OperationsDuring the fourth quarter of 2015, the Company reclassified certain revenues and expenses previously classified as commercial/industrial into a new segmentcalled Ranch Operations.Ranch operations consist of game management revenues and ancillary land uses such as grazing leases and filming. Within game management we operate ourHigh Desert Hunt Club, a premier upland bird hunting club. The High Desert Hunt Club offers over 6,400 acres and 35 hunting fields, each field providingdifferent terrain and challenges. The hunting season runs from mid-October through March. We sell individual hunting packages as well as memberships.Ranch operations also includes Hunt at Tejon, which offers a wide variety of guided big game hunts including trophy Rocky Mountain elk, deer, turkey andwild pig. We offer guided hunts and memberships for both the Spring and Fall hunting seasons. At December 31, 2016, game management accounts for 39%of the total revenue from ranch operations.In addition, the ranch operations segment is in charge of upkeep, maintenance, and security of all 270,000 acres of land.Approximately 256,000 acres are used for two grazing leases, which account for 36% of total revenues from ranch operations at December 31, 2016.General Environmental RegulationOur operations are subject to federal, state and local environmental laws and regulations including laws relating to water, air, solid waste and hazardoussubstances. Although we believe that we are in material compliance with these requirements, there can be no assurance that we will not incur costs, penalties,and liabilities, including those relating to claims for damages to property or natural resources, resulting from our operations. Environmental liabilities mayalso arise from claims asserted by adjacent landowners or other third parties. We also expect continued legislation and regulatory development in the area ofclimate change and greenhouse gases. It is unclear as of this date how any such developments will affect our business. Enactment of new environmental lawsor regulations, or changes in existing laws or regulations or the interpretation of these laws or regulations, might require expenditures in the future. Wehistorically have not had material environmental liabilities.CustomersWe had no customers account for 10% or more of our revenues from continuing operations in 2016 and 2015. In 2016, 2015, and 2014 the PEF power plantlease generated approximately 8%, 7%, and 7% of our total revenues. No other client tenant represents 5% or more of our revenues in 2016 and 2015.OrganizationTejon Ranch Co. is a Delaware corporation incorporated in 1987 to succeed the business operated as a California corporation since 1936.15EmployeesAt December 31, 2016, we had 152 full-time employees. We believe that we have good relations with our employees. We have adopted a Compliance withState and Federal Statutes, Rules and Regulations Reporting Policy that applies to all of our employees. Its receipt and review by each employee isdocumented and verified quarterly. None of our employees are covered by a collective bargaining agreement.ReportsWe make available free of charge through our Internet website, www.tejonranch.com, our annual report on Form 10-K, quarterly reports on Form 10-Q, currentreports on Form 8-K and amendments to these reports filed or to be furnished pursuant to Section 13(a) of the Securities Exchange Act of 1934, as amended,as soon as reasonably practicable after we electronically file such material with or furnish it to the SEC. We also make available on our website our corporategovernance guidelines, charters of our key Board of Directors’ Committees (audit, compensation, nominating and corporate governance, and real estate), andour Code of Business Conduct and Ethics for Directors, Officers, and Employees. These items are also available in printed copy upon request. We intend todisclose in the future any amendments to our Code of Business Conduct and Ethics for Directors, Officers, and Employees, or waivers of such provisionsgranted to executive officers and directors, on the web site within four business days following the date of such amendment or waiver. Any document we filewith the Securities and Exchange Commission, or SEC, may be inspected, without charge, at the SEC’s public reference room at 100 F Street, N.E.Washington, D.C. 20549 or at the SEC’s internet site address at http://www.sec.gov. Information related to the operation of the SEC’s public reference roommay be obtained by calling the SEC at 1-800-SEC-0330.Executive Officers of the RegistrantThe following table shows each of our executive officers and the offices held as of March 1, 2017, the period the offices have been held, and the age of theexecutive officer.Name Office Held since AgeGregory S. Bielli President and Chief Executive Officer, Director 2013 56Dennis J. Atkinson Senior Vice President, Agriculture and Water 1998 66Allen E. Lyda Executive Vice President, Chief Financial Officer 1990 59Hugh McMahon Executive Vice President, Commercial/Industrial Development 2014 50Joseph N. Rentfro Executive Vice President, Real Estate 2015 48Robert D. Velasquez Vice President of Finance and Chief Accounting Officer 2015 50Michael R.W. Houston Senior Vice President, General Counsel 2016 42A description of present and prior positions with us, and business experience for the past five years is given below.Mr. Bielli has been employed by the Company since September 2013. Mr. Bielli joined the Company as President and Chief Operating Officer and becamePresident and Chief Executive Officer on December 17, 2013. Prior to joining the Company Mr. Bielli was President of Newland Communities' WesternRegion and was responsible for overseeing management of all operational aspects of Newland's real estate projects in the region. Mr. Bielli worked withNewland Communities from 2006 through August 2013.Mr. Atkinson has been employed by us since July 1998, serving as Vice President, Agriculture, until 2008 when he was promoted to Senior Vice President,Agriculture. Mr. Atkinson's title was subsequently changed to Senior Vice President, Agriculture and Water to more accurately describe the responsibilities ofhis office.Mr. Lyda has been employed by us since 1990, serving as Vice President, Finance and Treasurer. He was elected Assistant Secretary in 1995 and ChiefFinancial Officer in 1999. Mr. Lyda was promoted to Senior Vice President in 2008, and Executive Vice President in 2012. Mr. Lyda's title was subsequentlychanged to Executive Vice President and Chief Financial Officer to more accurately describe the responsibilities of his office.Mr. McMahon joined the Company in November 2001 as Director of Financial Analysis. In 2008, Mr. McMahon became Vice President ofCommercial/Industrial Development and in December of 2014, was promoted to Senior Vice President of Commercial/Industrial Development and elected asan officer of the Company. In 2015, he was promoted to Executive Vice President.16Mr. Rentfro joined the Company on February 27, 2015 and was elected Executive Vice President of Real Estate on March 9, 2015. For the last five years, Mr.Rentfro directed development efforts for a number of major projects within the Emirate of Abu Dhabi in the United Arab Emirates. Notable developmentsinclude the Westin Abu Dhabi Golf Resort & Spa, Monte Carlo Beach Club-Saadiyat, Eastern Mangroves Resort and Residences, St. Regis Saadiyat IslandResidences, and the Al Yamm and Al Sahel Villas at the Desert Islands Resort & Spa by Anantara. Prior to his work in the Middle East, Mr. Rentfro heldexecutive positions at The St. Joe Company (NYSE: JOE), ascending ultimately to Regional Vice President and General Manager. There he led all effortsrelated to planning, design, entitlement, development, construction, asset management, marketing and sales for real estate operations within a 330,000-acreregion along the Gulf Coast of Northwest Florida.Mr. Velasquez joined the Company as Vice President of Finance of Tejon Ranchcorp, or TRC, a subsidiary of the Company, in November 2014. Mr.Velasquez's title was subsequently changed to Vice President of Finance and Chief Accounting Officer to more accurately describe the responsibilities of hisoffice. Prior to joining TRC, Mr. Velasquez served as an Executive Director at Ernst & Young in their audit and assurance practice section. Mr. Velasquezworked with Ernst & Young from 1999 through 2014. Mr. Velasquez holds a B.S. in Business Administration with an option in Accounting from CaliforniaState University, Los Angeles. Mr. Velasquez is a Certified Public Accountant in the state of California.Mr. Houston joined the Company in May 2016 as the Senior Vice President, General Counsel. He previously worked for the City of Anaheim, where heserved as City Attorney from 2013 – 2016. His background involves extensive experience in corporate governance, municipal law, real estate, land use andenvironmental issues. Prior to working for the City of Anaheim, he served as a partner for a Newport Beach, CA-based law firm of Cummins & White from2011 to 2013, and prior to that, was a partner at Rutan & Tucker, LLP, Costa Mesa, CA.ITEM 1A. RISK FACTORSThe risks and uncertainties described below are not the only ones facing the Company. If any of the following risks occur, our business, financial condition,results of operations or future prospects could be materially adversely affected. Our strategy, focused on more aggressive development of our land, involvessignificant risk and could result in operating losses. The risks that we describe in our public filings are not the only risks that we face. Additional risks anduncertainties not presently known to us, or that we currently consider immaterial, also may materially adversely affect our business, financial condition, andresults of operations.We are involved in a cyclical industry and are affected by changes in general and local economic conditions. The real estate development industry iscyclical and is significantly affected by changes in general and local economic conditions, including:•Employment levels•Availability of financing•Interest rates•Consumer confidence•Demand for the developed product, whether residential or industrial•Supply of similar product, whether residential or industrialThe process of development of a project begins and financial and other resources are committed long before a real estate project comes to market, whichcould occur at a time when the real estate market is depressed. It is also possible in a rural area like ours that no market for the project will develop asprojected.Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our future homes andcommercial products live could reduce the demand for our products and, as a result, could adversely affect our business, results of operations, andfinancial condition. Adverse changes in economic conditions in markets where we conduct our operations and where prospective purchasers of our real estateproducts live have had and may in the future have a negative impact on our business. Adverse changes in employment levels, job growth, consumerconfidence, interest rates, and population growth, or an oversupply of product for sale or lease may reduce demand and depress prices and cause buyers tocancel their purchase agreements. This, in turn, could adversely affect our results of operations and financial condition.17Higher interest rates and lack of available financing can have significant impacts on the real estate industry. Higher interest rates generally impact thereal estate industry by making it harder for buyers to qualify for financing, which can lead to a decrease in the demand for residential, commercial orindustrial sites. Any decrease in demand will negatively impact our proposed developments. Lack of available credit to finance real estate purchases can alsonegatively impact demand. Any downturn in the economy or consumer confidence can also be expected to result in reduced housing demand and slowerindustrial development, which would negatively impact the demand for land we are developing.The inability of a client tenant to pay us rent could adversely affect our business. Our commercial revenues are derived primarily from rental payments andreimbursement of operating expenses under our leases. If our client tenants fail to make rental payments under their leases, our financial condition and cashflows could be adversely affected.Our inability to renew leases or re-lease space on favorable terms as leases expire may significantly affect our business. Some of our revenues are derivedfrom rental payments and reimbursement of operating expenses under our leases. If a client tenant experiences a downturn in its business or other types offinancial distress, it may be unable to make timely payments under its lease. Also, if our client tenants terminate early or decide not to renew their leases, wemay not be able to re-lease the space. Even if client tenants decide to renew or lease space, the terms of renewals or new leases, including the cost of anytenant improvements, concessions, and lease commissions, may be less favorable to us than current lease terms. Consequently, we could generate less cashflow from the affected properties than expected, which could negatively impact our business. We may have to divert cash flow generated by other propertiesto meet our debt service payments, if any, or to pay other expenses related to owning the affected properties.We may experience increased operating costs, which may reduce profitability to the extent that we are unable to pass those costs on to client tenants. Ourproperties are subject to increases in operating expenses including insurance, property taxes, utilities, administrative costs, and other costs associated withsecurity, landscaping, and repairs and maintenance of our properties. Our leases allow us to pass along real estate taxes, insurance, utilities, common area, andother operating expenses (including increases thereto) in addition to base rent. However, we cannot be certain that our client tenants will be able to bear thefull burden of these higher costs, or that such increased costs will not lead them, or other prospective client tenants, to seek space elsewhere. If operatingexpenses increase, the availability of other comparable space in the markets we operate in may hinder or limit our ability to increase our rents; if operatingexpenses increase without a corresponding increase in revenues, our profitability could diminish.We are subject to various land use regulations and require governmental approvals and permits for our developments that could be denied. In planningand developing our land, we are subject to various local, state, and federal statutes, ordinances, rules and regulations concerning zoning, infrastructuredesign, subdivision of land, and construction. All of our new developments require amending existing general plan and zoning designations, so it is possiblethat our entitlement applications could be denied. In addition, the zoning that ultimately is approved could include density provisions that would limit thenumber of homes and other structures that could be built within the boundaries of a particular area, which could adversely impact the financial returns from agiven project. Many states, cities and counties (including neighboring Ventura County) have in the past approved various “slow growth” or “urban limitline” measures. If that were to occur in the jurisdictions governing the Company’s land use, our future real estate development activities could besignificantly adversely affected.Third-party litigation could increase the time and cost of our development efforts. The land use approval processes we must follow to ultimately developour projects have become increasingly complex. Moreover, the statutes, regulations and ordinances governing the approval processes provide third partiesthe opportunity to challenge the proposed plans and approvals. As a result, the prospect of third-party challenges to planned real estate developmentsprovides additional uncertainties in real estate development planning and entitlements. Third-party challenges in the form of litigation could result in denialof the right to develop, or would, by their nature, adversely affect the length of time and the cost required to obtain the necessary approvals. In addition,adverse decisions arising from any litigation would increase the costs and length of time to obtain ultimate approval of a project and could adversely affectthe design, scope, plans and profitability of a project.18We are subject to environmental regulations and opposition from environmental groups that could cause delays and increase the costs of ourdevelopment efforts or preclude such development entirely. Environmental laws that apply to a given site can vary greatly according to the site’s locationand condition, present and former uses of the site, and the presence or absence of sensitive elements like wetlands and endangered species. Federal and stateenvironmental laws also govern the construction and operation of our projects and require compliance with various environmental regulations, includinganalysis of the environmental impact of our projects and evaluation of our reduction in the projects’ carbon footprint and greenhouse gas emissions.Environmental laws and conditions may result in delays, cause us to incur additional costs for compliance, mitigation and processing land use applications,or preclude development in specific areas. In addition, in California, third parties have the ability to file litigation challenging the approval of a projectwhich they usually do by alleging inadequate disclosure and mitigation of the environmental impacts of the project. Certain groups opposed to developmenthave made clear they intend to oppose our projects vigorously, so litigation challenging their approval is expected. Currently, the Grapevine entitlementapproval has been opposed and litigation has been filed against Kern County as the approving governmental entity. The issues most commonly cited inopponents’ public comments include the poor air quality of the San Joaquin Valley air basin, potential impacts of projects on the California condor and otherspecies of concern, the potential for our lands to function as wildlife movement corridors, potential impacts of our projects on traffic and air quality in LosAngeles County, emissions of greenhouse gases, water availability and criticism of proposed development in rural areas as being “sprawl”. In addition,California has a specific statutory and regulatory scheme intended to reduce greenhouse gas emissions in the state and efforts to enact federal legislation toaddress climate change concerns could require further reductions in our projects’ carbon footprint in the future.Constriction of the credit markets or other adverse changes in capital market conditions could limit our ability to access capital and increase our costof capital. During past economic downturns, we relied principally on positive operating cash flow, cash and investments, and equity offerings to meet currentworking capital needs, entitlement investment, and investment within our developments. While the current economy has seen improvement, any slowdownin the economy could negatively impact our access to credit markets and may limit our sources of liquidity in the future and potentially increase our costs ofcapital.We regularly assess our projected capital requirements to fund future growth in our business, repay our debt obligations, and support our other generalcorporate and operational needs, and we regularly evaluate our opportunities to raise additional capital. As market conditions permit, we may issue newequity securities through the public capital markets or obtain additional bank financing to fund our projected capital requirements or provide additionalliquidity. Adverse changes in economic, or capital market conditions could negatively affect our business, liquidity and financial results.Until governmental entitlements are received, we will have a limited inventory of real estate. Each of our four current and planned real estate projects,TRCC, Centennial, MV, and Grapevine involve obtaining various governmental permits and/or entitlements. A delay in obtaining governmental approvalscould lead to additional costs related to these developments and potentially lost opportunities for the sale of lots to developers and land users.We are in competition with several other developments for customers and residents. Within our real estate activities, we are in direct competition forcustomers with other industrial sites in Northern, Central, and Southern California. We are also in competition with other highway interchange locationsusing Interstate 5 and State Route 99 for commercial leasing opportunities. Once they receive all necessary permits, approvals and entitlements, Centennialand Grapevine will ultimately compete with other residential housing options in the region, such as developments in the Santa Clarita Valley, Lancaster,Palmdale, and Bakersfield. MV will compete generally for discretionary dollars that consumers will allocate to recreation and second homes, so itscompetition will include a greater area and range of projects. Intense competition may decrease our sales and harm our results of operations.Our developable land is concentrated entirely in California. All of our developable land is in California and our business is especially sensitive to theeconomic conditions within California. Any adverse change in the economic climate of California, or our regions of that state, and any adverse change in thepolitical or regulatory climate of California, or the counties where our land is located could adversely affect our real estate development activities.Ultimately, our ability to sell or lease lots may decline as a result of weak economic conditions or restrictive regulations.Increases in taxes or government fees could increase our cost, and adverse changes in tax laws could reduce demand for homes in our future residentialcommunities. Increases in real estate taxes and other local government fees, such as fees imposed on developers to fund schools, open space, and roadimprovements, could increase our costs and have an adverse effect on our operations. In addition, any changes to income tax laws that would reduce oreliminate tax deductions or incentives to homeowners, such as a change limiting the deductibility of real estate taxes or interest on home mortgages, couldmake housing less affordable or otherwise reduce the demand for housing, which in turn could reduce future sales.19Within our real estate projects we incur significant costs before we can begin development or construction of our projects, sell and deliver units to ourcustomers or begin the collection of rent and recover our costs. We may be subject to delays in the entitlement process and construction, which could leadto higher costs, which could adversely affect our operating results. Changing market conditions during the entitlement and construction periods couldnegatively impact selling prices and rents, which could adversely affect our operating results. Before any of our real estate projects can generate revenues wemake material expenditures to obtain entitlements, permits, and development approvals. It generally takes several years to complete this process andcompletion times vary based on complexity of the project and the community and regulatory issues involved. As a result of the time and complexityinvolved in getting approvals for our projects we face the risk that demand for housing, retail and industrial product may decline and we may be forced to sellor lease product at a loss or for prices that generate lower profit margins than we anticipated. If values decline, we may be required to make material write-downs of the book value of real estate projects in accordance with general accepted accounting principles.If we experience shortages or increased costs of labor and supplies or other circumstances beyond our control, there could be delays or increased costswithin our industrial development, which could adversely affect our operating results. Our ability to develop our current industrial development may beadversely affected by circumstances beyond our control including: work stoppages, labor disputes and shortages of qualified trades people; changes in lawsrelating to union organizing activity; and shortages, delays in availability, or fluctuations in prices of building materials. Any of these circumstances couldgive rise to delays in the start or completion of, or could increase the cost of, developing infrastructure and buildings within our industrial development. Ifany of the above happens, our operating results could be harmed.We are dependent on key personnel and the loss of one or more of those key personnel may materially and adversely affect our prospects. Our futuresuccess depends, to a significant degree, on the efforts of our senior management. The loss of key personnel could materially and adversely affect our resultsof operations, financial condition, or our ability to pursue land development. Our success will also depend in part on our ability to attract and retainadditional qualified management personnel.Our business model is very dependent on transactions with strategic partners. We may not be able to successfully (1) attract desirable strategicpartners; (2) complete agreements with strategic partners; and/or (3) manage relationships with strategic partners going forward, any of which couldadversely affect our business. A key to our development and value creation strategies has been the use of joint ventures and strategic relationships. Thesejoint venture partners bring development experience, industry expertise, financial resources, financing capabilities, brand recognition and credibility or othercompetitive assets.A complicating factor in any joint venture is that strategic partners may have economic or business interests or goals that are inconsistent with ours or that areinfluenced by factors related to our business. These competing interests lead to the difficult challenges of successfully managing the relationship andcommunication between strategic partners and monitoring the execution of the partnership plan. We may also be subject to adverse business consequences ifthe market reputation or financial position of the strategic partner deteriorates. If we cannot successfully execute transactions with strategic partners, ourbusiness could be adversely affected.Only a limited market exists for our Common Stock, which could lead to price volatility. The limited trading market for our Common Stock may causefluctuations in the market value of our Common Stock to be exaggerated, leading to price volatility in excess of that which would occur in a more activetrading market of our Common Stock.Concentrated ownership of our Common Stock creates a risk of sudden change in our share price. As of February 28, 2016, directors and members of ourexecutive management team beneficially owned or controlled approximately 30% of our Common Stock. Investors who purchase our Common Stock may besubject to certain risks due to the concentrated ownership of our Common Stock. The sale by any of our large shareholders of a significant portion of thatshareholder’s holdings could have a material adverse effect on the market price of our Common Stock. In addition, the registration and sale of any significantamount of additional shares of our Common Stock will have the immediate effect of increasing the public float of our Common Stock and any such increasemay cause the market price of our Common Stock to decline or fluctuate significantly.Decreases in the market value of our investments in marketable securities could have an adverse impact on our results of operations. We have asignificant amount of funds invested in marketable securities, the market value of which is subject to changes from period to period. Decreases in the marketvalue of our marketable securities could have an adverse impact on our results of operations.Inflation can have a significant adverse effect on our operations. Inflation can have a major impact on our farming operations. The farming operations aremost affected by escalating costs, unpredictable revenues and very high irrigation water costs. High fixed water costs related to our farm lands will continueto adversely affect earnings. Prices received for many of20our products are dependent upon prevailing market conditions and commodity prices. Therefore, it is difficult for us to accurately predict revenue, just as wecannot pass on cost increases caused by general inflation, except to the extent reflected in market conditions and commodity prices.Inflation can adversely impact our real estate operations, by increasing costs of material and labor as well as the cost of capital, which can impact operatingmargins. In an inflationary environment, we may not be able to increase prices at the same pace as the increase in inflation, which would further erodeoperating margins.A prolonged downturn in the real estate market or instability in the mortgage and commercial real estate financing industry, could have an adverseeffect on our real estate business. Our residential housing projects, Centennial, MV, and Grapevine, are currently in the entitlement phase, permitting phase,or are fully entitled and waiting for development to begin. If a downturn in the real estate market or an instability in the mortgage and commercial real estatefinancing industry exists at the time these projects move into their development and marketing phases, our resort/residential business could be adverselyaffected. An excess supply of homes available due to foreclosures or the expectation of deflation in housing prices could also have a negative impact on ourability to sell our inventory when it becomes available. The inability of potential commercial/industrial clients to get adequate financing for the expansionof their businesses could lead to reduced lease revenues and sales of land within our industrial development.We have increased our long-term debt significantly from past years and any future inability to comply with related covenants, restrictions orlimitations could adversely affect our financial condition. Our ability to meet our debt service and other obligations and the financial covenants under ourcredit facility will depend, in part, upon our future financial performance. Our future results are subject to the risks and uncertainties described in this report.Our revenues and earnings vary with the level of general economic activity in the markets we serve and the level of commodity prices related to our farmingand mineral resource activities. The factors that affect our ability to generate cash can also affect our ability to raise additional funds for these purposesthrough the addition of debt, the sale of equity, refinancing existing debt, or the sale of assets.Our credit facility contains financial covenants requiring the maintenance of a maximum total liabilities to tangible net worth not greater than .75 to 1 ateach quarter end, a debt service coverage ratio not less than 1.25 to 1.00, and a minimum level of liquidity of $20,000,000, including any unused portion ofour revolving credit facility. A failure to comply with these requirements could allow the lending bank to terminate the availability of funds under ourrevolving credit facility and/or cause any outstanding borrowings to become due and payable prior to maturity.Volatile oil and natural gas prices could adversely affect our cash flows and results of operations. Our cash flows and results of operations are dependentin part on oil and natural gas prices, which are volatile. Oil and natural gas prices also impact the amount we receive for selling and renewing our mineralleases. Moreover, oil and natural gas prices depend on factors we cannot control, such as: changes in foreign and domestic supply and demand for oil andnatural gas; actions by the Organization of Petroleum Exporting Countries; weather; political conditions in other oil-producing countries, including thepossibilities of insurgency or war in such areas; prices of foreign exports; domestic and international drilling activity; price and availability of alternate fuelsources; the value of the U.S. dollar relative to other major currencies; the level and effect of trading in commodity markets; and the effect of worldwideenergy conservation measures and governmental regulations. Any substantial or extended decline in the price of oil and gas could have a negative impact onour business, liquidity, financial condition and results of operations. Substantial or extended declines in future natural gas or crude oil prices would have amaterial adverse effect on our future business, financial condition, results of operations, cash flows, liquidity or ability to finance planned capitalexpenditures and commitments. Furthermore, substantial, extended decreases in natural gas and crude oil prices may cause us to delay development projectsand could negatively impact our ability to borrow, our cost of capital and our ability to access capital markets, increase our costs under our revolving creditfacility, and limit our ability to execute aspects of our business plans.Our reserves and production will decline from their current levels. The rate of production from oil and natural gas properties generally decline as reservesare produced. Any decline in production or reserves could materially and adversely affect our future cash flow, liquidity and results of operations.Water delivery and water availability continues to be a long-term concern within California. Any limitation of delivery of SWP water, limitations on ourability to move our water resources, and the absence of available reliable alternatives during drought periods could potentially cause permanent damage toorchards and vineyards and possibly impact future development opportunities.21Our future revenue and profitability related to our water resources will primarily be dependent on our ability to acquire and sell water assets. In light of thefact that our water resources represent a portion of our overall business at present, our long-term profitability will be affected by various factors, including theavailability and timing of water resource acquisitions, regulatory approvals and permits associated with such acquisitions, transportation arrangements, andchanging technology. We may also encounter unforeseen technical or other difficulties which could result in cost increases with respect to our waterresources. Moreover, our profitability is significantly affected by changes in the market price of water. Future sales and prices of water may fluctuate widelyas demand is affected by climatic, economic, demographic and technological factors as well as the relative strength of the residential, commercial, financial,and industrial real estate markets. The factors described above are not within our control.Terrorist attacks may have an adverse impact on our business and operating results and could decrease the value of our assets. Terrorist attacks such asthose that have taken place in recent years, could have a material adverse impact on our business, our operating results, and the market price of our commonstock. Future terrorist attacks may result in declining economic activity, which could reduce the demand for and the value of our properties. To the extentthat future terrorist attacks impact our client tenants, their businesses similarly could be adversely affected, including their ability to continue to honor theirlease obligations.We may encounter other risks that could impact our ability to develop our land. We may also encounter other difficulties in developing our land,including:•Difficulty in securing adequate water resources for future developments;•Natural risks, such as geological and soil problems, earthquakes, fire, heavy rains and flooding, and heavy winds;•Shortages of qualified trades people;•Reliance on local contractors, who may be inadequately capitalized;•Shortages of materials; and•Increases in the cost of materials.Information technology failures and data security breaches could harm our business. We use information technology and other computer resources tocarry out important operational and marketing activities and to maintain our business records. These information technology systems are dependent uponglobal communications providers, web browsers, telephone systems and other aspects of the Internet infrastructure that have experienced security breaches,cyber-attacks, significant systems failures and electrical outages in the past. A material network breach in the security of our information technology systemscould include the theft of customer, employee or company data. The release of confidential information as a result of a security breach may also lead tolitigation or other proceedings against us by affected individuals or business partners, or by regulators, and the outcome of such proceedings, which couldinclude penalties or fines, could have a significant negative impact on our business. We may also be required to incur significant costs to protect againstdamages caused by these information technology failures or security breaches in the future. However, we cannot provide assurance that a security breach,cyber-attack, data theft or other significant systems failure will not occur in the future, and such occurrences could have a material and adverse effect on ourconsolidated results of operations or financial position.Failure to maintain effective internal control over financial reporting could have a material adverse effect on our business, results of operations,financial condition, and stock price. Pursuant to the Sarbanes-Oxley Act of 2002, we are required to provide a report by management on internal control overfinancial reporting, including management’s assessment of the effectiveness of internal control. Changes to our business will necessitate ongoing changes toour internal control systems and processes. Internal control over financial reporting may not prevent or detect misstatement because of its inherentlimitations, including the possibility of human error, the circumvention or overriding of controls, or fraud. Therefore, even effective internal controls canprovide only reasonable assurance with respect to the preparation and fair presentation of financial statements. If we fail to maintain the adequacy of ourinternal controls, including any failure to implement required new or improved controls, or if we experience difficulties in their implementation, our business,results of operations, and financial condition could be materially harmed, and we could fail to meet our reporting obligations and there could be a materialadverse effect on our stock price.ITEM 1B. UNRESOLVED STAFF COMMENTSNone.22ITEM 2. PROPERTIESLandOur approximate 270,000 acres include portions of the San Joaquin Valley, portions of the Tehachapi Mountains and portions of the western end of theAntelope Valley. Each of our five major segments use various portions of this land. A number of key transportation and utility facilities cross our land,including Interstate 5, California Highways 58, 138 and 223, the California Aqueduct (which brings water from Northern California), and varioustransmission lines for electricity, oil, natural gas and communication systems. Our corporate offices are located on our property.Approximately 247,000 acres of our land are located in Kern County, California. The Kern County general plan, or the “General Plan”, for this landcontemplates continued commercial, resource utilization, farming, grazing and other agricultural uses, as well as certain new developments and uses,including residential and recreational facilities. While the General Plan is intended to provide guidelines for land use and development, it is subject toamendment to accommodate changing circumstances and needs. We have three major master planned real estate projects in Kern County that have receivedentitlement approvals from Kern County: Mountain Village, TRCC and Grapevine.The remainder of our land, approximately 23,000 acres, is in Los Angeles County. This area is accessible from Interstate 5 via Highway 138. Los AngelesCounty has adopted general plan policies that contemplate future residential development of portions of this land, subject to further assessments ofenvironmental and infrastructure constraints. We are currently pursuing specific plan entitlement for phase one entitlement for Centennial on approximately12,323 acres of this land. See Item 1, “Business—Real Estate Development Overview.”Portions of our land consist of mountainous terrain, much of which is not presently served by paved roads or by utility or water lines. Much of this property isincluded within the Conservation Agreement we entered into with five of the major environmental organizations in June 2008. As we receive entitlementapprovals over the life span of our developments we will dedicate conservation easements on 145,000 acres of this land, which will preclude futuredevelopment of the land. This acreage includes many of the most environmentally sensitive areas of our property and is home to many plant and wildlifespecies whose environments will remain undisturbed.Any significant development on our currently undeveloped land would involve the construction of roads, utilities and other expensive infrastructure andwould have to be done in a manner that accommodates a number of environmental concerns, including endangered species, wetlands issues, and greenhousegas emissions. Accommodating these environmental concerns, could possibly limit development of portions of the land or result in substantial delays orcertain changes to the scope of development in order to obtain governmental approval.Water OperationsOur existing long-term water contracts with the Wheeler Ridge-Maricopa Water Storage District, or WRMWSD, provide for water entitlements and deliveriesfrom the SWP, to our agricultural and municipal/industrial operations in the San Joaquin Valley. The terms of these contracts extend to 2035. Under thecontracts, we are entitled to annual water for 5,496 acres of land, or 15,547 acre-feet of water subject to SWP allocations, which is adequate for our presentfarming operations. It is assumed, that at the end of the current contract period all water contracts will be extended for approximately the same amount ofannual water.In addition to the WRMWSD contract water entitlements, we have an additional water entitlement from the SWP sufficient to service a substantial amount offuture residential and/or commercial development in Kern County. The Tejon-Castac Water District, or TCWD, a local water district serving our land in thedistrict and land we have sold in TRCC, has 5,749 acre-feet of SWP entitlement (also called Table A amount), subject to SWP allocations. In addition, TCWDhas approximately 33,390 acre-feet of water stored in Kern County water banks. Both the entitlement and the banked water are the subject of a long-termwater supply contract extending to 2035 between TCWD and our Company. TCWD is the water supplier to TRCC, and will be the principal water supplier forany significant residential and recreational development in MV. TCWD will also be the water district that provides services to Grapevine.We have a 150-acre water bank consisting of nine ponds on our land in southern Kern County. Water is pumped into these ponds and then percolates intounderground aquifers. Since 2006, we have banked 17,287 acre feet of water from the Antelope Valley-East Kern Water Agency, or AVEK, which has beenpumped from the California aqueduct and is currently retained in this water bank. In 2007 and 2008 we contracted for 2,362 additional acre-feet of water fromAVEK, but have deferred delivery of the water to a future year. We anticipate adding additional water to the water bank in the future, as water is available. In2010 we began participating with AVEK in a water-banking program and we have approximately 13,033 acre-feet of water to our credit in this program.23Over time we have also purchased water for our future use or sale. In 2008 we purchased 8,393 acre-feet of transferable water and in 2009 we purchased anadditional 6,393 acre-feet of transferable water, all of which is currently held on our behalf by AVEK or has been placed in our water bank. We also havesecured SWP entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water District,totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035. On November 6, 2013, the Companycompleted the acquisition of a water purchase agreement that will allow and require the Company to purchase 6,693 acre feet of water each year from theNickel Family, LLC, or Nickel, through the Kern County Water Agency. The aggregate purchase price was approximately $18,700,000 and was paid one-halfin cash and one-half in shares of Company Common Stock. The number of shares of Common Stock delivered was determined based on the volume weightedaverage price of Common Stock for the ten trading days that ended two days prior to closing, which calculated to be 251,876 shares of Common Stock.The initial term of the water purchase agreement with Nickel runs through 2044 and includes a Company option to extend the contract for an additional 35years. This contract allows us to purchase water each year. The purchase cost of water in 2016 was $695 per acre-foot. Purchase costs in 2016 and beyond aresubject to annual cost increases based on the greater of the consumer price index and 3%, resulting in a 2017 purchase cost of $717 per acre-foot.The water purchased will ultimately be used in the development of the Company’s land for commercial/industrial development, residential development, andfarming. Interim uses may include the sale of portions of this water to third party users on an annual basis until the water is fully used for the Company’sinternal uses.During 2016, SWP allocations were approximately 60% of contract levels, and WRMWSD was able to supply us with water from various sources that whencombined with our water sources provided sufficient water to meet our farming and real estate demands. In some years, there is also sufficient runoff fromlocal mountain streams to allow us to capture some of this water in reservoirs and utilize it to offset some of the SWP water. In years where the supply of wateris sufficient, both WRMWSD and TCWD are able to bank (percolate into underground aquifers) some of their excess supplies for future use. At this time,Wheeler Ridge expects to be able to deliver our entire contract water entitlement in any year that the SWP allocations exceed 30% by drawing on its groundwater wells and water banking assets. Based on historical records of water availability, we do not believe we have material problems with our water supply.However, if SWP allocations are less than 30% of our entitlement in any year, or if shortages continue for a sustained period of several years, then WRMWSDmay not be able to deliver 100% of our entitlement and we will have to rely on our own ground water sources, mountain stream runoff, water transfer fromothers, and water banking assets to supply the needs of our farming and development activities. Water from these sources may be more expensive than SWPwater because of pumping costs and/or transfer costs. A 60% preliminary SWP water allocation has been made by the DWR for 2017. The current 60%allocation of SWP water is not enough for us to farm our crops, but our additional water resources, such as groundwater and surface sources, and those of thewater districts we are in, should allow us to have sufficient water for our farming needs.All SWP water contracts require annual payments related to the fixed and variable costs of the SWP and each water district, whether or not water is used oravailable. WRMWSD and TCWD contracts also establish a lien on benefited land.Portions of our property also have available groundwater, which we believe would be sufficient to supply commercial development in the Interstate 5corridor and support current agricultural operations. Ground water in the Antelope Valley Basin is the subject of litigation. See Item 3, “Legal Proceedings”for additional information about this litigation. Please refer to "Note 14. Commitments and Contingencies" for further discussion.A new development with respect to groundwater is the Sustainable Groundwater Management Act, or SGMA, which became effective January 1, 2015. Forthe water districts in which the Company participates in the San Joaquin Valley, Groundwater Sustainability Plans are to be developed by 2020. Throughthose plans it will have to be demonstrated to the satisfaction of the Department of Water Resources, that the basins are "sustainable" and in balance by 2040,which could ultimately lead to restrictions on the use of groundwater. The Company's lands are located in the White Wolf Basin, which is a basin that iscurrently not over-drafted, so there is no anticipation at this time of any restriction related to manageable uses of ground water. However, the Company'slands are in relatively good condition because of the diverse inventory of surface water supplies and banked water that the Company has access to asmentioned above.There have been many environmental challenges regarding the movement of SWP water through the Sacramento Delta. Operation of the Delta pumps are ofprimary importance to the California water system because these pumps are part of the system that moves water from Northern California to SouthernCalifornia. Biological Opinions, or BOs, issued by the U.S. Fish and Wildlife Service and National Marine Fisheries Service in 2008 and 2009 containrestrictions on pumping from the Delta. These BOs are being challenged in the courts by both water agencies and environmental groups, which challengeswere for the most part unsuccessful. There are many groups, governmental and private, working together to develop a solution in the future to mitigate thecurtailment of water from the Delta.24Historic SWP restrictions on the right to use agricultural water entitlement for municipal purposes were removed in 1995. For this purpose, “municipal” useincludes residential and industrial use. Therefore, although only 2,000 of TCWD's 5,749 acre feet of entitlement are labeled for municipal use, there is nopractical restriction on TCWD's ability to deliver the remaining water to residential or commercial/industrial developments.Other ActivitiesThe Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance publicinfrastructure within the Company’s Kern County developments. TRPFFA has created two Community Facilities Districts, or CFDs, the West CFD and theEast CFD. The West CFD has placed liens on 420 acres of the Company’s land to secure payment of special taxes related to $28,620,000 of bond debt sold byTRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of the Company’s land to secure payments of special taxes related to $55,000,000 ofbond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFDhas approximately $65,000,000 of additional bond debt authorized by TRPFFA. Proceeds from the sales of these bonds are to reimburse the Company forpublic infrastructure related to TRCC-East. During 2016, we received $6,155,000 in reimbursement from the East CFD bonds.In 2016 and 2015, we paid approximately $2,585,000 and $1,926,000 in special taxes related to the CFDs. As development continues to occur at TRCC, newowners of land and new lease tenants, through triple net leases, will bear an increasing portion of the assessed special tax. It is expected that we will havespecial tax payments in 2017 of approximately $2,585,000, but this could change in the future based on the amount of bonds outstanding within each CFDand the amount of taxes paid by other owners and tenants. The assessment of each individual property sold or leased is not determinable at this time becauseit is based on the current tax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-party.Accordingly, the Company is not required to recognize an obligation at December 31, 2016.ITEM 3. LEGAL PROCEEDINGSThe Company is involved in various legal matters arising out of its operations in the normal course of business. None of these matters are expected,individually or in the aggregate, to have a material adverse effect on the Company.For a discussion of legal proceedings, see Note 14 Commitments and Contingencies of the Notes to the Consolidated Financial Statements.ITEM 4. MINE SAFETY DISCLOSURESNot Applicable.25PART IIITEM 5.MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OFEQUITY SECURITIESThe following table shows the high and low sale prices for our Common Stock, which trades under the symbol TRC on the New York Stock Exchange, foreach calendar quarter during the last two years: 2016 2015Quarter High Low High LowFirst $21.58 $16.85 $29.74 $23.57Second $24.90 $19.50 $27.10 $23.84Third $26.99 $22.00 $28.00 $21.50Fourth $27.99 $21.13 $24.28 $18.12As of February 28, 2017, there were 303 registered owners of record of our Common Stock.No cash dividends were paid in 2016 or 2015 and at this time there is no intention of paying cash dividends in the future. During 2013, the Company didprovide a dividend consisting of warrants to our shareholders. Please see Part II, Item 7, "Management's Discussion and Analysis of Financial Condition andResults of Operations, Liquidity and Capital Resources, Capital Structure and Financial Condition" for information concerning the warrant dividendprogram.On October 13, 2014, the Tejon Ranchcorp, a subsidiary of the Company, entered into an Amended and Restated Credit Agreement, a Term Note and aRevolving Line of Credit Note. This new credit facility contains customary negative covenants that limit the ability of the Company to, among other things,pay dividends or repurchase stock to the extent that immediately following any such dividend or repurchase of stock, total liabilities divided by tangible networth (Stockholders Equity) is not greater than 0.75 to 1.0.For information regarding equity compensation plans pursuant to Item 201(d) of Regulation S-K, please see Item 11, “Executive Compensation” and Item 12,“Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters” of this Form 10-K, below.The annual stockholder performance graph will be provided separately in our annual report to stockholders.ITEM 6. SELECTED FINANCIAL DATA 2016 2015 2014 2013 2012Total revenues from operations, including interest and otherincome $47,236 $52,056 $52,291 $46,345 $48,444Income (loss) from operations before equity in earnings ofunconsolidated joint ventures $(6,247) $(2,287) $3,165 $2,183 $4,471Equity in earnings of unconsolidated joint ventures $7,098 $6,324 $5,294 $4,006 $2,535Net income $515 $2,912 $5,762 $4,103 $4,283Net (loss) income attributable to noncontrolling interests $(43) $(38) $107 $(62) $(158)Net income attributable to common stockholders $558 $2,950 $5,655 $4,165 $4,441 Total assets $439,701 $431,919 $431,923 $342,879 $327,856Long-term debt, less current portion $69,853 $73,223 $74,023 $4,459 $212Equity $334,467 $331,308 $324,333 $320,187 $308,259Net income attributable to common stockholders per share,diluted $0.03 $0.14 $0.27 $0.20 $0.22ITEM 7.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONSSee Part I, "Forward-Looking Statements" for our cautionary statement regarding forward-looking information.26This discussion and analysis is based on, should be read together with, and is qualified in its entirety by, the consolidated financial statements and notesthereto included in Item 15(a)1 of this Form 10-K, beginning at page F-1. It also should be read in conjunction with the disclosure under “Forward-LookingStatements” in Part 1 of this Form 10-K. When this report uses the words “we,” “us,” “our,” “Tejon,” “TRC,” and the “Company,” they refer to Tejon RanchCo. and its subsidiaries, unless the context otherwise requires. References herein to fiscal year refer to our fiscal years ended or ending December 31.OVERVIEWOur BusinessWe are a diversified real estate development and agribusiness company committed to responsibly using our land and resources to meet the housing,employment, and lifestyle needs of Californians and to create value for our shareholders. In support of these objectives, we have been investing in landplanning and entitlement activities for new industrial and residential land developments and in infrastructure improvements within our active industrialdevelopment. Our prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north ofLos Angeles and, at its most northerly border, is 15 miles east of Bakersfield.Our business model is designed to create value through the entitlement and development of land for commercial/industrial and resort/residential uses while atthe same time protecting significant portions of our land for conservation purposes. We operate our business near one of the country’s largest populationcenters, which is expected to continue to grow well into the future.We currently operate in five operating segments: commercial/industrial real estate development; resort/residential real estate development; mineral resources;farming; and ranch operations.Our commercial/industrial real estate development segment generates revenues from building, land lease activities, and land and building sales. The primarycommercial/industrial development is TRCC. The resort/residential real estate development segment is actively involved in the land entitlement anddevelopment process internally and through joint venture entities. Within our resort/residential segment, the three active developments are MV, Centennial,and Grapevine. During the last quarter of 2016, the Kern County Board of Supervisors granted entitlement approval for our land planning activities forGrapevine, which is an approximately 8,010 acre development area located on the San Joaquin Valley floor area of our lands, adjacent to TRCC. Theseapprovals included certification of our final environmental impact report and related findings, approval of associated general plan amendments, and adoptionof associated zoning maps. Our mineral resources segment generates revenues from oil and gas royalty leases, rock and aggregate mining leases, a lease withNational Cement and sales of water. The farming segment produces revenues from the sale of wine grapes, almonds, and pistachios. Lastly, the ranchoperation segment consists of game management revenues and ancillary land uses such as grazing leases and filming.Financial HighlightsFor 2016, net income attributable to common stockholders was $558,000 compared to $2,950,000 in 2015. Factors driving the change include: a decline infarming revenues of $5,188,000 resulting from declines in commodity prices and a decline of mineral resource revenues of $963,000 resulting from falling oilprices in 2016. Offsetting the decline in net income were the following factors: an increase in commercial real estate revenues of $1,166,000 resulting from aland sale, and increased rents, a gain on sale of building and land located in Rancho Santa Fe, California of $1,044,000, an overall reduction in totalexpenses of $860,000, and an increase in income from unconsolidated joint ventures of $774,000.For 2015, net income attributable to common stockholders was $2,950,000 compared to $5,655,000 in 2014. The change was driven by a decline in mineralresource revenues of $1,139,000 resulting from deteriorating oil prices in 2015, a $2,162,000 increase in corporate expenses of which a majority relates topension and staffing costs, and a decline in pistachio revenues of $1,160,000 resulting from the poor yields caused by the mild winter of 2015. Income fromour joint ventures increased by $1,030,000, partially offsetting the declines in net income noted above. Our joint venture with TA/Petro largely contributedto this increase which is further discussed in the Results of Operations.For the year ended December 31, 2016 we had no material lease renewals.During 2017, we will continue to invest funds toward the achievement of entitlements, permits, and maps for our land and for master project infrastructureand vertical development within our active commercial and industrial development. Securing entitlements for our land is a long, arduous process that cantake several years and often involves litigation. During the next few years, our net income will fluctuate from year-to-year based upon commodity prices,production within our farming segment, and the timing of sales of land and the leasing of land within our industrial developments.27During the fourth quarter of 2015, the Company reclassified revenues and expenses previously classified as commercial/industrial into a new segment calledRanch Operations. Ranch Operations is comprised of grazing leases, game management, and other ancillary services supporting the ranch.This Management’s Discussion and Analysis of Financial Condition and Results of Operations provides a narrative discussion of our results of operations. Itcontains the results of operations for each operating segment of the business and is followed by a discussion of our financial position. It is useful to read thebusiness segment information in conjunction with Note 16 (Operating Segments and Related Information) of the Notes to Consolidated Financial Statements.Critical Accounting PoliciesThe preparation of our consolidated financial statements in accordance with generally accepted accounting principles, or GAAP, requires us to makeestimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets andliabilities. We consider an accounting estimate to be critical if: (1) the accounting estimate requires us to make assumptions about matters that were highlyuncertain at the time the accounting estimate was made, and (2) changes in the estimates that are likely to occur from period to period, or use of differentestimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations. On anon-going basis, we evaluate our estimates, including those related to revenue recognition, impairment of long-lived assets, capitalization of costs, profitrecognition related to land sales, stock compensation, our future ability to utilize deferred tax assets, and defined benefit retirement plans. We base ourestimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form thebasis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ fromthese estimates under different assumptions or conditions.Management has discussed the development and selection of these critical accounting estimates with the Audit Committee of our Board of Directors and theAudit Committee has reviewed the foregoing disclosure. In addition, there are other items within our financial statements that require estimation, but are notdeemed critical as defined above. Changes in estimates used in these and other items could have a material impact on our financial statements. See also Note1 (Summary of Significant Accounting Policies) of the Notes to Consolidated Financial Statements, which discusses accounting policies that we haveselected from acceptable alternatives.We believe the following critical accounting policies reflect our more significant judgments and estimates used in the preparation of the consolidatedfinancial statements:Revenue Recognition – The Company’s revenue is primarily derived from lease revenue from our rental portfolio, royalty revenue from mineral leases, salesof farm crops, sales of water, and land sales. Revenue from leases with rent concessions or fixed escalations is recognized on a straight-line basis over theinitial term of the related lease unless there is a considerable risk as to collectability. The financial terms of leases are contractually defined. Lease revenue isnot accrued when a tenant vacates the premises and ceases to make rent payments or files for bankruptcy. Royalty revenues are contractually defined as to thepercentage of royalty and are tied to production and market prices. Our royalty arrangements generally require payment on a monthly basis with the paymentbased on the previous month’s activity. We accrue monthly royalty revenues based upon estimates and adjust to actual as we receive payments.From time to time the Company sells easements over its land. The easements are either in the form of rights of access granted for such things as utilitycorridors or are in the form of conservation easements that generally require the Company to divest its rights to commercially develop a portion of its land,but do not result in a change in ownership of the land or restrict the Company from continuing other revenue generating activities on the land. Sales ofconservation easements are accounted for in accordance with Staff Accounting Bulletin Topic 13 - Revenue Recognition, or SAB Topic 13.Since conservation easements generally do not impose any significant continuing performance obligations on the Company, revenue from conservationeasement sales have been recognized when the four criteria outlined in SAB Topic 13 have been met, which generally occurs in the period the sale has closedand consideration has been received.In recognizing revenue from land sales, the Company follows the provisions in Accounting Standards Codification 976, or ASC 976, “Real Estate – RetailLand” to record these sales. ASC 976 provides specific sales recognition criteria to determine when land sales revenue can be recorded. For example, ASC976 requires a land sale to be consummated with a sufficient down payment of at least 20% to 25% of the sales price depending upon the type and timeframefor development of the property sold, and that any receivable from the sale cannot be subject to future subordination. In addition, the seller cannot retain anymaterial continuing involvement in the property sold or be required to develop the property in the future.28At the time farm crops are harvested, contracted, and delivered to buyers and revenues can be estimated, revenues are recognized and any related inventoriedcosts are expensed, which traditionally occurs during the third and fourth quarters of each year. It is not unusual for portions of our almond or pistachio cropto be sold in the year following the harvest. Orchard (almond and pistachio) revenues are based upon the contract settlement price or estimated selling price,whereas vineyard revenues are typically recognized at the contracted selling price. Estimated prices for orchard crops are based upon the quoted estimate ofwhat the final market price will be by marketers and handlers of the orchard crops. These market price estimates are updated through the crop payment cycleas new information is received as to the final settlement price for the crop sold. These estimates are adjusted to actual upon receipt of final payment for thecrop. This method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community.Actual final crop selling prices are not determined for several months following the close of our fiscal year due to supply and demand fluctuations within theorchard crop markets. Adjustments for differences between original estimates and actual revenues received are recorded during the period in which suchamounts become known.Capitalization of Costs - The Company capitalizes direct construction and development costs, including predevelopment costs, interest, property taxes,insurance, and indirect project costs that are clearly associated with the acquisition, development, or construction of a project. Costs currently capitalizedthat in the future would be related to any abandoned development opportunities will be written off if we determine such costs do not provide any futurebenefits. Should development activity decrease, a portion of interest, property taxes, and insurance costs would no longer be eligible for capitalization, andwould be expensed as incurred.Allocation of Costs Related to Land Sales and Leases – When we sell or lease land within one of our real estate developments, currently TRCC, and we havenot completed all infrastructure development related to the total project, we follow ASC 976 to determine the appropriate costs of sales for the sold land andthe timing of recognition of the sale. In the calculation of cost of sales or allocations to leased land, we use estimates and forecasts to determine total costs atcompletion of the development project. These estimates of final development costs can change as conditions in the market and costs of construction change.In preparing these estimates, we use internal budgets, forecasts, and engineering reports to help us estimate future costs related to infrastructure that has notbeen completed. These estimates become more accurate as the development proceeds forward, due to historical cost numbers and to the continued refinementof the development plan. These estimates are updated periodically throughout the year so that, at the ultimate completion of development, all costs havebeen allocated. Any increases to our estimates in future years will negatively impact net profits and liquidity due to an increased need for funds to completedevelopment. If, however, this estimate decreases, net profits as well as liquidity will improve.We believe that the estimates used related to cost of sales and allocations to leased land are critical accounting estimates and will become even moresignificant as we continue to move forward as a real estate development company. The estimates used are very susceptible to change from period to period,due to the fact that they require management to make assumptions about costs of construction, absorption of product, and timing of project completion, andchanges to these estimates could have a material impact on the recognition of profits from the sale of land within our developments.Impairment of Long-Lived Assets – We evaluate our property and equipment and development projects for impairment when events or changes incircumstances indicate that the carrying value of assets contained in our financial statements may not be recoverable. The impairment calculation comparesthe carrying value of the asset to the asset’s estimated future cash flows (undiscounted). If the estimated future cash flows are less than the carrying value ofthe asset, we calculate an impairment loss. The impairment loss calculation compares the carrying value of the asset to the asset’s estimated fair value, whichmay be based on estimated future cash flows (discounted). We recognize an impairment loss equal to the amount by which the asset’s carrying value exceedsthe asset’s estimated fair value. If we recognize an impairment loss, the adjusted carrying amount of the asset will be its new cost basis. For a depreciablelong-lived asset, the new cost basis will be depreciated (amortized) over the remaining useful life of that asset. Restoration of a previously recognizedimpairment loss is prohibited.We currently operate in five segments, commercial/industrial real estate development, resort/residential real estate development, mineral resources, farming,and ranch operations. At this time, there are no assets within any of our segments that we believe are in danger of being impaired due to market conditions.We believe that the accounting estimate related to asset impairment is a critical accounting estimate because it is very susceptible to change from period toperiod; it requires management to make assumptions about future prices, production, and costs, and the potential impact of a loss from impairment could bematerial to our earnings. Management’s assumptions regarding future cash flows from real estate developments and farming operations have fluctuated in thepast due to changes in prices, absorption, production and costs and are expected to continue to do so in the future as market conditions change.29In estimating future prices, absorption, production, and costs, we use our internal forecasts and business plans. We develop our forecasts based on recent salesdata, historical absorption and production data, input from marketing consultants, as well as discussions with commercial real estate brokers and potentialpurchasers of our farming products.If actual results are not consistent with our assumptions and judgments used in estimating future cash flows and asset fair values, we may be exposed toimpairment losses that could be material to our results of operations.Defined Benefit Retirement Plans – The plan obligations and related assets of our defined benefit retirement plan are presented in Note 15 (Retirement Plans)of the Notes to Consolidated Financial Statements. Plan assets, which consist primarily of marketable equity and debt instruments, are valued using level oneand level two indicators, which are quoted prices in active markets and quoted prices for similar types of assets in active markets for the investments. Pensionbenefit obligations and the related effects on operations are calculated using actuarial models. The estimation of our pension obligations, costs and liabilitiesrequires that we make use of estimates of present value of the projected future payments to all participants, taking into consideration the likelihood ofpotential future events such as salary increases and demographic experience. These assumptions may have an effect on the amount and timing of futurecontributions.The assumptions used in developing the required estimates include the following key factors:•Discount rates;•Salary growth;•Retirement rates;•Expected contributions;•Inflation;•Expected return on plan assets; and•Mortality ratesThe discount rate enables us to state expected future cash flows at a present value on the measurement date. In determining the discount rate, the Companyutilizes the yield on high-quality, fixed-income investments currently available with maturities corresponding to the anticipated timing of the benefitpayments. Salary increase assumptions are based upon historical experience and anticipated future management actions. To determine the expected long-term rate of return on pension plan assets, we consider the current and expected asset allocations, as well as historical and expected returns on variouscategories of plan assets. At December 31, 2016, the weighted-average actuarial assumption of the Company’s defined benefit plan consisted of a discountrate of 4.3%, a long-term rate of return on plan assets of 7.5%, and assumed salary increases of 3.5%. The effects of actual results differing from ourassumptions and the effects of changing assumptions are recognized as a component of other comprehensive income, net of tax. Amounts recognized inaccumulated other comprehensive income are adjusted as they are subsequently recognized as components of net periodic benefit cost. If we were to assume a50 basis point change in the discount rate used, our projected benefit obligation would change approximately $900,000.Stock-Based Compensation - We apply the recognition and measurement principles of ASC 718, “Compensation – Stock Compensation” in accounting forlong-term stock-based incentive plans. Our stock-based compensation plans include both restricted stock units and restricted stock grants. We have notissued any stock options to employees or directors since January 2003, and our 2016 financial statements do not reflect any compensation expenses for stockoptions. All stock options issued in the past have been exercised or forfeited.We make stock awards to employees based upon time-based criteria and through the achievement of performance-related objectives. Performance-relatedobjectives are either stratified into threshold, target, and maximum goals or based on the achievement of a milestone event. These stock awards are currentlybeing expensed over the expected vesting period based on each performance criterion. We make estimates as to the number of shares that will actually begranted based upon estimated ranges of success in meeting the defined performance measures. If our estimates of performance shares vesting were to changeby 25%, stock compensation expense would increase or decrease by approximately $400,000 depending on whether the change in estimate increased ordecreased shares vesting.See Note 11, Stock Compensation - Restricted Stock and Performance Share Grants, of the Notes to Consolidated Financial Statement for total 2016 stockcompensation expense related to stock grants.30Fair Value Measurements – The Financial Accounting Standards Board's, or FASB, authoritative guidance for fair value measurements of certain financialinstruments defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is definedas the exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. This guidance establishes a three-level hierarchy for fair valuemeasurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market participantswhile unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions:•Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.•Level 2 – Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similarinstruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.•Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on our own estimatesabout the assumptions that market participants would use to value the asset or liability.When available, we use quoted market prices in active markets to determine fair value. We consider the principal market and nonperformance risk associatedwith our counterparties when determining the fair value measurement. Fair value measurements are used for marketable securities, investments within thepension plan and hedging instruments.Recent Accounting PronouncementsFor discussion of recent accounting pronouncements, see Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated FinancialStatements.Results of Operations by SegmentWe evaluate the performance of our operating segments separately to monitor the different factors affecting financial results. Each segment is subject toreview and evaluation as we monitor current market conditions, market opportunities, and available resources. The performance of each segment is discussedbelow:Real Estate – Commercial/IndustrialDuring 2016, commercial/industrial segment revenues increased $1,166,000, or 14% when compared to 2015. In October 2016, we sold unimproved realproperty located at TRCC-East for $1,193,000. We recognized $710,000 of the revenues in 2016 and will recognize the remainder upon the completion ofcertain on-site land improvements, which are expected to be completed during the first half of 2017. Also in 2016, we placed into service a multi-tenantbuilding leased to Baja Fresh and Habit Burger increasing lease revenue by $266,000. Lastly, we recognized additional leasing revenues of $48,000 fromStarbucks and Pieology given that they were not placed into service until the latter part of the second quarter of 2015.Commercial/industrial real estate segment expenses were $7,100,000 during 2016, an increase of $406,000, or 6%, compared to the same period in 2015.During 2016, there were increases in professional services and repairs and maintenance of $126,000 and $108,000, respectively. Additionally, the basis in theland sold was $95,000.During 2015, commercial/industrial segment revenues increased $427,000, or 5% when compared to 2014. This improvement is primarily attributable to anincrease of $249,000 relating to percentage and base rent from the power plant lease, specifically related to the expiration in January 2015 of credits issued in2014 in conjunction with the power plant lease amendment. The amendment related to percentage rent collected on greenhouse gas assessment taxes. Thepercentage rent calculation was modified to exclude the greenhouse gas assessment taxes that are collected by the tenant and passed on to the State ofCalifornia and in connection therewith the Company issued the tenant a one-time credit of $467,000 in 2014. In addition, we recognized an additional$215,000 and $412,000 in property management fees and common area maintenance fee reimbursements, respectively, from our joint venture properties,most noticeably the Outlets at Tejon, which opened in August 2014. Lastly, in 2015 we placed into service a land lease with Carl's Jr and operating leaseswith Pieology and Starbucks at TRCC East, contributing an additional $428,000 in lease revenues. In 2015, we recognized $225,000 in additionallandscaping revenues on services rendered to new and existing tenants. The 2015 improvements were partially offset by two non-recurring revenue streamsoccurring in 2014. In 2014, we sold land to our TA/Petro unconsolidated joint venture partner of which $458,000 was recognized during 2014 with theremaining $687,000 deferred until the time we exit the joint venture or the joint venture is terminated. Additionally, in 2014, we recognized $587,000 inadditional development fees from the development of the Outlets at Tejon.31Commercial/industrial real estate segment expenses were $6,694,000 during 2015, a decrease of $512,000, or 7%, compared to the same period in 2014,primarily due to a $591,000 decrease in Tejon-Castac Water District, or TCWD, fixed water assessments during 2015. TCWD decreased water assessmenttaxes as a result of an increase in TCWD water sales to parties outside of the district, which provided additional funds to TCWD. The decrease incommercial/industrial expenses was partially offset by a $173,000 increase in landscape maintenance costs resulting from a full year of operations from theOutlets at Tejon along with our three new tenants discussed above.The logistics operators currently located within our Commerce Center have demonstrated success in serving all of California and the western region of theUnited States, and we are building from their success in our marketing efforts. We will continue to focus our marketing strategy for TRCC-East and TRCC-West on the significant labor and logistical benefits of our site, the pro-business approach of Kern County, and the demonstrated success of the currenttenants and owners within our development. Our strategy fits within the logistics model that many companies are using, which favors large, centralizeddistribution facilities which have been strategically located to maximize the balance of inbound and outbound efficiencies, rather than a number ofdecentralized smaller distribution centers. The world class logistics operators located within TRCC have demonstrated success through utilization of thismodel. With access to markets of over 40 million people for next-day delivery service, they are also demonstrating success with e-commerce fulfillment. Webelieve that our ability to provide fully-entitled, shovel-ready land parcels to support buildings of any size, especially buildings 1.0 million feet or larger,can provide us with a potential marketing advantage in the future. We are also expanding our marketing efforts to include industrial users in the Santa ClaritaValley of northern Los Angeles County, and the northern part of the San Fernando Valley due to the limited availability of new product and high real estatecosts in these locations. Tenants in these geographic areas are typically users of relatively smaller facilities. In pursuit of such opportunities, the Companyhas partnered with Majestic Realty Co. in the speculative development of a 480,000 square foot, state-of-the-art distribution facility. Construction of thefacility is underway, and is scheduled to be complete in the late third quarter of 2017.A potential disadvantage to our development strategy is our distance from the ports of Los Angeles and Long Beach in comparison to thewarehouse/distribution centers located in the Inland Empire, a large industrial area located east of Los Angeles, which continues its expansion eastwardbeyond Riverside and San Bernardino, to include Perris, Moreno Valley, and Beaumont. As development in the Inland Empire continues to move east andfarther away from the ports, our potential disadvantage of our distance from the ports is being mitigated. Strong demand for large distribution facilities isdriving development farther east in a search for large entitled parcels. At year-end 2016, vacancy rates in the Inland Empire approximated 4.1%; primarilydue to demand keeping pace with the development of new buildings for lease. Without the increase in new development, the vacancy rate would havedeclined. As lease rates increase in the Inland Empire and northern Los Angeles County, we may begin to have a greater pricing advantage due to our lowland basis.We expect the commercial/industrial segment to continue to experience costs, net of amounts capitalized, primarily related to professional service fees,marketing costs, commissions, planning costs, and staffing costs as we continue to pursue development opportunities. These costs are expected to remainconsistent with current levels of expense with any variability in the future tied to specific absorption transactions in any given year.The actual timing and completion of development is difficult to predict due to the uncertainties of the market. Infrastructure development and marketingactivities and costs could continue over several years as we develop our land holdings. We will also continue to evaluate land resources to determine thehighest and best uses for our land holdings. Future sales of land are dependent on market circumstances and specific opportunities. Our goal in the future is toincrease land value and create future revenue growth through planning and development of commercial and industrial properties.Real Estate – Resort/ResidentialResort/residential segment expenses declined $719,000 primarily due to additional capitalization of payroll and overhead costs of $475,000 that wereidentified to be incremental to our master plan development projects. In addition, there were decreases in professional service and fees of $261,000.In 2015, resort/residential segment expenses declined $259,000 primarily due to additional capitalization of payroll and benefits more than offsetting theincrease in compensation costs. In 2014, we brought in-house full management responsibility for both the MV and Grapevine developments and the fullimpact of that decision resulted in an increase in compensation costs of $764,000 in 2015. An offsetting benefit to the compensation cost increase frominternalizing management was a decrease in professional service fees of $206,000.32Our resort/residential segment activities include land entitlement, land planning and pre-construction engineering and conservation activities. We have threemajor resort/residential communities within this segment: Centennial, Grapevine, and MV. We are in the process of achieving entitlements and expect to filethe EIR and specific plan for Los Angeles County during 2017 for Centennial, we do not have a fully approved project and therefore we do not haveinventory for sale. As it relates to Grapevine, we are working with Kern County to defend the approved EIR. The entire litigation and permitting process willtake several years and the investment of several million dollars to successfully complete. For MV, we have a fully permitted and entitled project and, we arein the process of getting approval for tentative tract maps, which we believe will be complete in late 2017. We are also completing land plans andengineering studies in preparation for development in the future as the economy improves and the second home market improves.The resort/residential segment will continue to incur costs in the future related to professional service fees, public relations costs, and staffing costs as wecontinue forward with entitlement and permitting activities for the above communities and continue to meet our obligations under the ConservationAgreement. We expect these expenses to remain consistent with current years cost in the near term and only begin to increase as we move forward withdevelopment. The actual timing and completion of entitlement-related activities and the beginning of development is difficult to predict due to theuncertainties of the approval process, the possibility of litigation upon approval of our entitlements in the future, and the status of the economy. We will alsocontinue to evaluate land resources to determine the highest and best use for our land holdings. Our long-term goal through this process is to increase thevalue of our land and create future revenue opportunities through resort and residential development.We are continuously monitoring the markets in order to identify the appropriate time in the future to begin infrastructure improvements and lot sales. Ourlong-term business plan of developing the communities of MV, Centennial, and Grapevine remains unchanged. As the California economy continues toimproves we believe the perception of land values will also begin to improve and the long-term fundamentals that support housing demand in our region,primarily California population growth and household formation will also improve. California also has a significant housing shortage, which we believe ourcommunities will help ease as the population base within California continues to grow.See Item 1, “Business – Real Estate Development Overview” for a further discussion of real estate development activities.Mineral ResourcesRevenues from our mineral resources segment decreased $963,000, or 6%, to $14,153,000 in 2016 compared to $15,116,000 in 2015. The decrease isprimarily due to a $1,112,000 decrease in oil royalty revenues driven by lower average prices for a barrel of oil, which then led to declines in production.Please refer to below table for current and historical production volume and pricing. Also in 2016, we sold 7,285 acre feet of water compared to 7,922 acrefeet in 2015 reducing water revenues by $570,000. Offsetting those amounts were improvements in cement, sand, and rock royalties of $330,000 andreimbursable costs and other of $364,000. We now expect that water sales for 2017 could be significantly lower than 2016, due to the winter rains and snowthat are at historical levels.Mineral resources expenses during 2016 increased $400,000 compared to 2015, primarily due to increases in payroll and salaries of $125,000 and fuel costsof $94,000 related to transferring and banking water. The remainder of the increase can be attributed to increases in other expenses including property taxes,professional services, and fees.Revenues from our mineral resources segment decreased $1,139,000, or 7%, to $15,116,000 during 2015 compared to 2014. The $1,139,000 decrease isprimarily due to a decrease in oil royalty revenues driven by lower average prices for a barrel of oil. The average price per barrel of oil decreased by 50% toapproximately $45 per barrel during 2015 from approximately $90 per barrel during 2014. The price decline also led to a decrease in production ascompared to the same period in 2014. The overall impact was a $3,348,000 decrease in oil royalty revenue. The decrease was partially offset by a $2,323,000increase in water sales revenue from the sale of 7,922 acre feet of water. During the first quarter of 2015, we determined we had excess water supply for our2015 needs, thus we sold the entire allotment of the 2015 Nickel water we purchased plus carry forward inventory from 2014.Mineral resources expenses during 2015 increased $978,000 compared to 2014, primarily due to the sale of an additional 1,672 acre feet of water in 2015increasing water cost of sales by $960,000.33Oil and gas production numbers and average pricing were as follows for the years ended December 31: 2016 2015 2014Oil production (barrels) 301,000 445,000 499,000Average price per barrel for each year $37.00 $45.00 $90.00Natural gas production (millions of cubic feet) 238,000 315,000 230,000Average price per thousand cubic feet $0.56 $1.58 $2.40Please refer to Item 1, "Business - Mineral Resources" for additional information regarding oil barrels per day production.Although oil prices improved during the fourth quarter of 2016, we expect our largest tenant, California Resources Corporation, or CRC, to continue its 2016program of producing from current active wells at lower levels with no near term intent to begin new drilling programs until oil prices increase and stabilizeat higher levels. CRC has approved permits and drill sites on our land and has delayed the start of drilling as it evaluates the market. A positive aspect of ourlease with CRC is that the approved drill sites are in an area of the ranch where the development and production costs are moderate due to the depths beingdrilled. With the overall improvement in prices, we could see an improvement in royalty revenue. Thus far in 2017, oil prices have improved and areapproximately 7% to 10% below West Texas Intermediate pricing.Since we only receive royalties based on tenant production and market prices and do not produce oil, we do not have information as to the potential size ofoil reserves.Our royalty revenues are contractually defined and based on a percentage of production and are received in cash. Royalty revenues fluctuate based onchanges in market price for oil, gas, rock and aggregate, and Portland cement. In addition, royalty revenue is impacted by new production, the inevitabledecline in production in existing wells and rock and limestone quarries, and the cost of development and production.34FarmingDuring 2016, farming revenues decreased by $5,188,000 from $23,836,000 in 2015 to $18,648,000 in 2016. The below table reflects crop revenues inthousands for the previous two years by variety of product and crop year.Key highlights include:•An overall reduction in market price for current year almonds along with management's decision to sell more crops in 2015, taking advantage ofhigher prices, reduced almond revenues by $4,865,000. In 2016, the California almond industry had strong yields, driving prices downward.•We recovered from the mild winter of 2015 that adversely affected our 2015 pistachio crop yields. Total 2016 crop yield was at a recent historicalhigh of 3,200,000 pounds. Despite the robust 2016 yields, a decline in market prices lowered pistachio revenues by $226,000 when compared to2015 revenues, which were primarily generated through insurance proceeds and market price adjustments. In 2016, the California pistachio industryhad strong yields, driving prices downward.•Improvement in other revenues is driven by a new farm land lease and recoverable costs. December 31, 2016 December 31, 2015 Change($ in thousands) Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePrice Revenue QuantitySold AveragePriceALMONDS (lbs.) Current year crop $5,282 2,106 $2.51 $7,377 2,210 $3.34 $(2,095) (104) $(0.83)Prior year crops 1,363 454 $3.00 3,601 916 3.93 (2,238) (462) (0.93)Prior crop price adjustment 653 1,260 (607) Signing bonus 75 — 75 Subtotal Almonds1 $7,373 2,560 $2.60 $12,238 3,126 $3.51 $(4,865) (566) $(0.91)PISTACHIOS (lbs.) Current year crop $5,844 2,883 $2.03 $183 64 $2.86 $5,661 2,819 $(0.83)Prior year crops 274 47 5.83 1,271 214 5.94 (997) (167) (0.11)Prior crop price adjustment 81 2,271 (2,190) Crop Insurance — 2,700 (2,700) Subtotal Pistachios1 $6,199 2,930 $2.09 $6,425 278 $5.23 $(226) 2,652 $(3.14)WINE GRAPES (tons) Current year crop $3,725 14.0 $266.07 $4,338 16.0 $271.13 $(613) (2.0) $(5.06)Crop Insurance 19 19 Subtotal Wine Grapes $3,744 14.0 $266.07 $4,338 16.0 $271.13 $(594) (2.0) $(5.06)Other Hay $520 $749 $(229) Other farming revenues 812 86 726 Total farming revenues $18,648 $23,836 $(5,188) 1 Average price calculation reflects sale of almond and pistachio crops during the calendar reported year exclusive of any price adjustments.2 Almond and pistachio units are presented in thousands of pounds while wine grapes are presented in tons.Farming expenses decreased $311,000, or 2% during 2016 compared to 2015. In 2016, almond costs decreased $1,019,000 or 15% as we spent less timepruning trees, applying pesticides, and removing mummies, all of which are time and labor intensive. The decrease in almond costs were offset by an increasein wine grape costs of $260,000 as a result of a 10% increase in the number of acres farmed and an increase in fixed water costs of $256,000 paid toWRMWSD.35During 2015, farming revenues increased by $401,000 from $23,435,000 in 2014 to $23,836,000 in 2015. The below table reflects crop revenues inthousands for the previous two years by variety of product and crop year. December 31, 2015 December 31, 2014 Change($ in thousands) Revenue QuantitySold2 AveragePrice Revenue QuantitySold2 AveragePrice Revenue QuantitySold AveragePriceALMONDS (lbs.) Current year crop $7,377 2,210 $3.34 $6,013 1,835 $3.28 $1,364 375 $0.06Prior year crops 3,601 916 3.93 2,523 754 $3.35 1,078 162 0.58Prior crop priceadjustment 1,260 1,458 (198) Signing bonus — 42 (42) Subtotal Almonds1 $12,238 3,126 $3.51 $10,036 2,589 $3.30 $2,202 537 $0.21PISTACHIOS (lbs.) Current year crop $183 64 $2.86 $3,809 1,531 $2.49 $(3,626) (1,467) $0.37Prior year crops 1,271 214 5.94 1,102 252 4.37 169 (38) 1.57Prior crop priceadjustment 2,271 2,674 (403) Insurance 2,700 — 2,700 Subtotal Pistachios1 $6,425 278 $5.23 $7,585 1,783 $2.75 $(1,160) (1,505) $2.48WINE GRAPES (tons) Current year crop $4,338 16.0 $271.13 $3,978 14.2 $280.14 $360 1.8 $(9.01)Subtotal WineGrapes $4,338 16.0 $271.13 $3,978 14.2 $280.14 $360 1.8 $(9.01)Other Hay $749 $1,361 $(612) Other farming revenues 86 475 (389) Total farming revenues $23,836 $23,435 $401 1 Average price calculation reflects sale of almond and pistachio crops during the calendar reported year exclusive of any price adjustments.2 Almond and pistachio units are presented in thousands of pounds while wine grapes are presented in tons.The revenue increase resulted from a $2,202,000 improvement in almond revenues resulting from an increase in sales price and units sold. Also contributingto the revenue increase was the sale of an additional 1.8 tons of wine grapes, which resulted from improved crop yields. Offsetting the revenue increases was a$1,160,000 decrease in pistachio revenues. Pistachio revenues decreased because our pistachio crop yield was severely impacted by the mild 2015 winter. Amild winter decreases the number of hours the pistachio trees are dormant, adversely impacting the pollination of the pistachio tree. We typically expect 5% -10% of our crops to produce blanks or hollow shells. However, we experienced blanks in 90% of our pistachio crop, which is unprecedented compared tohistorical trends. The impact to pistachio production as a result of the mild winter is not a phenomenon specific to Tejon Ranch but has impacted a largemajority of the pistachio production in California. We purchased crop insurance to mitigate weather-related catastrophic crop losses which ultimately paid$2,700,000 for losses and partially offset lost revenues.Farming expenses increased $2,734,000, or 17% during 2015 compared to 2014. The drivers of this increase are as follow:•Wine grape cost of sales increased $906,000 which resulted from 1.8 tons in additional wine grape sales.•Almond cost of sales increased $816,000, of which approximately $638,000 relates to a 375,000 pound improvement in current crop year sales. Theremainder of the increase, resulted from a 162,000 pound increase in carryover almond sales.•Pistachio cost of sales increased $477,000 which we attribute to the 2015 crop write-off caused by the mild winter discussed above. As a result, therewas no carryover crop since all crop costs were recognized during the current fiscal year.•In 2015, fixed water costs paid to WRMWSD increased by $521,000 resulting from increases in state water costs resulting from the drought.36Thus far in 2017, the prices for our crops, especially almonds and pistachios, have seen some stabilization at the lower levels seen at the end of 2016. Thedecline in prices was driven by higher almond production and larger pistachio inventories. All of our crops are sensitive to the size of each year’s world crop.Large crops in California and abroad can depress prices. Our long-term projection is that crop production, especially of almonds and pistachios will continueto increase on a statewide basis over time because of new plantings, which could negatively impact future prices if the growth in demand does not keep pacewith production.An unknown factor related to future statewide production and the continuation of new plantings will be how new state ground water management lawsimpact the amount of farming land in production over the next five to ten years, which could eventually reduce production. The rains and snow of 2017 arenot expected to significantly impact the ground water basins within the Central Valley of California, and therefore could still lead to a reduction in cropproduction. We are less impacted due to our water sources and the ground water basin we are in. We have had a relatively mild winter thus far, which couldpossibly impact our almond and pistachio production due to a low level of dormant hours. Dormant hours allow the trees to rest, which enhances the growthof the tree and production. It is too early to project 2017 crop yields and what impact that may have on prices later in 2017.Water delivery and water availability continues to be a long-term concern within California. Any limitation of delivery of SWP water and the absence ofavailable alternatives during drought periods could potentially cause permanent damage to orchards and vineyards throughout California. While this couldimpact us, we believe we have sufficient water resources available to meet our requirements in 2017. Please see our discussion on water in Item 2, "Properties -Water Operations."The DWR announced its 2017 estimated water supply delivery at 60% of full entitlement. We expect this number to increase by late spring due to continuedrains during February 2017. The current 60% allocation of SWP water is not enough for us to farm our crops, but our additional water resources, such asgroundwater and surface sources, and those of the water districts we are in should allow us to have sufficient water for our farming needs. See Note 6 (Long-Term Water Assets) of the Notes to Consolidated Financial Statements for additional information regarding our water assets.For further discussion of the farming operations, refer to Item I “Business—Farming Operations.”Ranch OperationsRevenues from ranch operations decreased $585,000 from $3,923,000 in 2015 to $3,338,000 in 2016. The decline is attributed to a $362,000 decrease ingame management revenues. The on-going California drought has had an adverse effect on the quality and availability of harvestable game due to shortagesin food supplies. Also contributing to the decrease is a drought clause within our grazing leases taking effect amidst the California drought, which reducedrevenues by $297,000. Improvements from other revenue sources, such as filming location fees offset the declines noted by $67,000.Ranch operations expenses decreased $378,000 to $5,734,000 in 2016 from $6,112,000 in 2015. The drought as discussed above, has reduced hunt volumein 2016, thus reducing related costs such as payroll, supplies, fuel, and other services.Revenues from ranch operations increased $389,000 from $3,534,000 in 2014 to $3,923,000 in 2015. The increase is attributed to an increase in grazinglease revenues of $330,000. The increase is driven by an overall increase in the price per head of cattle. All other business lines including game managementand High Desert Hunt Club remained flat. Ranch operation expenses increased by $114,000 from $5,998,000 in 2014 to $6,112,000 in 2015. The expenseincrease is comprised of the ongoing costs necessary to maintain the ranch and include items such as payroll, supplies, and other necessary costs.Other IncomeTotal other income increased $750,000 to $1,659,000, or 83%, during 2016 from $909,000 in 2015. In November 2016, we sold building and land located inRancho Santa Fe California for $4,700,000, recognizing a gain of $1,044,000. Offsetting the gain from Rancho Santa Fe California is a reduction of interestand other income of $294,000.Total other income declined $313,000, or 26%, during 2015 when compared to 2014. Investment income also declined $245,000, or 26% during 2014. Thedecline in both periods is primarily attributable to lower average investment balances and a decline in overall yield on the portfolio as higher yieldingsecurities matured through the year. The above interest income relates to our marketable securities portfolio as further disclosed in Note 3, MarketableSecurities of the Notes to Consolidated Financial Statements.37Corporate ExpensesCorporate general and administrative costs decreased $258,000, or 2%, during 2016 when compared to 2015. In 2016, we did not recognize a one-time-non-cash pension settlement charge of $536,000 as we did in 2015, which is discussed below. In addition, personnel levels decreased resulting in decreasedpayroll and salaries of $415,000. Offsetting the decreases include an increase in stock compensation of $532,000 resulting from meeting performancemilestones and issuing new performance grants.Corporate general and administrative costs increased $2,162,000, or 20%, during 2015 when compared to 2014. We attribute $2,077,000 of the increase topayroll, severance and benefit costs. In 2015, the Company experienced an increase of $527,000 in workers compensation and health insurance costs.Workers compensation typically increases as total payroll increases while health insurance increased as a result of the Affordable Care Act. Also, during 2015we recognized a one-time charge related to employee severance of $633,000. Lastly, we experienced an increase in pension and retirement charges of$917,000. Included in this amount is a one-time non-cash pension settlement charge of $536,000.Equity in Earnings of Unconsolidated Joint VenturesEquity in earnings of unconsolidated joint ventures is an important and growing component of our commercial/industrial activities and in the future, equityin earnings of unconsolidated joint ventures will become a significant part of our operational activity within the resort/residential segment. As we expand ourcurrent ventures and add new joint ventures, these investments will become a growing revenue source for the Company.During 2016, equity in earnings from unconsolidated joint ventures grew to $7,098,000, or an increase of $774,000, compared to $6,324,000 in 2015.TA/Petro, when compared to 2015, contributed an additional $868,000 in earnings from unconsolidated joint ventures. The improvement in operationswithin the TA/Petro joint venture was driven by an increase in diesel volumes of 1.5 million gallons and gas volumes of 1.0 million gallons.During 2015, equity in earnings from unconsolidated joint ventures grew to $6,324,000, or an increase of $1,030,000, compared to 2014. TA/Petro, whencompared to 2014, contributed an additional $1,440,000 in earnings from unconsolidated joint ventures. The improvement in operations within the TA/Petrojoint venture was driven by an increase in diesel volumes of 2.4 million gallons and gas volumes of 1.2 million gallons. Due to the addition of a newrestaurant at the end of 2014 and the increase in the volume of activity the TA/Petro joint venture also saw an increase in non-fuel revenue margins during2015.The improvement in the volumes of fuel sales for 2016 and 2015 continued to be driven by the growing amount of traffic along Interstate 5 and theexpansion of offerings at TRCC such as the Outlets at Tejon and new restaurants. We expect the trend of increased volumes of fuel sales to continue into2017.Income TaxesFor the twelve months ended December 31, 2016, the Company incurred a net income tax expense of $336,000 compared to a net income tax expense of$1,125,000 for the twelve months ended December 31, 2015. These represent effective income tax rates of approximately 39% and 28% for the twelvemonths ended December 31, 2016 and, 2015, respectively. The effective tax rate is impacted by the noncontrolling interest held in the Centennial jointventure and the impact of depletion allowances. During 2016, permanent tax differences declined due to lower depletion allowances. Depletion allowancesdeclined due to a reduction in oil and gas revenues. As of December 31, 2016 and 2015 we had an income tax receivable and payable of $468,000 and$1,237,000, respectively.As of December 31, 2016, we had net deferred tax assets of $2,282,000. Our largest deferred tax assets were made up of temporary differences related to thecapitalization of costs, pension adjustments, and stock grant expense. Deferred tax liabilities consist of depreciation, deferred gains, cost of sale allocations,and straight-line rent. Due to the nature of most of our deferred tax assets, we believe they will be used in future years and an allowance is not necessary.The Company classifies interest and penalties incurred on tax payments as income tax expenses. The Company made total income tax payments of$1,750,000 in 2016 and $2,100,000 during 2015. The Company received refunds of $615,000 in 2016 and $283,000 in 2015.38Liquidity and Capital ResourcesCash Flow and LiquidityOur financial position allows us to pursue our strategies of land entitlement, development, and conservation. Accordingly, we have established well-definedpriorities for our available cash, including investing in core operating segments to achieve profitable future growth. We have historically funded ouroperations with cash flows from operating activities, investment proceeds, and short-term borrowings from our bank credit facilities. In the past, we have alsoissued common stock and used the proceeds for capital investment activities. In 2014, our use of long-term debt to finance capital needs increasedsignificantly.To enhance shareholder value, we will continue to make investments in our real estate segments to secure land entitlement approvals, build infrastructure forour developments, ensure adequate future water supplies, and provide funds for general land development activities. Within our farming segment, we willmake investments as needed to improve efficiency and add capacity to its operations when it is profitable to do so.Our cash and cash equivalents and marketable securities totaled approximately $27,933,000 at December 31, 2016, a decrease of $6,812,000, or 20%, fromthe corresponding amount at the end of 2015. Cash and cash equivalents and marketable securities decreased during 2016 due to the sale and maturity of$11,750,000 in marketable securities of which we reinvested $5,983,000. We used cash from operations, net proceeds from marketable securities as well asthe use of our line-of-credit to finance our real estate development projects at Grapevine, MV, Centennial, and TRCC.The following table summarizes the cash flow activities for the following years ended December 31: ($ in thousands) 2016 2015 2014Operating activities $5,585 $16,968 $13,218Investing activities $(10,242) $(12,661) $(92,592)Financing activities $3,985 $(8,015) $75,981During 2016, our operations provided $5,585,000 of cash primarily attributable to operating results from mineral resources, and commercial real estateactivities. We also received a $4,500,000 distribution from our TA/Petro joint venture. Please refer to "Results of Operations by Segment" for furtherdiscussion on our operating results.During 2015, our operations provided $16,968,000 of cash primarily attributable to operating results mainly from farming, mineral resource, and leasingrevenues. We also received a distribution of $7,200,000 from the TA/Petro joint venture.During 2016, investing activities used $10,242,000 of cash primarily as a result of $26,380,000 in real estate and equipment expenditures. Of the$26,380,000 we spent $5,253,000, $5,244,000, $5,516,000 on pre-development and entitlement costs on our Centennial, MV, and Grapevine projects,respectively. At TRCC we used $5,196,000 for supporting infrastructure projects. Our farming segment cash outlay was $2,006,000 for developing newalmond crops and acquiring farm equipment. We invested $2,161,000 into our mineral resources division primarily to develop two new water wells. Theremainder of the capital investments primarily relate to capital equipment used as part of our ranch operations and corporate segments. Outside of capitalprojects, we acquired $5,983,000 in marketable securities and contributed $2,000,000 to joint ventures with Majestic. Offsetting our cash outlays arematurities and sales of marketable securities of $11,750,000, distributions from our joint venture partners of $1,600,000, and reimbursements from TRPFFAfor qualifying infrastructure projects of $6,155,000,During 2015, investing activities used $12,661,000 of cash primarily as a result of $28,048,000 in real estate and equipment expenditures. Of the$28,048,000 we spent $5,317,000, $5,585,000, $5,667,000 on pre-development and entitlement costs on our Centennial, MV, and Grapevine projects,respectively. We used $7,023,000 for the development of two multi-tenant buildings along with supporting infrastructure projects over at TRCC. Weinvested $2,583,000 into our farming segment for the development of new almond and wine grape crops along with acquiring new farming equipment. Weinvested $1,199,000 into water related projects including water turnouts and wells that will ultimately support our real estate and farming operations. Theremainder of the capital investments primarily relate to capital equipment used as part of our ranch operations and corporate segments. Outside of capitalprojects, we acquired $15,574,000 in marketable securities. Offsetting our cash outlays are maturities and sales of marketable securities of $24,157,000,distributions from our joint venture partners of $1,100,000, and reimbursements from TRPFFA for qualifying infrastructure projects of $4,971,000,39Our estimated capital investment for 2017 is primarily related to our real estate projects as it was in 2016. These estimated investments include approximately$8,430,000 of infrastructure development at TRCC-East and West to support continued commercial retail and industrial development and to expand waterfacilities to support future anticipated absorption. It is assumed we will invest up to $1,600,000 into the Majestic joint venture as equity for completion of anew building. We are also investing approximately $1,420,000 to begin development of a new almond orchard and the acquisition of new farmingequipment. The farm investments are part of a long-term farm management program to redevelop declining orchards and vineyards to maintain and improvefuture farm revenues. We expect to possibly invest up to $19,950,000 for land planning, entitlement activities, and development activities at MV,Centennial, and Grapevine during 2017. The timing of these investments is dependent on our coordination efforts with Los Angeles County regardingentitlement efforts for Centennial, litigation and permitting activities for Grapevine, and tentative tract maps for MV. Our plans also call for the potentialinvestment of up to $1,300,000 in water infrastructure and as opportunities arise to help secure additional water assets for real estate, farming, and as aninvestment. We are also planning to potentially invest up to $900,000 in the normal replacement of operating equipment, such as ranch equipment, andupdates to our information technology systems.During 2016, financing activities provided $3,985,000 through $20,700,000 in drawdowns from our line of credit offset by paydowns of $13,815,000 on ourline of credit and long-term borrowings.During 2015, financing activities used $8,015,000 resulting from borrowing $17,540,000 on our line of credit offset by payments of $24,390,000 on our lineof credit and long-term borrowings.It is difficult to accurately predict cash flows due to the nature of our businesses and fluctuating economic conditions. Our earnings and cash flows will beaffected from period to period by the commodity nature of our farming and mineral operations, the timing of sales and leases of property within ourdevelopment projects, and the beginning of development within our residential projects. The timing of sales and leases within our development projects isdifficult to predict due to the time necessary to complete the development process and negotiate sales or lease contracts. Often, the timing aspect of landdevelopment can lead to particular years or periods having more or less earnings than comparable periods. Based on our experience, we believe we will haveadequate cash flows, cash balances, and availability on our line of credit over the next twelve months to fund internal operations. As we move forward withthe completion of the entitlement process for our master planned communities and prepare to move into the development stage, we will need to secureadditional funding through the issuance of equity and secure other forms of financing such as joint ventures and possibly debt financing.Capital Structure and Financial ConditionAt December 31, 2016, total capitalization at book value was $415,873,000 consisting of $81,406,000 of debt, net of deferred financing costs, and$334,467,000 of equity, resulting in a debt-to-total-capitalization ratio of approximately 19.6%, which is an increase when compared to the debt-to-total-capitalization ratio of 18.2% at December 31, 2015.On October 13, 2014, the Company as borrower, entered into an Amended and Restated Credit Agreement, a Term Note and a Revolving Line of Credit Note,with Wells Fargo, or collectively the Credit Facility. The Credit Facility adds a $70,000,000 term loan, or Term Loan, to the existing $30,000,000 revolvingline of credit, or RLC. Funds from the Term Loan were used to finance the Company's purchase of DMB TMV LLC’s interest in MV as disclosed in theCurrent Report on Form 8-K filed on July 16, 2014. The Term Loan had a $69,439,000 balance as of December 31, 2016. Any future borrowings under theRLC will be used for ongoing working capital requirements and other general corporate purposes. To maintain availability of funds under the RLC, undrawnamounts under the RLC will accrue a commitment fee of 10 basis points per annum. The Company's ability to borrow additional funds in the future under theRLC is subject to compliance with certain financial covenants and making certain representations and warranties. At the Company’s option, the interest rateon the RLC can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate term. During the term of this credit facility(which matures in September 2019), we can borrow at any time and partially or wholly repay any outstanding borrowings and then re-borrow, as necessary.The outstanding balance on the RLC was $7,700,000 and $0 as of December 31, 2016 and 2015, respectively.The interest rate per annum applicable to the Term Loan is LIBOR (as defined in the Term Note) plus a margin of 170 basis points. The interest rate for theterm of the note has been fixed through the use of an interest rate swap at a rate of 4.11%. We utilize an interest rate swap agreement to hedge our exposure tovariable interest rates associated with our term loan. The Term Loan requires interest only payments for the first two years of the term and thereafter requiresmonthly amortization payments pursuant to a schedule set forth in the Term Note, with the final outstanding principal amount due October 5, 2024. TRCmay make voluntary prepayments on the Term Loan at any time without penalty (excluding any applicable LIBOR or interest rate swap breakage costs). Eachoptional prepayment will be applied to reduce the most remote principal payment then unpaid. The Credit Facility is secured by TRC’s farmland and farmassets, which include equipment, crops and crop receivables and the power plant lease and lease site, and related accounts and other rights to payment andinventory.40The Credit Facility requires compliance with three financial covenants: (a) total liabilities divided by tangible net worth not greater than 0.75 to 1.0 at eachquarter end; (b) a debt service coverage ratio not less than 1.25 to 1.00 as of each quarter end on a rolling four quarter basis; and (c) maintain liquid assetsequal to or greater than $20,000,000. At December 31, 2016, we were in compliance with the financial covenants.The Credit Facility also contains customary negative covenants that limit the ability of TRC to, among other things, make capital expenditures, incurindebtedness and issue guaranties, consummate certain assets sales, acquisitions or mergers, make investments, pay dividends or repurchase stock, or incurliens on any assets.The Credit Facility contains customary events of default, including: failure to make required payments; failure to comply with terms of the Credit Facility;bankruptcy and insolvency; and a change in control without consent of bank (which consent will not be unreasonably withheld). The Credit Facilitycontains other customary terms and conditions, including representations and warranties, which are typical for credit facilities of this type.We also have a $4,750,000 promissory note agreement with principal and interest due monthly starting on October 1, 2013. The interest rate on thispromissory note is 4.25% per annum, with principal and interest payments ending on September 1, 2028. The balance as of December 31, 2016 is $3,961,000.The proceeds from this promissory note were used to eliminate debt that had been previously used to provide long-term financing for a building being leasedto Starbucks and provide additional working capital for future investment.Our current and future capital resource requirements will be provided primarily from current cash and marketable securities, cash flow from on-goingoperations, proceeds from the sale of developed and undeveloped parcels, potential sales of assets, additional use of debt, proceeds from the reimbursement ofpublic infrastructure costs through CFD bond debt (described below under “Off-Balance Sheet Arrangements”), and the issuance of common stock. In April2016, we filed an updated shelf registration statement on Form S-3 that went effective in May 2016. Under the shelf registration statement, we may offer andsell in the future one or more offerings, common stock, preferred stock, debt securities, warrants or any combination of the foregoing. The shelf registrationallows for efficient and timely access to capital markets and when combined with our other potential funding sources just noted, provides us with a variety ofcapital funding options that can then be used and appropriately matched to the funding need.On August 7, 2013, the Company announced that its Board of Directors declared a dividend of 3,000,000 warrants to purchase shares of Company commonstock, par value $0.50 per share, or Warrants, to holders of record of Common Stock as of August 21, 2013, the Record Date. The Warrants were distributed toshareholders on August 28, 2013. Each Warrant entitled the holder to purchase one share of Common Stock at an initial exercise price of $40.00 per shareand expired unexercised on August 31, 2016.As noted above, at December 31, 2016, we had $27,933,000 in cash and securities and as of the filing date of this Form 10-K, we have $22,300,000 availableon credit lines to meet any short-term liquidity needs.We continue to expect that substantial investments will be required in order to develop our land assets. In order to meet these capital requirements, we mayneed to secure additional debt financing and continue to renew our existing credit facilities. In addition to debt financing, we will use other capitalalternatives such as joint ventures with financial partners, sales of assets, and the issuance of common stock. We will use a combination of the above fundingsources to properly match funding requirements with the assets or development project being funded. There is no assurance that we can obtain financing orthat we can obtain financing at favorable terms. We believe we have adequate capital resources to fund our cash needs and our capital investmentrequirements in the near-term as described earlier in the cash flow and liquidity discussions.41Contractual Cash ObligationsThe following table summarizes our contractual cash obligations and commercial commitments as of December 31, 2016, to be paid over the next five years: Payments Due by Period($ in thousands)Total Less than a year 1-3 years 3-5 years More than 5yearsContractual Obligations: Estimated water payments$271,135 $8,240 $16,917 $17,527 $228,451Long-term debt73,867 3,854 8,116 8,549 53,348Interest on long-term debt18,767 2,954 5,439 4,764 5,610Cash contract commitments4,650 2,441 1,138 — 1,071Defined Benefit Plan3,252 181 424 526 2,121SERP5,023 503 991 970 2,559Tejon Ranch Conservancy4,000 800 1,600 1,600 —Financing fees163 163 — — —Total contractual obligations$380,857 $19,136 $34,625 $33,936 $293,160The categories above include purchase obligations and other long-term liabilities reflected on our balance sheet under GAAP. A “purchase obligation” isdefined in Item 303(a)(5)(ii)(D) of Regulation S-K as “an agreement to purchase goods or services that is enforceable and legally binding the registrant thatspecifies all significant terms, including: fixed or minimum quantities to be purchased; fixed, minimum or variable price provisions; and the approximatetiming of the transaction.” Based on this definition, the table above includes only those contracts that include fixed or minimum obligations. It does notinclude normal purchases, which are made in the ordinary course of business.Our financial obligations to the Tejon Ranch Conservancy are prescribed in the Conservation Agreement. Our advances to the Tejon Ranch Conservancy aredependent on the occurrence of certain events and their timing, and are therefore subject to change in amount and period. The amounts included above arethe minimum amounts we anticipate contributing through the year 2021, at which time our current contractual obligation terminates.As discussed in Note 15 (Retirement Plans) of the Notes to Consolidated Financial Statements, we have long-term liabilities for deferred employeecompensation, including pension and supplemental retirement plans. Payments in the above table reflect estimates of future defined benefit plancontributions from the Company to the plan trust, estimates of payments to employees from the plan trust, and estimates of future payments to employeesfrom the Company that are in the SERP program. During 2016, we did not make any pension contributions and it is projected that there will be no requiredcontributions in 2017.Our cash contract commitments consist of contracts in various stages of completion related to infrastructure development within our industrial developmentsand entitlement costs related to our industrial and residential development projects. Also, included in the cash contract commitments are estimated feesearned during the second quarter of 2014 by a consultant, related to the entitlement of the Grapevine Development Area. The Company exited a consultingcontract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earned incentive fee at the time of successfulreceipt of litigated project entitlements and at a value measurement date five-years after entitlements have been achieved for Grapevine. The final amount ofthe incentive fees will not be finalized until the future payment dates. The Company believes that net savings from exiting the contract over this future timeperiod will more than offset the incentive payment costs.Estimated water payments include SWP contracts with Wheeler Ridge Maricopa Water Storage District, Tejon-Castac Water District, Tulare Lake Basin WaterStorage District, and Dudley-Ridge Water Storage District. These contracts for the supply of future water run through 2035. In addition, in late 2013 wepurchased the assignment of a contract to purchase water. The assigned water contract is with Nickel Family, LLC and obligates us to purchase 6,693 acre-feet of water starting in 2014 and running through 2044. Please refer to Note 6 (Long-Term Water Assets) of the Notes to Consolidated Financial Statementsfor additional information regarding water assets.Our operating lease obligations are for office equipment, several vehicles, and a temporary trailer providing office space and average approximately $25,000per month. At the present time, we do not have any capital lease obligations or purchase obligations outstanding.42Off-Balance Sheet ArrangementsThe following table shows contingent obligations we have with respect to the CFDs. Amount of Commitment Expiration Per Period($ in thousands) Total < 1 year 2 -3 Years 4 -5 Years After 5 YearsOther Commercial Commitments: Standby letter of credit $4,921 $4,921 $— $— $—Total other commercial commitments $4,921 $4,921 $— $— $—TRPFFA is a joint powers authority formed by Kern County and TCWD to finance public infrastructure within the Company’s Kern County developments.TRPFFA created two CFDs, the West CFD and the East CFD. The West CFD has placed liens on 420 acres of the Company’s land to secure payment of specialtaxes related to $28,620,000 of bond debt sold by TRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of the Company’s land to securepayments of special taxes related to $55,000,000 of bond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debtapproved for issuance. At TRCC-East, the East CFD has approximately $65,000,000 of additional bond debt authorized by TRPFFA.In connection with the sale of bonds there is a standby letter of credit for $4,921,000 related to the issuance of East CFD bonds. The standby letter of credit isin place to provide additional credit enhancement and cover approximately two year's worth of interest on the outstanding bonds. This letter of credit will notbe drawn upon unless the Company, as the largest landowner in the CFD, fails to make its property tax payments. As development occurs within TRCC-Eastthere is a mechanism in the bond documents to reduce the amount of the letter of credit. The Company believes that the letter of credit will never be drawnupon. This letter of credit is for a two-year period of time and will be renewed in two-year intervals as necessary. The annual cost related to the letter of creditis approximately $83,000. The assessment of each individual property sold or leased within each CFD is not determinable at this time because it is based onthe current tax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to a third-party. Accordingly, theCompany is not required to recognize an obligation at December 31, 2015.At December 31, 2016, aggregate outstanding debt of unconsolidated joint ventures was $97,318,000. We guarantee $82,043,000 of this debt, relating to ourjoint ventures with Rockefeller and Majestic. Because of positive cash flow generation within the Rockefeller and Majestic joint ventures, we do not expectthe guarantee to ever be called upon. We do not provide a guarantee on the $15,275,000 of debt related to our joint venture with TA/Petro.43Non-GAAP Financial MeasuresEBITDA represents earnings before interest, taxes, depreciation, and amortization, a non-GAAP financial measure, and is used by us and others as asupplemental measure of performance. We use Adjusted EBITDA to assess the performance of our core operations, for financial and operational decisionmaking, and as a supplemental or additional means of evaluating period-to-period comparisons on a consistent basis. Adjusted EBITDA is calculated asEBITDA, excluding stock compensation expense. We believe Adjusted EBITDA provides investors relevant and useful information because it permitsinvestors to view income from our operations on an unleveraged basis before the effects of taxes, depreciation and amortization, and stock compensationexpense. By excluding interest expense and income, EBITDA and Adjusted EBITDA allow investors to measure our performance independent of our capitalstructure and indebtedness and, therefore, allow for a more meaningful comparison of our performance to that of other companies, both in the real estateindustry and in other industries. We believe that excluding charges related to share-based compensation facilitates a comparison of our operations acrossperiods and among other companies without the variances caused by different valuation methodologies, the volatility of the expense (which depends onmarket forces outside our control), and the assumptions and the variety of award types that a company can use. EBITDA and Adjusted EBITDA havelimitations as measures of our performance. EBITDA and Adjusted EBITDA do not reflect our historical cash expenditures or future cash requirements forcapital expenditures or contractual commitments. While EBITDA and Adjusted EBITDA are relevant and widely used measures of performance, they do notrepresent net income or cash flows from operations as defined by GAAP, and they should not be considered as alternatives to those indicators in evaluatingperformance or liquidity. Further, our computation of EBITDA and Adjusted EBITDA may not be comparable to similar measures reported by othercompanies. Year-Ended December 31,($ in thousands)2016 2015 2014Net income$515 $2,912 $5,762Net income (loss) attributed to non-controlling interest(43) (38) 107Interest, net Consolidated(457) (528) (696)Our share of interest expense from unconsolidated joint ventures1,449 1,113 662Total interest, net992 585 (34)Income taxes336 1,125 2,697Depreciation and amortization: Consolidated4,549 5,090 4,871Our share of depreciation and amortization from unconsolidated joint ventures3,630 2,878 2,390Total deprecation and amortization8,179 7,968 7,261EBITDA10,065 12,628 15,579Stock compensation expense4,585 3,757 3,534Adjusted EBITDA$14,650 $16,385 $19,113The Company utilizes net operating income (NOI) for its unconsolidated joint ventures as a measure of financial or operating performance that is notspecifically defined by GAAP in the United States. We believe NOI of unconsolidated joint ventures provides investors with additional informationconcerning operating performance of our unconsolidated joint ventures. We also use this measure internally to monitor the operating performance of ourunconsolidated joint ventures. Our computation of this non-GAAP measure may not be the same as similar measures reported by other companies. This non-GAAP financial measure should not be considered as an alternative to net income as a measure of the operating performance of our unconsolidated jointventures or to cash flows computed in accordance with GAAP as a measure of liquidity nor are they indicative of cash flows from operating and financialactivities of our unconsolidated joint ventures.44The following schedule reconciles net income from unconsolidated joint ventures to NOI. Year-Ended December 31,($ in thousands)2016 2015 2014Net income of unconsolidated joint ventures$11,782 $10,523 $8,944Interest expense of unconsolidated joint ventures2,757 2,135 1,227Operating income of unconsolidated joint ventures14,539 12,658 10,171Depreciation and amortization of unconsolidated joint ventures6,832 5,425 4,891Net operating income of unconsolidated joint ventures$21,371 $18,083 $15,062ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKMarket risk represents the risk of loss that may impact the financial position, results of operations, or cash flows of the Company due to adverse changes infinancial or commodity market prices or rates. We are exposed to market risk in the areas of interest rates and commodity prices.Financial Market RisksOur exposure to financial market risks includes changes to interest rates and credit risks related to marketable securities, interest rates related to ouroutstanding indebtedness and trade receivables.The primary objective of our investment activities is to preserve principal while at the same time maximizing yields and prudently managing risk. To achievethis objective and limit interest rate exposure, we limit our investments to securities with a maturity of less than five years and an investment grade ratingfrom Moody’s or Standard and Poor’s. See Note 3 (Marketable Securities) of the Notes to Consolidated Financial Statements.Our current RLC has an outstanding balance of $7,700,000. The interest rate on the RLC can either float at 1.50% over a selected LIBOR rate or can be fixedat 1.50% above LIBOR for a fixed term for a limited period of time and change only at maturity of the fixed rate portion. The floating rate and fixed rateoptions within our RLC help us manage our interest rate exposure on any outstanding balances.We are exposed to interest rate risk on our long-term debt. Long-term debt consists of two term loans, one for $69,439,000 that is tied to LIBOR plus a marginof 1.70%. The interest rate for the term of this loan has been fixed through the use of an interest rate swap that fixed the rate at 4.11%. The outstandingbalance on the second term loan is $3,961,000 and has a fixed rate of 4.25%. We believe it is prudent at times to limit the variability of floating-rate interestpayments and have from time-to-time entered into interest rate swap arrangements to manage those fluctuations, as we did with the new loan.Market risk related to our farming inventories ultimately depends on the value of almonds, grapes, and pistachios at the time of payment or sale. Credit riskrelated to our receivables depends upon the financial condition of our customers. Based on historical experience with our current customers and periodiccredit evaluations of our customers’ financial conditions, we believe our credit risk is minimal. Market risk related to our farming inventories is discussedbelow in the section pertaining to commodity price exposure.45The following tables provide information about our financial instruments that are sensitive to changes in interest rates. The tables present our debtobligations and marketable securities and their related weighted-average interest rates by expected maturity dates.Interest Rate Sensitivity Financial Market RisksPrincipal Amount by Expected MaturityAt December 31, 2016(In thousands except percentage data) 2017 2018 2019 2020 2021 Thereafter Total Fair ValueAssets: Marketable securities$6,979 $13,787 $6,006 $— $— $— $26,772 $26,675Weighted average interest rate1.32% 1.59% 1.73% —% —% —% 1.55% Liabilities: Revolving line of credit$7,700 $— $— $— $— $— $7,700 $7,700Weighted average interest rate2.26% —% —% —% —% —% —% Long-term debt ($4.75M note)$266 $277 $289 $302 $315 $2,512 $3,961 $3,961Weighted average interest rate4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% Long-term debt ($70.0M note)$3,393 $3,563 $3,715 $3,881 $4,051 $50,836 $69,439 $69,439Weighted average interest rate4.11% 4.11% 4.11% 4.11% 4.11% 4.11% 4.11% Long-term debt (other)$195 $218 $54 $— $— $— $467 $467Weighted average interest rate3.35% 3.35% 3.35% —% —% —% 3.35% Interest Rate Sensitivity Financial Market RisksPrincipal Amount by Expected MaturityAt December 31, 2015(In thousands except percentage data) 2016 2017 2018 2019 2020 Thereafter Total Fair ValueAssets: Marketable securities$8,257 $9,068 $13,315 $2,335 $— $— $32,975 $32,815Weighted average interest rate1.14% 1.54% 1.89% 2.16% —% —% 1.40% Liabilities: Long-term debt ($4.75M note)$255 $266 $277 $289 $302 $2,826 $4,215 $4,215Weighted average interest rate4.25% 4.25% 4.25% 4.25% 4.25% 4.25% 4.25% Long-term debt ($70.0M note)$561 $3,393 $3,563 $3,715 $3,881 $54,887 $70,000 $70,000Weighted average interest rate4.11% 4.11% 4.11% 4.11% 4.11% 4.11% 4.11% Our risk with regard to fluctuations in interest rates has decreased slightly related to marketable securities since these balances have decreased compared tothe prior year.Commodity Price ExposureAs of December 31, 2016, we have exposure to adverse price fluctuations associated with certain inventories and accounts receivable. Farming inventoriesconsist of farming cultural and processing costs related to 2016 and 2015 crop production. The farming costs inventoried are recorded at actual costsincurred. Historically, these costs have been recovered each year when that year’s crop harvest has been sold.With respect to accounts receivable, the amount at risk relates primarily to farm crops. These receivables are recorded as estimates of the prices that ultimatelywill be received for the crops. The final price is generally not known for several months following the close of our fiscal year. Of the $8,740,000 of accountsreceivable outstanding at December 31, 2016, $6,000,000 or 69%, is at risk to changing prices. Of the amount at risk to changing prices, $4,136,000 isattributable to pistachios, and $1,864,000 is attributable to almonds.46The price estimated for recording accounts receivable for pistachios recorded at December 31, 2016 was $2.03 per pound, as compared to $2.88 per pound atDecember 31, 2015. For each $0.01 change in the price of pistachios, our receivable for pistachios increases or decreases by $20,406. Although the final priceof pistachios (and therefore the extent of the risk) is not presently known, over the last three years prices have ranged from $2.88 to $4.25. With respect toalmonds, the price estimated for recording the receivable was $2.51 per pound, as compared to $3.34 per pound at December 31, 2015. For each $0.01 changein the price of almonds, our receivable for almonds increases or decreases by $6,469. The range of final prices over the last three years for almonds has rangedfrom $2.51 to $3.97 per pound.ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATAThe response to this Item is submitted in a separate section of this Form 10-K.ITEM 9.CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURENone.ITEM 9A. CONTROLS AND PROCEDURES(a)Evaluation of Disclosure Controls and ProceduresAs of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management,including our Chief Executive Officer, Chief Financial Officer, Chief Accounting Officer and Controller, of the effectiveness of the design and operation ofour disclosure controls and procedures pursuant to Rules 13a-15 and 15d-15 of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Basedupon that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures are effective in ensuringthat all information required in the reports we file or submit under the Exchange Act was accumulated and communicated to our management, including ourChief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure and was recorded, processed,summarized and reported within the time period required by the rules and regulations of the SEC.(b)Changes in Internal Control Over Financial ReportingThere have been no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) ofRule 13a-15 or Rule 15d-15 under the Exchange Act that occurred during our last fiscal quarter that has materially affected, or is reasonably likely tomaterially affect, our internal control over financial reporting.See Management’s Report on Internal Control Over Financial Reporting and the Report of Independent Registered Public Accounting Firm On InternalControl over Financial Reporting following ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULES of this Form 10-K.ITEM 9B. OTHER INFORMATIONNone.PART IIIITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCEInformation as to our Executive Officers is set forth in Part I, Item 1 of this Form 10-K under “Executive Officers of the Registrant.” The other informationrequired by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2017 Annual Meetingof Stockholders and will be found under the captions "The Election of Directors," "Section 16(a) Beneficial Ownership Reporting Compliance, "Code ofBusiness Conduct and Ethics and Corporate Governance Guidelines," and "Corporate Governance Matters."ITEM 11. EXECUTIVE COMPENSATIONInformation required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2017Annual Meeting of Stockholders.47ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS(a)Security Ownership of Certain Beneficial Owners and Management.Information required by this Item with respect to security ownership of certain beneficial owners and management is incorporated by reference from thedefinitive proxy statement to be filed by us with the SEC with respect to our 2017 Annual Meeting of Stockholders and will be found under the caption"Stock Ownership of Certain Beneficial Owners and Management."(b)Securities Authorized for Issuance under Equity Compensation Plans.The following table shows aggregated information as of December 31, 2016 with respect to all of our compensation plans under which our equity securitieswere authorized for issuance. At December 31, 2016, we had, and we presently have, no other compensation contracts or arrangements for the issuance of anysuch equity securities and there were then, and continue to be, no compensation plans, contracts or arrangements which were not approved by ourstockholders. More detailed information with respect to our compensation plans is included in Note 11 (Stock Compensation - Restricted Stock andPerformance Share Grants) of the Notes to Consolidated Financial Statements.Equity Compensation Plans Approved by Security HoldersEquitycompensation plansapproved bysecurity holders * Number of securities to beissued upon exercise ofoutstanding grants Weighted-averageexercise price ofoutstanding grants Number of securities remainingavailable for future issuanceunder equity compensationplans (excluding securities)reflected in column (a) (a) (b) (c)Restricted stockgrants and restrictedstock units at targetgoal achievement 429,064 Final price determinedat time of vesting 826,886* The Company does not use equity compensation plans that have not been approved by the security holders.ITEM 13.CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCEInformation required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2017Annual Meeting of Stockholders and will be found under the captions "Related Person Transactions" and "Corporate Governance Matters."ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICESInformation required by this Item is incorporated by reference from the definitive proxy statement to be filed by us with the SEC with respect to our 2017Annual Meeting of Stockholders and will be found under the caption "Independent Registered Public Accounting Firm".48PART IVITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES(a) Documents filed as part of this report: Page Number1 Consolidated Financial Statements: 1.1 Management's Report on Internal Control Over Financial Reporting 58 Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting 59 Report of Independent Registered Public Accounting Firm 60 1.2 Consolidated Balance Sheets – Years Ended December 31, 2016 and 2015 61 1.3 Consolidated Statements of Income - Years Ended December 31, 2016, 2015 and 2014 62 1.4 Consolidated Statement of Comprehensive Income - Years Ended December 31, 2016, 2015 and 2014 63 1.5 Consolidated Statements of Equity - Years Ended December 31, 2016, 2015 and 2014 64 1.6 Consolidated Statements of Cash Flows - Years Ended December 31, 2016, 2015 and 2014 65 1.7 Notes to Consolidated Financial Statements 662 Supplemental Financial Statement Schedules: None. 3 Exhibits: 3.1 Restated Certificate of Incorporation FN 1 3.2 By-Laws FN 1 4.1 Form of First Additional Investment Right FN 2 4.2 Form of Second Additional Investment Right FN 3 4.3 Registration and Reimbursement Agreement FN 10 10.1 Water Service Contract with Wheeler Ridge-Maricopa Water Storage District (without exhibits), amendmentsoriginally filed under Item 11 to Registrant's Annual Report on Form 10-K FN 4 10.5 Petro Travel Plaza Operating Agreement FN 5 10.7 *Severance Agreement FN 5 10.8 *Director Compensation Plan FN 5 10.9 *Amended and Restated Non-Employee Director Stock Incentive Plan FN 13 10.9(1) *Stock Option Agreement Pursuant to the Non-Employee Director Stock Incentive Plan FN 5 10.10 *Amended and Restated 1998 Stock Incentive Plan FN 14 10.10(1) *Stock Option Agreement Pursuant to the 1998 Stock Incentive Plan FN 5 10.12 Lease Agreement and First and Second Amendments with Pastoria Energy Facility L.L.C FN 6 10.15 Form of Securities Purchase Agreement FN 7 10.16 Form of Registration Rights Agreement FN 8 10.17 *2004 Stock Incentive Program FN 9 10.18 *Form of Restricted Stock Agreement for Directors FN 9 10.19 *Form of Restricted Stock Unit Agreement FN 949 10.23 Tejon Mountain Village LLC Operating Agreement FN 11 10.24 Tejon Ranch Conservation and Land Use Agreement FN 12 10.25 Second Amended and Restated Limited Liability Agreement of Centennial Founders, LLC FN 15 10.26 *Executive Employment Agreement - Allen E. Lyda FN 16 10.27 Limited Liability Company Agreement of TRCC/Rock Outlet Center LLC FN 17 10.28 Warrant Agreement FN 18 10.29 Amendments to Limited Liability Company Agreement of Tejon Mountain Village LLC FN 19 10.30 Membership Interest Purchase Agreement - TMV LLC FN 20 10.31 Amended and Restated Credit Agreement FN 21 10.32 Term Note FN 21 10.33 Revolving Line of Credit FN 21 10.34 Amendments to Lease Agreement with Pastoria Energy Facility L.L.C. FN 22 10.35 Water Supply Agreement with Pastoria Energy Facility L.L.C. FN 23 10.36 *Separation Agreement - Gregory J. Tobias FN 24 10.37 Limited Liability Agreement of TRC-MRC, 2 LLC FN 25 10.38 Limited Liability Agreement of TRC-MRC, 1 LLC FN 26 10.39 Centennial Redemption and Withdrawal Agreement Filed herewith 10.40 First Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialFounders, LLC Filed herewith 10.41 Second Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialFounders, LLC Filed herewith 21 List of Subsidiaries of Registrant Filed herewith 23.1 Consent of Ernst & Young LLP, independent registered public accounting firm (Los Angeles, CA) Filed herewith 23.2 Consent of RSM US LLP, independent registered public accounting firm Filed herewith50 31.1 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.2 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 31.3 Certification as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 Filed herewith 32 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Actof 2002 Filed herewith 99.1 Financial Statements of Petro Travel Plaza Holdings LLC Filed herewith 101.INS XBRL Instance Document. Filed herewith 101.SCH XBRL Taxonomy Extension Schema Document. Filed herewith 101.CAL XBRL Taxonomy Extension Calculation Linkbase Document. Filed herewith 101.DEF XBRL Taxonomy Extension Definition Linkbase Document. Filed herewith 101.LAB XBRL Taxonomy Extension Label Linkbase Document. Filed herewith 101.PRE XBRL Taxonomy Extension Presentation Linkbase Document. Filed herewith * Management contract, compensatory plan or arrangement. 51 FN 1 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to ourAnnual Report on Form 10-K for year ended December 31, 1987, is incorporated herein by reference.FN 2 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.3 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 3 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number I-7183) as Exhibit 4.4 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 4 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to ourAnnual Report on Form 10-K for year ended December 31, 1994, is incorporated herein by reference.FN 5 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to ourAnnual Report on Form 10-K, for the period ending December 31, 1997, is incorporated herein by reference.FN 6 This document filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 14 to our AnnualReport on Form 10-K for the year ended December 31, 2001, is incorporated herein by reference.FN 7 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.1 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 8 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.2 to ourCurrent Report on Form 8-K filed on May 7, 2004, is incorporated herein by reference.FN 9 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) under Item 15 to ourAnnual Report on Form 10-K for the year ended December 31, 2004, is incorporated herein by reference.FN 10 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 4.1 to ourCurrent Report on Form 8-K filed on December 20, 2005, is incorporated herein by reference.FN 11 This document, filed with the Securities and Exchange Commission in Washington D.C. (file number 1-7183) as Exhibit 10.24 to ourCurrent Report on Form 8-K filed on May 24, 2006, is incorporated herein by reference.FN 12 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.28 to ourCurrent Report on Form 8-K filed on June 23, 2008, is incorporated herein by reference.FN 13 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.9 to ourAnnual Report on form 10-K for the year ended December 31, 2008, is incorporated herein by reference.FN 14 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.10 to ourAnnual Report on form 10-K for the year ended December 31, 2008, is incorporated herein by referenceFN 15 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Item 6 to ourQuarterly Report on Form 10-Q for the period ending June 30, 2009, is incorporated herein by reference.FN 16 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Item 6 to ourQuarterly Report on Form 10-Q for the period ending March 31, 2013, is incorporated herein by reference.FN 17 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Exhibit 10.27 to ourCurrent Report on Form 8-K filed on June 4, 2013, is incorporated herein by reference.FN 18 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Exhibit 10.1 to ourCurrent Report on Form 8-K filed on August 8, 2013, is incorporated herein by reference.FN 19 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Item 10.29 to ourAmended Annual Report on Form 10-K/A for the year ended December 31, 2013, is incorporated herein by reference.52FN 20 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Item 10.30 to ourCurrent Report on Form 8-K filed on July 16, 2014, is incorporated herein by reference.FN 21 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Items 10.31-10.33 toour Current Report on Form 8-K filed on October 17, 2014, is incorporated herein by reference.FN 22 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) under Item 10.34 to ourAnnual Report on Form 10-K for the year ended December 31, 2014, is incorporated herein by reference.FN 23 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.35 to ourQuarterly Report on Form 10-Q for the period ending June 30, 2015, is incorporated herein by reference.FN 24 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.36 to ourQuarterly Report on Form 10-Q for the period ending September 30, 2015, is incorporated herein by reference.FN 25 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.37 to ourQuarterly Report on Form 10-Q for the period ending June 30, 2016, is incorporated herein by reference.FN 26 This document, filed with the Securities and Exchange Commission in Washington, D.C. (file number 1-7183) as Exhibit 10.38 to ourQuarterly Report on Form 10-Q for the period ending September 30, 2016, is incorporated herein by reference. (b) Exhibits. The exhibits being filed with this report are attached at the end of this report.(c) Financial Statement Schedules - The response to this portion of Item 15 is submitted as a separate section of this report.53SIGNATURESPursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to besigned on its behalf by the undersigned, thereunto duly authorized. TEJON RANCH CO. March 10, 2017 BY: /s/ Gregory S. Bielli Gregory S. Bielli President and Chief Executive Officer (Principal Executive Officer) March 10, 2017 BY: /s/ Allen E. Lyda Allen E. Lyda Executive Vice President and Chief Financial Officer (Principal Financial Officer) March 10, 2017 BY: /s/ Robert D. Velasquez Robert D. Velasquez Vice President of Finance and Chief Accounting Officer (Principal Accounting Officer)54Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, this report has been signed below by the following persons on behalf of theregistrant and in the capacities and on the date indicated. Name Capacity Date /s/ Robert A. AlterRobert A. Alter Director March 10, 2017 /s/ Steven A. BettsSteven A. Betts Director March 10, 2017 /s/ Gregory S. BielliGregory S. Bielli Director March 10, 2017 /s/ John L. GoolsbyJohn L. Goolsby Director March 10, 2017 /s/ Anthony L. LeggioAnthony L. Leggio Director March 10, 2017 /s/ Norman MetcalfeNorman Metcalfe Director March 10, 2017 /s/ Geoffrey StackGeoffrey Stack Director March 10, 2017 /s/ Daniel R. TischDaniel R. Tisch Director March 10, 2017 /s/ Frederick C.TuomiFrederick C. Tuomi Director March 10, 2017 /s/ Michael H. WinerMichael H. Winer Director March 10, 201755Annual Report on Form 10-KItem 8, Item 15(a) (1) and (2), (b) and (c)List of Financial Statements and Financial Statement SchedulesFinancial StatementsCertain ExhibitsYear Ended December 31, 2016Tejon Ranch Co.Lebec, California56Form 10-K - Item 15(a)(1) and (2)Tejon Ranch Co. and SubsidiariesIndex to Financial Statements and Financial Statement SchedulesITEM 15(a)(1) - FINANCIAL STATEMENTSThe following consolidated financial statements of Tejon Ranch Co. and subsidiaries are included in Item 8: PageManagement’s Report on Internal Control Over Financial Reporting58Report of Independent Registered Public Accounting Firm on Internal Control Over Financial Reporting59Report of Independent Registered Public Accounting Firm60Consolidated Balance Sheets - Years Ended December 31, 2016 and 201561Consolidated Statements of Income - Years Ended December 31, 2016, 2015, and 201462Consolidated Statements of Comprehensive Income (Loss) - Years Ended December 31, 2016, 2015 and 201463Consolidated Statements of Equity - Years Ended December 31, 2016, 2015 and 201464Consolidated Statements of Cash Flows - Years Ended December 31, 2016, 2015 and 201465Notes to Consolidated Financial Statements66ITEM 15(a)(2) - FINANCIAL STATEMENT SCHEDULESAll schedules for which provision is made in the applicable accounting regulation of the Securities and Exchange Commission are not required under therelated instructions or are inapplicable, and therefore have been omitted.57Management’s Report on Internal Control Over Financial ReportingThe management of the Company is responsible for establishing and maintaining adequate internal control over financial reporting and for the assessment ofthe effectiveness of internal control over financial reporting. As defined in Rule 13a-15(f) of the Exchange Act, internal control over financial reporting is aprocess designed by, or supervised by, the Company’s principal executive and principal financial officers and effected by the Company’s board of directors,management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statementsfor external purposes in accordance with generally accepted accounting principles.The Company’s internal control over financial reporting is supported by written policies and procedures, that (1) pertain to the maintenance of records that,in reasonable detail, accurately and fairly reflect the transactions and dispositions of the Company’s assets; (2) provide reasonable assurance that transactionsare recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts andexpenditures of the Company are being made only in accordance with authorizations of the Company’s management and directors; and (3) providereasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s assets that could have amaterial effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In connection with the preparation of the Company’s annual financial statements, under the supervision and with the participation of the Company’smanagement, including its Chief Executive Officer, Chief Financial Officer, and Chief Accounting Officer, management of the Company has undertaken anassessment of the effectiveness of the Company’s internal control over financial reporting as of December 31, 2016 based on criteria established in InternalControl – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework), or COSO.Management’s assessment included an evaluation of the design of the Company’s internal control over financial reporting and testing of the operationaleffectiveness of the Company’s internal control over financial reporting.Based on this assessment, management did not identify any material weakness in the Company’s internal control, and management has concluded that theCompany’s internal control over financial reporting was effective as of December 31, 2016.Ernst & Young LLP, the independent registered public accounting firm that audited the Company’s financial statements included in this report, has issued areport on the effectiveness of internal control over financial reporting, a copy of which follows.58Report of Independent Registered Public Accounting FirmOn Internal Control over Financial ReportingThe Board of Directors and Stockholders ofTejon Ranch Co. and SubsidiariesWe have audited Tejon Ranch Co. and Subsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established inInternal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) (the COSOcriteria). Tejon Ranch Co. and Subsidiaries’ management is responsible for maintaining effective internal control over financial reporting, and for itsassessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control overFinancial Reporting. Our responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all materialrespects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, testingand evaluating the design and operating effectiveness of internal control based on the assessed risk, and performing such other procedures as we considerednecessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reportingand the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal controlover financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairlyreflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permitpreparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are beingmade only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention ortimely detection of unauthorized acquisition, use or disposition of the company’s assets that could have a material effect on the financial statements.Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation ofeffectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliancewith the policies or procedures may deteriorate.In our opinion, Tejon Ranch Co. and Subsidiaries maintained, in all material respects, effective internal control over financial reporting as of December 31,2016, based on the COSO criteria.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheetsof Tejon Ranch Co. and Subsidiaries as of December 31, 2016 and 2015 and the related consolidated statements of operations, comprehensive income, equityand cash flows for each of the three years in the period ended December 31, 2016 of Tejon Ranch Co. and Subsidiaries and our report dated March 10, 2017expressed an unqualified opinion thereon./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 10, 201759Report of Independent Registered Public Accounting FirmThe Board of Directors and Stockholders ofTejon Ranch Co. and SubsidiariesWe have audited the accompanying consolidated balance sheets of Tejon Ranch Co. and Subsidiaries as of December 31, 2016 and 2015, and the relatedconsolidated statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period endedDecember 31, 2016. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on thesefinancial statements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require thatwe plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includesexamining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accountingprinciples used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our auditsprovide a reasonable basis for our opinion.In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Tejon Ranch Co. andSubsidiaries at December 31, 2016 and 2015, and the consolidated results of their operations and their cash flows for each of the three years in the periodended December 31, 2016, in conformity with U.S. generally accepted accounting principles.We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Tejon Ranch Co. andSubsidiaries’ internal control over financial reporting as of December 31, 2016, based on criteria established in Internal Control-Integrated Framework issuedby the Committee of Sponsoring Organizations of the Treadway Commission (2013 Framework) and our report dated March 10, 2017 expressed anunqualified opinion thereon. /s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 10, 201760Tejon Ranch Co. and SubsidiariesConsolidated Balance Sheets($ in thousands) December 31 2016 2015ASSETS Current Assets: Cash and cash equivalents$1,258 $1,930Marketable securities - available-for-sale26,675 32,815Accounts receivable8,740 6,511Inventories3,084 3,517Prepaid expenses and other current assets4,458 4,120Total current assets44,215 48,893Real estate and improvements - held for lease, net20,026 21,942Real estate development (includes $89,381 at December 31, 2016 and $84,194 at December 31, 2015,attributable to Centennial Founders, LLC, Note 17)248,265 235,466Property and equipment, net46,034 44,469Investments in unconsolidated joint ventures33,803 30,680Long-term water assets42,413 43,806Deferred tax assets2,282 4,659Other assets2,663 2,004TOTAL ASSETS$439,701 $431,919LIABILITIES AND EQUITY Current Liabilities: Trade accounts payable$2,415 $3,252Accrued liabilities and other3,188 3,492Income taxes payable— 1,237Deferred income1,529 1,525Revolving line of credit7,700 —Current maturities of long-term debt3,853 815Total current liabilities18,685 10,321Long-term debt, less current portion69,853 73,223Long-term deferred gains3,662 3,816Other liabilities13,034 13,251Total liabilities105,234 100,611Commitments and contingencies Equity: Tejon Ranch Co. Stockholders’ Equity Common stock, $0.50 par value per share: Authorized shares - 30,000,000 Issued and outstanding shares - 20,810,301 at December 31, 2016 and 20,688,154 at December 31, 201510,405 10,344Additional paid-in capital229,762 216,803Accumulated other comprehensive loss(6,239) (6,902)Retained earnings71,947 71,389Total Tejon Ranch Co. Stockholders’ Equity305,875 291,634Non-controlling interest28,592 39,674Total equity334,467 331,308TOTAL LIABILITIES AND EQUITY$439,701 $431,919See accompanying notes.61Tejon Ranch Co. and SubsidiariesConsolidated Statements of Income($ in thousands, except per share amounts) Year Ended December 31 201620152014Revenues:Real estate - commercial/industrial$9,438$8,272$7,845Mineral resources14,15315,11616,255Farming18,64823,83623,435Ranch operations3,3383,9233,534Total revenues 45,577 51,147 51,069Costs and Expenses: Real estate - commercial/industrial 7,100 6,694 7,206Real estate - resort/residential 1,630 2,349 2,608Mineral resources 7,796 7,396 6,418Farming 18,673 18,984 16,250Ranch operations 5,734 6,112 5,998Corporate expenses 12,550 12,808 10,646Total expenses 53,483 54,343 49,126Operating (loss) income (7,906) (3,196) 1,943Other Income: Gain on sale of real estate 1,044 — —Investment income 457 528 696Other income 158 381 526Total other income 1,659 909 1,222(Loss) income from operations before equity in earnings of unconsolidated joint ventures (6,247) (2,287) 3,165Equity in earnings of unconsolidated joint ventures, net 7,098 6,324 5,294Income before income tax expense 851 4,037 8,459Income tax expense 336 1,125 2,697Net income 515 2,912 5,762Net (loss) income attributable to non-controlling interest (43) (38) 107Net income attributable to common stockholders $558 $2,950 $5,655Net income per share attributable to common stockholders, basic $0.03 $0.14 $0.27Net income per share attributable to common stockholders, diluted $0.03 $0.14 $0.27See accompanying notes.62Tejon Ranch Co. and SubsidiariesConsolidated Statements of Comprehensive Income($ in thousands) Year Ended December 31 2016 2015 2014Net income $515 $2,912 $5,762Other comprehensive income/(loss): Unrealized loss on available-for-sale securities 62 (188) (208)Benefit plan adjustments (371) (1,301) (3,168)Benefit plan reclassification for losses included in net income — 536 407SERP liability adjustments 214 234 (1,003)Equity in other comprehensive income of unconsolidated joint venture — — —Unrealized interest rate swap gains/(losses) 1,040 678 (2,227)Other comprehensive income (loss) before taxes 945 (41) (6,199)Benefit (provision) for income taxes related to other comprehensive loss items (282) 38 2,644Other comprehensive (loss) income 663 (3) (3,555)Comprehensive income 1,178 2,909 2,207Comprehensive (loss) income attributable to non-controlling interests (43) (38) 107Comprehensive income attributable to common stockholders $1,221 $2,947 $2,100See accompanying notes.63Tejon Ranch Co. and SubsidiariesConsolidated Statements of Equity($ in thousands, except share information) CommonStock SharesOutstanding CommonStock AdditionalPaid-InCapital AccumulatedOtherComprehensiveIncome (Loss) RetainedEarnings TotalStockholders'Equity NoncontrollingInterest Total EquityBalance, December 31, 201320,563,023 $10,282 $210,848 $(3,333) $62,785 $280,582 $39,605 $320,187Net income— — — — 5,655 5,655 107 5,762Other comprehensive income— — — (3,555) — (3,555) — (3,555)Restricted stock issuance94,014 47 (47) — — — — —Stock compensation— — 2,564 — — 2,564 — 2,564Shares withheld for taxes and tax benefit of vestedshares(20,559) (11) (603) (11) — (625) — (625)Warrants exercised— — 1 — (1) — — —Balance, December 31, 201420,636,478 $10,318 $212,763 $(6,899) $68,439 $284,621 $39,712 $324,333Net income— — — — 2,950 2,950 (38) 2,912Other comprehensive loss— — — (3) — (3) — (3)Restricted stock issuance85,584 43 (43) — — — — —Stock compensation— — 3,922 — — 3,922 — 3,922Shares withheld for taxes and tax benefit of vestedshares(33,908) (17) (904) — — (921) — (921)Modified share-based awards— — 1,065 — — 1,065 — 1,065Balance, December 31, 201520,688,154 $10,344 $216,803 $(6,902) $71,389 $291,634 $39,674 $331,308Net income (loss)— — — — 558 558 (43) 515Other comprehensive income— — — 663 — 663 — 663Restricted stock issuance200,240 100 (100) — — — — —Stock Compensation— — 4,881 — — 4,881 — 4,881Shares withheld for taxes and tax benefit forvested shares(78,093) (39) (2,861) — — (2,900) — (2,900)Centennial redemption of withdrawing memberinterest— — 11,039 — — 11,039 (11,039) —Balance, December 31, 201620,810,301 $10,405 $229,762 $(6,239) $71,947 $305,875 $28,592 $334,467See accompanying notes.64Tejon Ranch Co. and SubsidiariesConsolidated Statements of Cash Flows(in thousands) Twelve Months Ended December 31, 2016 2015 2014Operating Activities Net income$515 $2,912 $5,762Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization4,549 5,090 4,871Amortization of premium/discount of marketable securities434 555 769Equity in earnings(7,098) (6,324) (5,294)Non-cash retirement plan expense1,046 997 164Gain on sale of real estate/assets(1,183) (95) —Deferred income taxes1,939 (120) 112Stock compensation expense4,585 3,757 3,534Distribution of earnings from unconsolidated joint ventures4,500 7,200 —Changes in operating assets and liabilities: Receivables, inventories, prepaids and other assets, net(1,603) 2,733 2,291Current liabilities, net(2,099) 263 1,009Net cash provided by operating activities5,585 16,968 13,218Investing Activities Maturities and sales of marketable securities11,750 24,157 20,844Funds invested in marketable securities(5,983) (15,574) (8,525)Real estate and equipment expenditures(26,380) (28,048) (24,775)Reimbursement proceeds from Communities Facilities District6,155 4,971 —Proceeds from sale of real estate/assets4,616 796 —Investment in unconsolidated joint ventures(2,000) (52) (9,656)Purchase of partner interest in TMV LLC— — (70,000)Distribution of equity from unconsolidated joint ventures1,600 1,100 —Investments in long-term water assets— — (480)Other— (11) —Net cash used in investing activities(10,242) (12,661) (92,592)Financing Activities Borrowings of line of credit20,700 17,540 31,050Repayments of line of credit(13,000) (24,390) (24,200)Borrowings of long-term debt— — 70,000Repayments of long-term debt(815) (244) (244)Taxes on vested stock grants(2,900) (921) (625)Net cash provided by (used in) provided by financing activities3,985 (8,015) 75,981Decrease in cash and cash equivalents(672) (3,708) (3,393)Cash and cash equivalents at beginning of year1,930 5,638 9,031Cash and cash equivalents at end of year$1,258 $1,930 $5,638Supplemental cash flow information Increase in CIP attributable to reclassifying equity in investment of TMV, LLC$— $— $44,950Accrued capital expenditures included in current liabilities$652 $329 $1,096Capital expenditure financing arrangement$467 $— $—Taxes paid (net of refunds)$1,135 $1,817 $(2,384)See accompanying notes.65Tejon Ranch Co. and SubsidiariesNotes to Consolidated Financial StatementsDecember 31, 20161. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIESThe CompanyTejon Ranch Co. (the Company, Tejon, we, us and our) is a diversified real estate development and agribusiness company committed to responsibly usingour land and resources to meet the housing, employment, and lifestyle needs of Californians. Current operations consist of land planning and entitlement,land development, commercial sales and leasing, leasing of land for mineral royalties, water asset management and sales, grazing leases, income portfoliomanagement, and farming.These activities are performed through our five segments:•Real Estate - Commercial/Industrial•Real Estate - Resort/Residential•Mineral Resources•Farming•Ranch OperationsOur prime asset is approximately 270,000 acres of contiguous, largely undeveloped land that, at its most southerly border, is 60 miles north of Los Angelesand, at its most northerly border, is 15 miles east of Bakersfield. We create value by securing entitlements for our land, facilitating infrastructuredevelopment, strategic land planning, development, and conservation, in order to maximize the highest and best use for our land.We are involved in several joint ventures, which facilitate the development of portions of our land. We are also actively engaged in land planning, landentitlement, and conservation projects.Any references to the number of acres, number of buildings, square footage, number of leases, occupancy, and any amounts derived from these values in thenotes to the consolidated financial statements are unaudited.Principles of ConsolidationThe consolidated financial statements include the accounts of the Company, and the accounts of all subsidiaries and investments in which a controllinginterest is held by the Company. All significant intercompany transactions have been eliminated in consolidation. We have evaluated subsequent eventsthrough the date of issuance of our consolidated financial statements.Cash EquivalentsThe Company considers all highly liquid investments with maturities of three months or less when purchased to be cash equivalents. The carrying amount forcash equivalents approximates fair value.Marketable SecuritiesThe Company considers those investments not qualifying as cash equivalents, but which are readily marketable, to be marketable securities. The Companyclassifies all marketable securities as available-for-sale. These are stated at fair value with the unrealized gains (losses), net of tax, reported as a component ofaccumulated other comprehensive income (loss) in the consolidated statements of equity.Investments in Unconsolidated Joint VenturesInvestments in unconsolidated joint ventures in which the Company does not have a controlling interest, or is not the primary beneficiary if the joint ventureis determined to be a variable interest entity under Accounting Standards Codification 810 – “Consolidation,” are accounted for under the equity method ofaccounting and, accordingly, are adjusted for capital contributions, distributions, and the Company’s equity in net earnings or loss of the respective jointventure.66Fair Values of Financial InstrumentsThe Company follows the Financial Accounting Standards Board's authoritative guidance for fair value measurements of certain financial instruments. Theguidance defines fair value, establishes a framework for measuring fair value and expands disclosures about fair value measurements. Fair value is defined asthe exchange (exit) price that would be received for an asset or paid to transfer a liability in the principal or most advantageous market for the asset orliability in an orderly transaction between market participants on the measurement date. This guidance establishes a three-level hierarchy for fair valuemeasurements based upon the inputs to the valuation of an asset or liability. Observable inputs are those which can be easily seen by market participantswhile unobservable inputs are generally developed internally, utilizing management’s estimates and assumptions:•Level 1 – Valuation is based on quoted prices in active markets for identical assets and liabilities.•Level 2 – Valuation is determined from quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similarinstruments in markets that are not active, or by model-based techniques in which all significant inputs are observable in the market.•Level 3 – Valuation is derived from model-based techniques in which at least one significant input is unobservable and based on our own estimatesabout the assumptions that market participants would use to value the asset or liability.When available, we use quoted market prices in active markets to determine fair value. We consider the principal market and nonperformance risk associatedwith our counterparties when determining the fair value measurement. Fair value measurements are used on a recurring basis for marketable securities,investments within the pension plan and hedging instruments, if any.Interest Rate Swap AgreementsIn October 2014, we entered into an interest rate swap agreement with Wells Fargo. See Note 8 (Line of Credit and Long-Term Debt) of the Notes toConsolidated Financial Statements for further detail regarding this interest rate swap related to the Company's Credit Facility. We believe it is prudent attimes to limit the variability of floating-rate interest payments and in the past have entered into interest rate swaps to manage those fluctuations. We recognize interest rate swap agreements as either an asset or liability on the balance sheet at fair value. The accounting for changes in fair value (i.e., gainsor losses) of a derivative instrument depends on whether it has been designated and qualifies as part of a hedging relationship and, further, on the type ofhedging relationship. For those derivative instruments that are designated and qualify as hedging instruments, a Company must designate the hedginginstrument, based on the hedged exposure, as a fair value hedge, a cash flow hedge, or a hedge of a net investment in a foreign operation. Our interest rateswap agreement is considered a cash flow hedge because it was designed to match the terms of the Term Loan as a hedge of the exposure to variability inexpected future cash flows. Hedge accounting generally provides for the matching of the timing of gain or loss recognition on the hedging instrument withthe recognition of the changes in the earnings effect of the hedged transactions in a cash flow hedge. This interest rate swap agreement will be evaluatedbased on whether it is deemed “highly effective” in reducing our exposure to variable interest rates. We formally document all relationships between interestrate swap agreements and hedged items, including the method for evaluating effectiveness and the risk strategy. We make an assessment at the inception ofeach interest rate swap agreement and on a quarterly basis to determine whether these instruments are “highly effective” in offsetting changes in cash flowsassociated with the hedged items. The ineffective portion of each interest rate swap agreement is immediately recognized in earnings. While we intend tocontinue to meet the conditions for such hedge accounting, if swaps did not qualify as “highly effective,” the changes in the fair values of the derivativesused as hedges would be reflected in earnings.The effective portion of changes in the fair value of our interest rate swap agreements that are designated and that qualify as cash flow hedges is recognized inaccumulated other comprehensive income. Amounts classified in accumulated other comprehensive income will be reclassified into earnings in the periodduring which the hedged transactions affect earnings. The fair value of each interest rate swap agreement is determined using widely accepted valuationtechniques including discounted cash flow analyses on the expected cash flows of each derivative. These analyses reflect the contractual terms of thederivatives, including the period to maturity, and use observable market-based inputs, including interest rate curves and implied volatilities (also referred toas “significant other observable inputs”). The fair values of our interest rate swap agreements are determined using the market standard methodology ofnetting the discounted future fixed cash payments and the discounted expected variable cash receipts. The variable cash receipts are based on an expectationof future interest rates (forward curves) derived from observable market interest rate curves. The fair value calculation also includes an amount for risk of non-performance using “significant unobservable inputs” such as estimates of current credit spreads to evaluate the likelihood of default, which we havedetermined to be insignificant to the overall fair value of our interest rate swap agreements.67Variable Interest EntityWe evaluate all of our interests in VIEs for consolidation. When our interests are determined to be variable interests, we assess whether we are deemed to bethe primary beneficiary of the VIE. The primary beneficiary of a VIE is required to consolidate the VIE. ASC810, Consolidation, defines the primarybeneficiary as the party that has both (i) the power to direct the activities of the VIE that most significantly impact its economic performance, and (ii) theobligation to absorb losses and the right to receive benefits from the VIE which could be potentially significant. We consider our variable interests as well asany variable interests of our related parties in making this determination. Where both of these factors are present, we are deemed to be the primary beneficiaryand we consolidate the VIE. Where either one of these factors is not present, we are not the primary beneficiary and do not consolidate the VIE.To assess whether we have the power to direct the activities of a VIE that most significantly impact the VIE’s economic performance, we consider all facts andcircumstances, including our role in establishing the VIE and our ongoing rights and responsibilities. This assessment includes first, identifying the activitiesthat most significantly impact the VIE’s economic performance; and second, identifying which party, if any, has power over those activities. In general, theparties that make the most significant decisions affecting the VIE or have the right to unilaterally remove those decision makers are deemed to have thepower to direct the activities of a VIE.Effective January 1, 2016, we implemented Accounting Standards Update (“ASU”) 2015-02, Consolidation (Topic 810) – Amendments to the ConsolidationAnalysis, which specifies that the right to remove the decision maker in a VIE must be exercisable without cause for the decision maker to not be deemed theparty that has the power to direct the activities of a VIE. The application of the ASU to our pre-existing entities did not change our respective conclusions asto whether or not they should be consolidated. To assess whether we have the obligation to absorb losses of the VIE or the right to receive benefits from the VIE that could potentially be significant to theVIE, we consider all of our economic interests, including debt and equity investments, servicing fees, and other arrangements deemed to be variable interestsin the VIE. This assessment requires that we apply judgment in determining whether these interests, in the aggregate, are considered potentially significant tothe VIE. Factors considered in assessing significance include: the design of the VIE, including its capitalization structure; subordination of interests;payment priority; relative share of interests held across various classes within the VIE’s capital structure; and the reasons why the interests are held by us.As of December 31, 2016 and 2015, we had one VIE consolidated in our financial statements see Note 17 (Investment in Unconsolidated and ConsolidatedJoint Ventures) to the Notes to Consolidated Financial Statements for further discussion.Credit RiskThe Company grants credit in the course of operations to co-ops, wineries, nut marketing companies, and lessees of the Company’s facilities. The Companyperforms periodic credit evaluations of its customers’ financial condition and generally does not require collateral.Our commercial revenues are derived primarily from rental payments and reimbursement of operating expenses under our leases. If our client tenants fail tomake rental payments under their leases, our financial condition, and cash flows could be adversely affected. Please refer to Rental Income for process ofevaluating and monitoring credit quality of tenants.As of December 31, 2016 and 2015, the PEF power plant lease generated approximately 8% and 7% of our total revenues, respectively. We had no customersaccount for 5% or more of our revenues from operations in 2016.The Company maintains its cash and cash equivalents in federally insured financial institutions. The account balances at these institutions periodicallyexceed FDIC insurance coverage and, as a result, there is a concentration of credit risk related to amounts on deposit in excess of FDIC insurance coverage.The Company believes that the risk is not significant.Farm InventoriesCosts of bringing crops to harvest are inventoried when incurred. Such costs are expensed when the crops are sold. Expenses are computed and recognized onan average cost per pound or per ton basis, as appropriate. Costs during the current year related to the next year’s crop are inventoried and carried ininventory until the matching crop is harvested and sold. Farm inventories held for sale are valued at the lower of cost (first-in, first-out method) or market.68Property and EquipmentProperty and equipment are stated on the basis of cost, except for land acquired upon organization in 1936, which is stated on the basis carried by theCompany’s predecessor. Depreciation is computed using the straight-line method over the estimated useful lives of the various assets. Our property andequipment and their respective estimated useful lives are as follow:($ in thousands) Useful Life December 31, 2016 December 31, 2015Vineyards and orchards 20 $49,210 $48,008Machinery, furniture fixtures and other equipment 3 - 10 19,807 18,072Buildings and improvements 10 - 27.5 8,828 8,828Land and land improvements 15 7,456 7,722Development in process 8,908 7,413 94,209 90,043Less: accumulated depreciation (48,175) (45,574) $46,034 $44,469Long-Term Water AssetsLong-term purchased water contracts are in place with the Tulare Lake Basin Water Storage District and the Dudley-Ridge Water Storage District. Thesecontracts provide the Company with the right to receive water over the term of the contracts that expire in 2035. The Company also purchased a contract thatallows and requires it to purchase 6,693 acre-feet of water each year from the Nickel Family LLC. The initial term of this contract runs through 2044. Thepurchase price of these contracts is being amortized on the straight-line basis over their contractual life. Water contracts with the Wheeler Ridge MaricopaWater Storage District and the Tejon-Castac Water District are also in place, but were entered into with each district at inception and not purchased later fromthird parties, and therefore do not have a related financial value on the books of the Company. As a result, there is no amortization expense related to thesecontracts.Vineyards and OrchardsCosts of planting and developing vineyards and orchards are capitalized until the crops become commercially productive. Interest costs and depreciation ofirrigation systems and trellis installations during the development stage are also capitalized. Revenues from crops earned during the development stage arenetted against development costs. Depreciation commences when the crops become commercially productive.At the time farm crops are harvested, contracted, and delivered to buyers and revenues can be estimated, revenues are recognized and any related inventoriedcosts are expensed, which traditionally occurs during the third and fourth quarters of each year. It is not unusual for portions of our almond or pistachio cropto be sold in the year following the harvest. Orchard (almond and pistachio) revenues are based upon the contract settlement price or estimated selling price,whereas vineyard revenues are typically recognized at the contracted selling price. Estimated prices for orchard crops are based upon the quoted estimate ofwhat the final market price will be by marketers and handlers of the orchard crops. These market price estimates are updated through the crop payment cycleas new information is received as to the final settlement price for the crop sold. These estimates are adjusted to actual upon receipt of final payment for thecrop. This method of recognizing revenues on the sale of orchard crops is a standard practice within the agribusiness community. Adjustments for differencesbetween original estimates and actual revenues received are recorded during the period in which such amounts become known. The net effect of theseadjustments increased farming revenue by $734,000 in 2016, $3,531,000 in 2015, and $4,132,000 in 2014. The adjustment for 2016 includes $653,000 foralmonds and $81,000 for pistachios. The adjustment for 2015 includes $1,260,000 for almonds and $2,271,000 for pistachios. The adjustment for 2014includes $1,458,000 for almonds and $2,674,000 for pistachios.The Almond Board of California has the authority to require producers of almonds to withhold a portion of their annual production from the marketplacethrough a marketing order approved by the Secretary of Agriculture. At December 31, 2016, 2015, and 2014, no such withholding was mandated.Common Stock Options and GrantsThe Company follows Accounting Standards Codification (“ASC”) 718, “Compensation – Stock Compensation” in accounting for stock incentive plansusing the fair value method of accounting. The estimated fair value of the restricted stock grants and restricted stock units are expensed over the expectedvesting period. For performance based grants the Company makes estimates of the number of shares that will actually be granted based upon estimated rangesof success in meeting defined performance measures. Periodically, the Company updates its estimates and reflects any changes to the estimate in theconsolidated statements of operations.69Long-Lived AssetsIn accordance with ASC 360 “Property, Plant, and Equipment” the Company records impairment losses on long-lived assets held and used in operationswhen indicators of impairment are present and the undiscounted cash flows estimated to be generated by those assets are less than their related carryingamounts. In addition, the Company accounts for long-lived assets to be disposed of at the lower of their carrying amounts or fair value less selling anddisposal costs. At 2016 and 2015, management of the Company believes that none of its assets are impaired.Sales of Real EstateIn recognizing revenue from land sales, the Company follows the provisions in ASC 976 “Real Estate – Retail Land” to record these sales. ASC 976 providesspecific sales recognition criteria to determine when land sales revenue can be recorded. For example, ASC 976 requires a land sale to be consummated with asufficient down payment of at least 20% to 25% of the sales price depending upon the type and timeframe for development of the property sold, and that anyreceivable from the sale cannot be subject to future subordination. In addition, the seller cannot retain any material continuing involvement in the propertysold, or be required to develop the property in the future or construct facilities or off-site improvements.Sales of EasementsFrom time to time the Company sells easements over its land and the easements are either in the form of rights of access granted for such things as utilitycorridors or are in the form of conservation easements that generally require the Company to divest its rights to commercially develop a portion of its land,but do not result in a change in ownership of the land or restrict the Company from continuing other revenue generating activities on the land. Sales ofconservation easements are accounted for in accordance with Staff Accounting Bulletin Topic 13 - Revenue Recognition, or SAB Topic 13.Since the conservation easements generally do not impose any significant continuing performance obligations on the Company, revenue from conservationeasement sales have been recognized when the four criteria of SAB Topic 13 have been met, which generally occurs in the period the sale has closed andconsideration has been received.Allocation of Costs Related to Land Sales and LeasesWhen the Company sells land within one of its real estate developments and has not completed all infrastructure development related to the total project, theCompany follows ASC 976 “Real Estate – Retail Land” to determine the appropriate costs of sales for the sold land and the timing of recognition of the sale.In the calculation of cost of sales or allocations to leased land, the Company uses estimates and forecasts to determine total costs at completion of thedevelopment project. These estimates of final development costs can change as conditions in the market change and costs of construction change.Royalty IncomeRoyalty revenues are contractually defined as to the percentage of royalty and are tied to production and market prices. The Company’s royalty arrangementsgenerally require payment on a monthly basis with the payment based on the previous month’s activity. The Company accrues monthly royalty revenuesbased upon estimates and adjusts to actual as the Company receives payments.Rental IncomeRental income from leases is recognized on a straight-line basis over the respective lease terms. We classify amounts currently recognized as income, andamounts expected to be received in later years, as an asset in deferred rent in the accompanying consolidated balance sheets. Amounts received currently, butrecognized as income in future years, are classified in accounts payable, accrued expenses, and tenant security deposits in the accompanying consolidatedbalance sheets. We commence recognition of rental income at the date the property is ready for its intended use and the client tenant takes possession of orcontrols the physical use of the property.During the term of each lease, we monitor the credit quality of our tenants by (i) reviewing the credit rating of tenants that are rated by a nationallyrecognized credit rating agency, (ii) reviewing financial statements of the client tenants that are publicly available or that are required to be delivered to uspursuant to the applicable lease, (iii) monitoring news reports regarding our tenants and their respective businesses, and (iv) monitoring the timeliness oflease payments. We have employees who are assigned the responsibility for assessing and monitoring the credit quality of our tenants and any materialchanges in credit quality.70Environmental ExpendituresEnvironmental expenditures that relate to current operations are expensed or capitalized as appropriate. Expenditures that relate to an existing conditioncaused by past operations and which do not contribute to current or future revenue generation are expensed. Liabilities are recorded when environmentalassessments and/or remedial efforts are probable and the costs can be reasonably estimated. Generally, the timing of these accruals coincides with thecompletion of a feasibility study or the Company’s commitment to a formal plan of action. No liabilities for environmental costs have been recorded atDecember 31, 2016 and 2015.Use of EstimatesThe preparation of the Company’s consolidated financial statements in accordance with accounting principles generally accepted in the United Statesrequires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets andliabilities at the financial statement dates and the reported amounts of revenue and expenses during the reporting period. Due to uncertainties inherent in theestimation process, it is reasonably possible that actual results could differ from these estimates.ReclassificationsThe Company has made certain reclassifications to the prior periods to conform to the current year presentation as follows:Ranch OperationsDuring the fourth quarter of 2015, the Company reclassified revenues and expenses comprised of grazing leases, special services and other ancillary servicessupporting the ranch, from commercial/industrial into a new segment called ranch operations. As a result, the Company has reclassified prior period ranchoperation revenues and expenses on the consolidated statements of income to conform to the current year presentation. Revenues reclassified for the twelvemonths ended December 31, 2015 and December 31, 2014 were $3,923,000 and $3,534,000, respectively. Expenses reclassified for the twelve months endedDecember 31, 2015 and December 31, 2014 were $6,112,000 and $5,998,000, respectively.2014 Performance and Milestone Share-Based GrantsDuring 2013 and 2014, the Compensation Committee of the Board of Directors, or the Board, conducted a compensation study prepared by an outsideconsultant that was completed during the first quarter of 2014. One of the outcomes of the compensation study was that the Board elected to modify selectedoutstanding and unvested performance share grants, or the existing performance milestone grants, and issue new milestone performance grants. The Companyhas assessed that it is probable that these new performance milestones will be met. The values for the 2014 performance grants, including the new milestonegrants, are fixed at threshold, target and maximum performance values, meaning that the amount of shares at vesting will vary depending on the stock price atthat time. These grants cannot be settled in cash and there are sufficient registered shares in the equity compensation plans to meet the delivery requirements.During the second quarter of 2015, the 2014 performance milestone grants were modified to fix the number of shares to be received rather than have thenumber of shares to be issued at vesting float with the price of the stock, which converted the awards from liability awards to equity awards. As such, wereclassified $1,065,000 from other liabilities to equity. In accordance with ASC 718, "Compensation - Stock Compensation," this resulted in a probable-to-probable modification resulting in no impact to earnings.Recent Accounting PronouncementsIn January 2016, the FASB issued ASU 2016-01, "Financial Statements - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets andFinancial Liabilities," which requires equity investments in unconsolidated entities (other than those accounted for using the equity method of accounting)to be measured at fair value with changes in fair value recognized in net income. There will no longer be an available-for-sale classification for equitysecurities with readily determinable fair values. The new guidance is effective for periods beginning after December 15, 2017, with early adoption permitted.The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financial statements.71In February 2016, the FASB issued ASU No. 2016-02, "Leases." From the lessee's perspective, the new standard establishes a right-of-use, or ROU, model thatrequires a lessee to record a ROU asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified aseither finance or operating, with classification affecting the pattern of expense recognition in the income statement for a lessee. From the lessor's perspective,the new standard requires a lessor to classify leases as either sales-type, finance or operating. A lease will be treated as a sale if it transfers all of the risks andrewards, as well as control of the underlying asset, to the lessee. If risks and rewards are conveyed without the transfer of control, the lease is treated as afinancing lease. If the lessor doesn’t convey risks and rewards or control, an operating lease results. ASU 2016-02 is effective for periods beginning afterDecember 15, 2018. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’s consolidated financialstatements.In March 2016, the FASB issued an ASU No. 2016-08, "Revenue from Contracts" with Customers that further clarifies an ASU issued in 2014 on recognitionof revenue arising from contracts with customers. The core principle of this ASU is that entities will recognize revenue to represent the transfer of goods andservices to customers in an amount that reflects the consideration to which the entity expects to be entitled to in such exchange. Leases are specificallyexcluded from this ASU and will be governed by the applicable lease codification. However, this update may have implications in certain variable paymentterms included in lease agreements and in sale and leaseback transactions. The ASU is effective for interim and annual reporting periods in fiscal years thatbegin after December 15, 2017. The Company's preliminary assessment of revenues from contracts yielded an immaterial impact to the Company'sconsolidated financial statements.In March 2016, the FASB issued ASU No. 2016-09, "Compensation—Stock Compensation (Topic 718) — Improvements to Employee Share-Based PaymentAccounting." This ASU includes a requirement that the tax effect related to the settlement of share-based awards be recorded in income tax benefit or expensein the statements of earnings rather than directly to additional paid-in-capital. This change has no impact on total shareholders’ equity and is required to beadopted prospectively. In addition, the ASU modifies the classification of certain share-based payment activities within the statements of cash flows and thischange is generally required to be applied retrospectively. The ASU also allows for forfeitures to be recorded when they occur rather than estimated over thevesting period. The ASU is effective for interim and annual reporting periods in fiscal years that begin after December 15, 2016, with early adoptionpermitted. This change is required to be applied on a modified retrospective basis. The adoption of ASU 2016-09 for the most part is not expected to have amaterial impact on our financial condition, results of operations or cash flows. However, the update may add volatility to our income tax expense in futureperiods depending upon, among other things, the level of tax expense and the price of the Company's common stock at the date of vesting for share-basedawards. The Company will continue to record forfeitures over the vesting period. The impact of the other aspects of ASU 2016-09 are based on theCompany’s future stock price at the date of vesting or exercise of share-based payments as well as the timing of exercises and, as such, the Company cannotestimate the impact of these aspects, other than to expect that the adoption of this standard will benefit future tax expense in the short term, the extent towhich cannot be reasonably estimated at this time, nor can we estimate whether such benefits will continue or will result in increased tax expense in thelonger term.In June 2016, the FASB issued an ASU No. 2016-13 "Financial Instruments—Credit Losses (Topic 326)" changing the impairment model for most financialinstruments by requiring companies to recognize an allowance for expected losses, rather than incurred losses as required currently by the other-than-temporary impairment model. The ASU will apply to most financial assets measured at amortized cost and certain other instruments, including trade and otherreceivables, loans, held-to-maturity debt securities, net investments in leases, and off-balance-sheet credit exposures (e.g., loan commitments). The ASU iseffective for reporting periods beginning after December 15, 2019, with early adoption permitted, and will be applied as a cumulative adjustment to retainedearnings as of the effective date. The Company is currently in the process of evaluating the impact of the adoption of this ASU on the Company’sconsolidated financial statements.In August 2016, the FASB issued ASU No. 2016-15 “Statement of Cash Flows (Topic 230),” is intended to reduce diversity in practice in how certaintransactions are classified in the statement of cash flows. The new guidance addresses the classification of various transactions including distributionsreceived from equity method investments. The new guidance allows companies to adopt the cumulative earnings or nature of distribution for classifyingdistributions received from equity method investments. The ASU is effective for reporting periods beginning after December 15, 2017, with early adoptionpermitted, and will be applied retrospectively. During the year ended December 31, 2016, we received distributions of $4,500,000 and $1,600,000 classifiedas operating and investing activities, respectively, on our consolidated statements of cash flows. Classifications were determined using the cumulativeearnings approach.722. EQUITYEarnings Per Share (EPS)Basic net income (loss) per share attributable to common stockholders is based upon the weighted-average number of shares of common stock outstandingduring the year. Diluted net income (loss) per share attributable to common stockholders is based upon the weighted-average number of shares of commonstock outstanding and the weighted-average number of shares outstanding assuming the issuance of common stock upon exercise of stock options, warrantsto purchase common stock, and the vesting of restricted stock grants per ASC 260, “Earnings Per Share.” Twelve Months Ended December 31, 2016 2015 2014Weighted average number of shares outstanding: Common stock 20,737,903 20,665,792 20,595,422Common stock equivalents-stock options, grants 46,839 71,879 37,033Diluted shares outstanding 20,784,742 20,737,671 20,632,455WarrantsOn August 7, 2013, the Company announced that its Board of Directors declared a dividend of 3,000,000 warrants, or the Warrants, to purchase shares ofCompany common stock, par value $0.50 per share, or Common Stock, to holders of record of Common Stock as of August 21, 2013, the Record Date. TheWarrants were issued pursuant to a Warrant Agreement between the Company, Computershare, Inc. and Computershare Trust Company, N.A., as warrantagent. The Warrants were distributed to shareholders on August 28, 2013. Each Warrant entitled the holder to purchase one share of Common Stock at aninitial exercise price of $40.00 per share. The Warrants expired out of the money on August 31, 2016.733. MARKETABLE SECURITIESASC 320 “Investments – Debt and Equity Securities” requires that an enterprise classify all debt securities as either held-to-maturity, trading or available-for-sale. The Company has elected to classify its securities as available-for-sale and therefore is required to adjust securities to fair value at each reporting date.All costs and both realized and unrealized gains and losses on securities are determined on a specific identification basis. The following is a summary ofavailable-for-sale securities at December 31:($ in thousands) 2016 2015Marketable Securities:Fair ValueHierarchy Cost Estimated FairValue Cost Estimated FairValueCertificates of deposit with unrecognized losses for less than 12 months $1,868 $1,863 $4,810 $4,797with unrecognized losses for more than 12 months — — 239 238with unrecognized gains 3,320 3,329 2,800 2,805Total Certificates of depositLevel 1 5,188 5,192 7,849 7,840U.S. Treasury and agency notes with unrecognized losses for less than 12 months 947 946 860 857with unrecognized losses for more than 12 months — — — —with unrecognized gains 857 859 736 738Total U.S. Treasury and agency notesLevel 2 1,804 1,805 1,596 1,595Corporate notes with unrecognized losses for less than 12 months 11,658 11,592 14,638 14,516with unrecognized losses for more than 12 months 1,053 1,042 2,080 2,061with unrecognized gains 3,431 3,435 3,334 3,339Total Corporate notesLevel 2 16,142 16,069 20,052 19,916Municipal notes with unrecognized losses for less than 12 months 2,556 2,526 1,742 1,725with unrecognized losses for more than 12 months 271 269 301 298with unrecognized gains 812 814 1,435 1,441Total Municipal notesLevel 2 3,639 3,609 3,478 3,464 $26,773 $26,675 $32,975 $32,815We evaluate our securities for other-than-temporary impairment based on the specific facts and circumstances surrounding each security valued below itscost. Factors considered include the length of time the securities have been valued below cost, the financial condition of the issuer, industry reports related tothe issuer, the severity of any decline, our intention not to sell the security, and our assessment as to whether it is more likely than not that we will be requiredto sell the security before a recovery of its amortized cost basis. We then segregate the loss between the amounts representing a decrease in cash flowsexpected to be collected, or the credit loss, which is recognized through earnings, and the balance of the loss which is recognized through othercomprehensive income. At December 31, 2016, the fair market value of investment securities was $98,000 below the cost basis of securities. The Company’sgross unrealized holding gains equal $15,000 and gross unrealized holding losses equal $113,000. The Company has determined that any unrealized lossesin the portfolio are temporary as of December 31, 2016.As of December 31, 2016, the adjustment to accumulated other comprehensive loss in consolidated equity for the temporary change in the value of securitiesreflects an improvement in the market value of available-for-sale securities of $62,000, which includes estimated taxes of $24,000.74The following tables summarize the maturities, at par, of marketable securities by year ($ in thousands):December 31, 20162017 2018 2019 2020 TotalCertificates of deposit$531 $4,306 $324 $— $5,161U.S. Treasury and agency notes1,234 444 142 — 1,820Corporate notes4,316 7,133 4,232 — 15,681Municipal notes840 1,688 1,075 — 3,603 $6,921 $13,571 $5,773 $— $26,265December 31, 2015 2016 2017 2018 2019 TotalCertificates of deposit $2,492 $631 $4,510 $169 $7,802U.S. Treasury and agency notes 100 759 579 188 1,626Corporate notes 4,572 6,525 6,462 1,881 19,440Municipal notes 995 940 1,455 — 3,390 $8,159 $8,855 $13,006 $2,238 $32,258The Company’s investments in corporate notes are with companies that have an investment grade rating from Standard & Poor’s.4. INVENTORIESInventories consist of the following at December 31:($ in thousands) 2016 2015Farming inventories $2,709 $3,248Other 375 269 $3,084 $3,517Farming inventories consist of costs incurred during the current year related to the next year’s crop, as well as any current year’s unsold product and farmingchemicals.5. REAL ESTATEReal estate consists of the following at December 31:($ in thousands) 2016 2015Real estate development Mountain Village $126,096 $120,954Centennial 89,381 84,194Grapevine 23,917 18,285Tejon Ranch Commerce Center 8,871 12,033Real estate development 248,265 235,466 Real estate and improvements - held for lease, net Tejon Ranch Commerce Center 21,643 19,783Rancho Santa Fe and Other — 4,242Real estate and improvements - held for lease 21,643 24,025Less accumulated depreciation (1,617) (2,083)Real estate and improvements - held for lease, net $20,026 $21,942In January 2016, we completed construction of a multi-tenant commercial building located at TRCC-East. The multi-tenant building has a gross leasable areaof 4,645 and is leased to Baja Fresh and Habit Burger.In October 2016, we sold unimproved real property located at TRCC-East for $1,193,000 at a gain of $1,026,000. The Company deferred $411,000 becauseof continuing involvement related to the completion of certain land improvements.75In November 2016, we sold a building and land located in Rancho Santa Fe California for $4,700,000, recognizing a gain of $1,044,000.6. LONG-TERM WATER ASSETSLong-term assets consist of water and water contracts held for future use or sale. The water is held at cost which includes the price paid for the water and thecost to pump and deliver the water from the California aqueduct into the water bank. Water is currently held in a water bank on Company land in southernKern County. Company banked water costs also include costs related to the right to receive additional acre feet of water in the future from the AntelopeValley East Kern Water Agency, or AVEK. The Company has also banked water within an AVEK owned water bank.We have also been purchasing water for our future use or sale. In 2008 we purchased 8,393 acre-feet of transferable water and in 2009 we purchased anadditional 6,393 acre-feet of transferable water, all of which is currently held on our behalf by AVEK or has been placed in the Company's water bank. Wealso have secured State Water Project, or SWP, entitlement under long-term SWP water contracts within the Tulare Lake Basin Water Storage District and theDudley-Ridge Water District, totaling 3,444 acre-feet of SWP entitlement annually, subject to SWP allocations. These contracts extend through 2035. OnNovember 6, 2013, the Company acquired from DMB Pacific, or DMB, a contract to purchase water that obligates the Company to purchase 6,693 acre feet ofwater each year from the Nickel Family, LLC, or Nickel, a California limited liability company that is located in Kern County. The aggregate purchase pricewas approximately $18,700,000 and was paid one-half in cash and one-half in shares of Company Common Stock. The number of shares of Common Stockdelivered was determined based on the volume weighted average price of Common Stock for the ten trading days that ended two days prior to closing, whichcalculated to be 251,876 shares of Common Stock.This Nickel water purchase is similar to other transactions the Company has completed over the last several years as the Company has been building its waterassets for internal needs as well as for investment purposes due to the limited water supply within California.The initial term of the water purchase agreement with Nickel runs through 2044 and includes a Company option to extend the contract for an additional 35years. The purchase cost of water in 2016 was $695 per acre-foot. Purchase costs in 2016 and beyond are subject to annual cost increases based on the greaterof the consumer price index and 3%, resulting in a 2017 purchase cost of $717 per acre-foot.The water purchased under the contract with Nickel will ultimately be used in the development of the Company’s land for commercial/industrialdevelopment, residential development, and farming. Interim uses may include the sale of portions of this water to third party users on an annual basis untilthis water is fully allocated to Company uses, as just described.Annual amortization for these contracts is $1,351,000 per year.In 2016, we sold 7,285 acre feet of water totaling $9,601,000 with a cost of $5,925,000, which cost is recorded in the mineral resources segment on theConsolidated Statements of Operations.76Water contracts with the Wheeler Ridge Maricopa Water Storage District, or WRMWSD, and the Tejon-Castac Water District, or TCWD, are also in place, butwere entered into with each district at inception of the contract and not purchased later from third parties, and do not have a related financial value on thebooks of the Company. Therefore there is no amortization expense related to these contracts. Water assets consist of the following:(in acre feet, unaudited)December 31, 2016 December 31, 2015Banked water and water for future delivery AVEK water bank13,033 13,033 Company water bank17,287 8,700 AVEK water for future delivery2,362 2,362Total Company and AVEK banked water32,682 24,095 Transferable water *9,062 14,786 Water Contracts10,137 10,137Total purchased water - third parties51,881 49,018 WRMWSD - Contracts with Company15,547 15,547 TCWD - Contracts with Company5,749 5,749 TCWD - Banked water contracted to Company33,390 34,496Total purchased and contracted water sources in acre feet106,567 104,810*9,061 acre-feet of transferable water with AVEK will be returned to the Company at a 1.5 to 1 factor giving the Company use of a total of 13,594 feet.($ in thousands)December 31, 2016 December 31, 2015Banked water and water for future delivery$4,779 $4,779Transferable water9,075 9,117Water Contracts29,910 31,261Total long-term assets43,764 45,157less: Current portion(1,351) (1,351) $42,413 $43,806On August 6, 2015, Tejon Ranchcorp, or Ranchcorp, a wholly-owned subsidiary of Tejon Ranch Co., entered into a Water Supply Agreement with PastoriaEnergy Facility, L.L.C., or PEF. PEF is the current lessee under the power plant lease. Pursuant to the Water Supply Agreement, on January 1, 2016, PEF maypurchase from Ranchcorp up to 2,000 acre-feet of water and from January 1, 2017 through July 31, 2030, PEF may purchase from Ranchcorp up to 3,500 acre-feet of water per year, with an option to extend the term. PEF is under no obligation to purchase water from Ranchcorp in any year, but is required to payRanchcorp an annual option payment equal to 30% of the maximum annual payment. The price of the water under the Water Supply Agreement is $1,025 peracre foot of annual water, subject to 3% annual increases commencing January 1, 2017. The Water Supply Agreement contains other customary terms andconditions, including representations and warranties, which are typical for agreements of this type. The Company's commitments to sell water can be metthrough current water assets.7. ACCRUED LIABILITIES AND OTHERAccrued liabilities and other consists of the following:($ in thousands)December 31, 2016 December 31, 2015Accrued vacation$901 $801Accrued paid personal leave590 585Accrued bonus1,346 1,549Other351 557 $3,188 $3,492778. LINE-OF-CREDIT AND LONG-TERM DEBTDebt consists of the following:($ in thousands)December 31, 2016 December 31, 2015Revolving line of credit$7,700 $—Notes payable73,400 74,215Other borrowings467 —Total short-term and long-term debt81,567 74,215Less line-of-credit and current maturities of long-term debt(11,553) (815)Less deferred loan costs(161) (177)Long-term debt, less current portion$69,853 $73,223On October 13, 2014, the Company as borrower entered into an Amended and Restated Credit Agreement, a Term Note and a Revolving Line of Credit Note,with Wells Fargo, or collectively the Credit Facility. The Credit Facility adds a $70,000,000 term loan, or Term Loan to the existing $30,000,000 revolvingline of credit, or RLC. Funds from the Term Loan were used to finance the Company's purchase of DMB TMV LLC’s interest in TMV LLC as disclosed in theCurrent Report on Form 8-K filed on July 16, 2014. The Term Loan had a $69,439,000 balance as of December 31, 2016. Any future borrowings under theRLC will be used for ongoing working capital requirements and other general corporate purposes. To maintain availability of funds under the RLC, undrawnamounts under the RLC will accrue a commitment fee of 10 basis points per annum. The Company's ability to borrow additional funds in the future under theRLC is subject to compliance with certain financial covenants and making certain representations and warranties.The RLC had an outstanding balance of $7,700,000 and no outstanding balance as of December 31, 2016 and 2015, respectively. At the Company’s option,the interest rate on this line of credit can float at 1.50% over a selected LIBOR rate or can be fixed at 1.50% above LIBOR for a fixed rate term. During theterm of this credit facility (which matures in September 2019), we can borrow at any time and partially or wholly repay any outstanding borrowings and thenre-borrow, as necessary.The interest rate per annum applicable to the Term Loan is LIBOR (as defined in the Term Note) plus a margin of 170 basis points. The interest rate for theterm of the note has been fixed through the use of an interest rate swap at a rate of 4.11%. The Term Loan requires interest only payments for the first twoyears of the term and thereafter requires monthly amortization payments pursuant to a schedule set forth in the Term Note, with the final outstandingprincipal amount due October 5, 2024. The Company may make voluntary prepayments on the Term Loan at any time without penalty (excluding anyapplicable LIBOR or interest rate swap breakage costs). Each optional prepayment will be applied to reduce the most remote principal payment then unpaid.The Credit Facility is secured by the Company's farmland and farm assets, which include equipment, crops and crop receivables and the PEF power plantlease and lease site, and related accounts and other rights to payment and inventory.The Credit Facility requires compliance with three financial covenants: (a) total liabilities divided by tangible net worth not greater than 0.75 to 1.0 at eachquarter end; (b) a debt service coverage ratio not less than 1.25 to 1.00 as of each quarter end on a rolling four quarter basis; and (c) maintain liquid assetsequal to or greater than $20,000,000. At December 31, 2016 and 2015, we were in compliance with all financial covenants.The Credit Facility also contains customary negative covenants that limit the ability of the Company to, among other things, make capital expenditures,incur indebtedness and issue guaranties, consummate certain assets sales, acquisitions or mergers, make investments, pay dividends or repurchase stock, orincur liens on any assets.The Credit Facility contains customary events of default, including: failure to make required payments; failure to comply with terms of the Credit Facility;bankruptcy and insolvency; and a change in control without consent of the bank (which consent will not be unreasonably withheld). The Credit Facilitycontains other customary terms and conditions, including representations and warranties, which are typical for credit facilities of this type.The foregoing descriptions of the Credit Facility documents are qualified in their entirety by reference to each such material contract. Copies of the CreditFacility documents are filed as Exhibits 10.31 through 10.33 in the Current Report on Form 8-K filed October 17, 2014. The balance of the long-term debtinstruments listed above approximates the fair value of the instrument.78During the third quarter of 2013, we entered into a promissory note agreement with CMFG Life Insurance Company, to pay a principal amountof $4,750,000 with principal and interest due monthly starting on October 1, 2013. The interest rate on this promissory note is 4.25% per annum, withmonthly principal and interest payments of $102,700 ending on September 1, 2028. The proceeds from this promissory note were used to eliminate debt thathad been previously used to provide long-term financing for a building being leased to Starbucks and provide additional working capital for futureinvestment. The current balance on the note is $3,961,000. The balance of this long-term debt instrument listed above approximates the fair value of theinstrument.The following table summarizes our outstanding indebtedness and respective principal maturities as of December 31,($ in thousands) 2017 2018 2019 2020 2021 Thereafter TotalTerm loan $3,393 $3,563 $3,715 $3,881 $4,051 $50,836 $69,439Promissory note 266 277 289 302 315 2,512 3,961Other borrowings 194 218 54 — — — 466Total long-term debt $3,853 $4,058 $4,058 $4,183 $4,366 $53,348 $73,8669. OTHER LIABILITIESOther liabilities consist of the following:($ in thousands)December 31, 2016 December 31, 2015Pension liability (See Note 15)$2,931 $2,263Interest rate swap liability (See Note 10)1,865 2,905Supplemental executive retirement plan liability (See Note 15)8,015 7,999Other223 84 $13,034 $13,251For the captions presented in the table above, please refer to the respective Notes to Consolidated Financial Statements for further detail.10. INTEREST RATE SWAP LIABILITYDuring October 2014, the Company entered into an interest rate swap agreement to hedge cash flows tied to changes in the underlying floating interest ratetied to LIBOR for the Term Loan as discussed in Note 8 (Line of Credit and Long-Term Debt) of the Notes to Consolidated Financial Statements. Theineffective portion of the change in fair value of our interest rate swap agreement is required to be recognized directly in earnings. During the yearended December 31, 2016, our interest rate swap agreement was 100% effective; because of this, no hedge ineffectiveness was recognized inearnings. Changes in fair value, including accrued interest and adjustments for non-performance risk, on the effective portion of our interest rate swapagreements that are designated and that qualify as cash flow hedges are classified in accumulated other comprehensive loss. Amounts classified inaccumulated other comprehensive loss are subsequently reclassified into earnings in the period during which the hedged transactions affect earnings. As ofDecember 31, 2016, the fair values of our interest rate swap agreement aggregating a liability balance were classified in other liabilities based upon itsrespective fair value. We had the following outstanding interest rate swap agreement designated as cash flow hedges of interest rate risk as of December 31,2016 ($ in thousands):Effective Date Maturity Date Fair Value Hierarchy Weighted Average InterestPay Rate Fair Value as of12/31/2016 Notional Amount as of12/31/2016October 15, 2014 October 5, 2024 Level 2 4.11% $(1,865) $69,4397911. STOCK COMPENSATION - RESTRICTED STOCK AND PERFORMANCE SHARE GRANTSThe Company’s stock incentive plans provide for the making of awards to employees based upon a service condition or through the achievement ofperformance-related objectives. The Company has issued three types of stock grant awards under these plans: restricted stock with service condition vesting;performance share grants that only vest upon the achievement of specified performance conditions, such as corporate cash flow goals, or PerformanceCondition Grants; and performance share grants that include threshold, target, and maximum achievement levels based on the achievement of specificperformance milestones, or Performance Milestone Grants. The Company has also granted performance share grants that contain both performance-based andmarket-based conditions. Compensation cost for these awards is recognized based on either the achievement of the performance-based conditions, if they areconsidered probable, or if they are not considered probable, on the achievement of the market-based condition. Failure to satisfy the threshold performanceconditions will result in the forfeiture of shares. Forfeiture of share awards with service conditions or performance-based restrictions results in a reversal ofpreviously recognized share-based compensation expense. Forfeiture of share awards with market-based restrictions does not result in a reversal of previouslyrecognized share-based compensation expense.The following is a summary of the Company's performance share grants with performance conditions for the year ended December 31, 2016:Performance Share Grants with Performance ConditionsBelow threshold performance —Threshold performance 133,073Target performance 293,967Maximum performance 440,751The following is a summary of the Company’s stock grant activity, both time and performance unit grants, assuming target achievement for outstandingperformance grants for the following twelve month periods ended: December 31, 2016 December 31, 2015 December 31, 2014Stock Grants Outstanding Beginning of the Year at Target Achievement272,353 237,045 265,701New Stock Grants/Additional shares due to maximum achievement287,091 114,221 165,996Vested Grants(172,749) (52,436) (41,694)Expired/Forfeited Grants(524) (26,477) (152,958)Stock Grants Outstanding at Target Achievement386,171 272,353 237,045The unamortized cost associated with nonvested stock grants and the weighted-average period over which it is expected to be recognized as of December 31,2016 was $3,308,025 and 22 months, respectively. The fair value of restricted stock with time-based vesting features is based upon the Company’s shareprice on the date of grant and is expensed over the service period. Fair value of performance grants that cliff vest based on the achievement of performanceconditions is based on the share price of the Company’s stock on the day of grant once the Company determines that it is probable that the award will vest.This fair value is expensed over the service period applicable to these grants. For performance grants that contain a range of shares from zero to maximum wedetermine, based on historic and projected results, the probability of (1) achieving the performance objective, and (2) the level of achievement. Based on thisinformation, we determine the fair value of the award and measure the expense over the service period related to these grants. Because the ultimate vesting ofall performance grants is tied to the achievement of a performance condition, we estimate whether the performance condition will be met and over whatperiod of time. Ultimately, we adjust compensation cost according to the actual outcome of the performance condition. Under the Non-Employee DirectorStock Incentive Plan, or NDSI Plan, each non-employee director receives his or her annual compensation in stock.Beginning in the second half of 2013, the Compensation Committee of the Board conducted a compensation study prepared by an outside consultant thatwas completed during the first quarter of 2014. One of the outcomes of the compensation study was that the Board elected to modify selected outstandingand unvested performance share grants, or the existing performance milestone grants, and issue new milestone performance grants. The Company has assessedthat it is probable that these new performance milestones will be met.80As discussed above, the performance share grant approved by the Board in March 2014, included the modification of existing performance milestone grantstotaling 133,890 restricted stock units and the issuance of new performance share grants totaling 89,837 restricted stock units. The restricted stock units ofthe modified existing performance milestone grants have been accounted for as probable-to-probable modification since the Company has determined thatachieving the existing performance milestones was probable. The unamortized total cost relating to these probable-to-probable modified performance sharegrants is being recognized ratably over the new requisite service period. The impact of modifying the existing performance stock grants is an annual expenseof $1,109,000 over the service period. The values for the 2014 performance grants, including the new milestone grants, are fixed at threshold, target andmaximum performance values, meaning that the amount of shares at vesting will vary depending on the stock price at that time. The total value for thesegrants at maximum performance is $5,702,000. During the second quarter of 2015, the 2014 performance milestone grants were modified to fix the number ofshares to be received rather than have the number of shares to be issued at vesting float with the price of the stock, which converted the awards from liabilityawards to equity awards. As such, we reclassified $1,065,000 from other liabilities to equity. In accordance with ASC 718, "Compensation - StockCompensation," this resulted in a probable-to-probable modification and had no impact on earnings. In 2016, these milestone performance grants were met atlevels above target and at target achievement levels.The following table summarizes stock compensation costs for the Company's 1998 Stock Incentive Plan, or the Employee 1998 Plan, and NDSI Plan for thefollowing periods:Employee 1998 Plan: December 31, 2016 December 31, 2015 December 31, 2014 Expensed $3,847,000 $2,989,000 $2,645,000 Capitalized 296,000 165,000 95,000 4,143,000 3,154,000 2,740,000NDSI Plan 738,000 768,000 889,000 $4,881,000 $3,922,000 $3,629,00012. INCOME TAXESThe Company accounts for income taxes using ASC 740, “Income Taxes” which is an asset and liability approach that requires the recognition of deferredtax assets and liabilities for the expected future tax consequences of events that have been recognized differently in the financial statements and the taxreturns. The provision for income taxes consists of the following at December 31:($ in thousands) 2016 2015 2014Total provision: $336 $1,125 $2,697Federal: Current (758) 1,521 2,289Deferred 1,021 (682) (313) 263 839 1,976State: Current (145) 585 603Deferred 218 (299) 118 73 286 721 $336 $1,125 $2,697The reasons for the difference between total income tax expense and the amount computed by applying the statutory Federal income tax rate of 34% toincome before taxes are as follows for the years ended December 31: ($ in thousands) 2016 2015 2014Income tax at statutory rate $304 $1,360 $2,912State income taxes, net of Federal benefit 42 213 452Oil and mineral depletion (161) (213) (385)Permanent differences 82 (92) (172)Other 69 (143) (110)Total provision $336 $1,125 $2,69781Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reportingpurposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets and liabilities are as follows atDecember 31:($ in thousands) 2016 2015Deferred income tax assets: Accrued expenses $561 $578Deferred revenues 654 652Capitalization of costs 3,224 3,023Pension adjustment 4,690 4,396Stock grant expense 2,309 3,593State deferred taxes 37 221Book deferred gains 1,912 1,711Joint venture allocations 932 860Provision for additional capitalized costs 1,003 1,003Interest rate swap 799 1,244Other 41 3Total deferred income tax assets $16,162 $17,284Deferred income tax liabilities: Deferred gains $51 $1,390Depreciation 5,279 5,040Cost of sales allocations 1,252 1,252Joint venture allocations 5,389 3,121Straight line rent 926 929Prepaid expenses 323 149State deferred taxes 470 617Other 190 127Total deferred income tax liabilities $13,880 $12,625Net deferred income tax asset $2,282 $4,659Allowance for deferred tax assets — —Net deferred taxes $2,282 $4,659Due to the nature of our deferred tax assets, the Company believes they will be used through operations in future years and a valuation allowance is notnecessary.The Company made total federal and state income tax payments of $1,750,000 in 2016 and $2,100,000 during 2015. The Company received refunds of$615,000 and $283,000 in 2016 and 2015, respectively.The Company evaluates its tax positions for all income tax items based on their technical merits to determine whether each position satisfies the “more likelythan not to be sustained upon examination” test. The tax benefits are then measured as the largest amount of benefit, determined on a cumulative basis, that is“more likely than not” to be realized upon ultimate settlement. As a result of this evaluation, the Company determined there were no uncertain tax positionsthat required recognition and measurement for the years ended December 31, 2016 and 2015 within the scope of ASC 740, "Income Taxes." Tax years from2014 to 2016 and 2013 to 2016 remain available for examination by the Federal and California State taxing authorities, respectively.8213. LEASESThe Company is a lessor of certain property pursuant to various commercial lease agreements having terms ranging up to 60 years. The Company generatesincome from commercial rents. The following is a summary of income from commercial rents included in real estate revenue as of December 31: 2016 2015 2014Base rent $5,613,000 $5,208,000 $4,934,000Percentage rent $495,000 $652,000 $422,000Future minimum rental income on commercial, communication and right-of-way on non-cancelable leases as of December 31, 2016:2017 2018 2019 2020 2021 Thereafter$5,330 $5,063 $4,996 $5,006 $4,708 $23,98014. COMMITMENTS AND CONTINGENCIESIn 2016, the Company paid $8,529,000 for water contracts. These estimated water contract payments consist of SWP, contracts with Wheeler Ridge MaricopaWater Storage District, Tejon-Castac Water District, or TCWD, Tulare Lake Basin Water Storage District, Dudley-Ridge Water Storage District and the Nickelwater contract. These contracts for the supply of future water run through 2035 and 2044. The Tulare Lake Basin Water Storage District and Dudley-RidgeWater Storage District SWP contracts have now been transferred to AVEK, for our use in the Antelope Valley. As discussed in Note 6 (Long-Term WaterAssets) of the Notes to Consolidated Financial Statement, we purchased the assignment of a contract to purchase water in late 2013. The assigned watercontract is with Nickel Family, LLC, and obligates us to purchase 6,693 acre-feet of water annually starting in 2014 and running through 2044.The Company is obligated to make payments of approximately $800,000 per year through 2021 to the Tejon Ranch Conservancy as prescribed in theConservation Agreement we entered into with five major environmental organizations in 2008. Our advances to the Tejon Ranch Conservancy are dependenton the occurrence of certain events and their timing, and are therefore subject to change in amount and period. These amounts are recorded in construction inprogress for the Centennial, Grapevine and MV projects.The Company exited a consulting contract during the second quarter of 2014 related to the Grapevine Development and is obligated to pay an earnedincentive fee at the time of successful receipt of project entitlements and at a value measurement date five-years after entitlements have been achieved forGrapevine. The final amount of the incentive fees will not be finalized until the future payment dates. The Company believes that net savings from exitingthe contract over this future time period will more than offset the incentive payment costs.The Tejon Ranch Public Facilities Financing Authority, or TRPFFA, is a joint powers authority formed by Kern County and TCWD to finance publicinfrastructure within the Company’s Kern County developments. TRPFFA has created two Community Facilities Districts, or CFDs, the West CFD and theEast CFD. The West CFD has placed liens on 420 acres of the Company’s land to secure payment of special taxes related to $28,620,000 of bond debt sold byTRPFFA for TRCC-West. The East CFD has placed liens on 1,931 acres of the Company’s land to secure payments of special taxes related to $55,000,000 ofbond debt sold by TRPFFA for TRCC-East. At TRCC-West, the West CFD has no additional bond debt approved for issuance. At TRCC-East, the East CFDhas approximately $65,000,000 of additional bond debt authorized by TRPFFA that can be sold in the future.In connection with the sale of bonds there is a standby letter of credit for $4,921,000 related to the issuance of East CFD bonds. The standby letter of credit isin place to provide additional credit enhancement and cover approximately two years' worth of interest on the outstanding bonds. This letter of credit will notbe drawn upon unless the Company, as the largest land owner in the CFD, fails to make its property tax payments. The Company believes that the letter ofcredit will never be drawn upon. The letter of credit is for two years and will be renewed in two-year intervals as necessary. The annual cost related to theletter of credit is approximately $83,000.83The Company is obligated, as a landowner in each CFD, to pay its share of the special taxes assessed each year. The secured lands include both the TRCC-West and TRCC-East developments. Proceeds from the sale of West CFD bonds went to reimburse the Company for public infrastructure related to the TRCC-West development. At December 31, 2016 there were no additional improvement funds remaining from the West CFD bonds and there are $7,768,000 inimprovement funds within the East CFD bonds for reimbursement of cost during 2017 and future years. During 2016, improvement funds totaling $6,155,000were distributed. During 2016, the Company paid approximately $2,585,000 in special taxes. As development continues to occur at TRCC, new owners ofland and new lease tenants, through triple net leases, will bear an increasing portion of the assessed special tax. This amount could change in the future basedon the amount of bonds outstanding and the amount of taxes paid by others. The assessment of each individual property sold or leased is not determinable atthis time because it is based on the current tax rate and the assessed value of the property at the time of sale or on its assessed value at the time it is leased to athird-party. Accordingly, the Company is not required to recognize an obligation at December 31, 2016.In July 2014, the Company received a copy of a Notice of Intent to Sue, or Notice, dated July 17, 2014 indicating that the Center for Biological Diversity, theWishtoyo Foundation and Dee Dominguez intend to initiate a lawsuit against the U.S. Fish and Wildlife Service, or USFWS, under the federal EndangeredSpecies Act challenging USFWS's approval of Ranchcorp's Tehachapi Uplands Multiple Species Habitat Conservation Plan, or TUMSHCP, and USFWS'sissuance of an Incidental Take Permit, or ITP, to Ranchcorp for the take of federally listed species. The foregoing approvals authorize, among other things,removal of California condor habitat associated with Ranchcorp's potential future development of MV. No lawsuit has been filed at this time. It is notpossible to predict whether any lawsuit will actually be filed or whether the Company or Ranchcorp will incur any damages from such a lawsuit.Mountain VillageOn November 10, 2009, a suit was filed in the U.S. District Court for the Eastern District of California (Fresno division) by David Laughing Horse Robinson,an alleged representative of the federally-unrecognized “Kawaiisu Tribe” (collectively, “Robinson”) alleging, inter alia, that the Company does not holdlegal title to the land within the MV development that it seeks to develop. The grounds for the federal lawsuit were the subject of a United States SupremeCourt decision in 1924 where the United States Supreme Court found against the Indian tribes. The suit named as defendants the Company, two affiliates(Tejon Mountain Village LLC and Tejon Ranchcorp), the County of Kern, and Ken Salazar, in his capacity as U.S. Secretary of the Interior. On March 28,2016, the United States Supreme Court ruled in favor of the Company and as a result this matter is no longer capable of further litigation.National CementThe Company leases land to National Cement Company of California Inc., or National, for the purpose of manufacturing Portland cement from limestonedeposits on the leased acreage. The California Regional Water Quality Control Board, or RWQCB, for the Lahontan Region issued orders in the late 1990swith respect to environmental conditions on the property currently leased to National.The Company's former tenant Lafarge Corporation, or Lafarge, and current tenant National, continue to remediate these environmental conditions to theRWQCB orders.The Company is not aware of any failure by Lafarge or National to comply with directives of the RWQCB. Under current and prior leases, National andLafarge are obligated to indemnify the Company for costs and liabilities arising out of their use of the leased premises. The remediation on environmentalconditions is included within the scope of the National or Lafarge indemnity obligations. If the Company were required to remediate the environmentalconditions at its own cost, it is unlikely that the amount of any such expenditure by the Company would be material and there is no reasonable likelihood ofcontinuing risk from this matter.84Antelope Valley Groundwater CasesOn November 29, 2004, a conglomerate of public water suppliers filed a cross-complaint in the Los Angeles Superior Court seeking a judicial determinationof the rights to groundwater within the Antelope Valley basin, including the groundwater underlying the Company’s land near the Centennial project. Fourphases of a multi-phase trial have been completed. Upon completion of the third phase, the court ruled that the groundwater basin is currently in overdraftand established a current total sustainable yield. The fourth phase of trial occurred in the first half of 2013 and resulted in confirmation of each party’sgroundwater pumping for 2011 and 2012. The fifth phase of the trial commenced in February 2014, and concerned 1) whether the United States has a federalreserved water right to basin groundwater, and 2) the rights to return flows from imported water. The court heard evidence on the federal reserved right butcontinued the trial on the return flow issues while most of the parties to the adjudication discussed a settlement, including rights to return flows. In February2015, more than 140 parties representing more than 99% of the current water use within the adjudication boundary agreed to a settlement. On March 4, 2015,the settling parties, including Tejon, submitted a Stipulation for Entry of Judgment and Physical Solution to the court for approval. On December 23, 2015,the court entered Judgment approving the Stipulation for Entry of Judgment and Physical Solution. The Company’s water supply plan for the Centennialproject anticipated reliance on, among other sources, a certain quantity of groundwater underlying the Company’s lands in the Antelope Valley. TheCompany’s allocation in the Judgment is consistent with that amount. Prior to the Judgment becoming final, on February 19 and 22, 2016, several parties,including the Willis Class and Phelan Pinon Hills CSD, filed notices of appeal from the Judgment. Appellate briefing will likely occur during the first threequarters of 2017. Notwithstanding the appeals, the parties with assistance from the Court have begun establishment of the Watermaster and administration ofthe Physical Solution, consistent with the Judgment.Summary and Status of Kern Water Bank LawsuitsOn June 3, 2010, the Central Delta and South Delta Water Agencies and several environmental groups, including the Center for Biological Diversity(collectively, “Central Delta”), filed a complaint in the Sacramento County Superior Court against the California Department of Water Resources, or DWR,Kern County Water Agency and a number of “real parties in interest,” including the Company and TCWD. The lawsuit challenges certain amendments to theSWP contracts that were originally approved in 1995, known as the “Monterey Amendments.” Relative to the Company, petitioners in this action sought toinvalidate environmental documentation prepared pursuant to the California Environmental Quality Act pertaining to the Kern Water Bank.The original Environmental Impact Report, or EIR, for the Monterey Amendments was determined to be insufficient in an earlier lawsuit. The current lawsuitprincipally (i) challenges the adequacy of the remedial EIR that DWR prepared as a result of the original lawsuit and (ii) challenges the validity of theMonterey Amendments on various grounds, including the transfer of the Kern Water Bank (“KBW”) lands, from DWR to the Kern County Water Agency andin turn to the Kern Water Bank Authority, or KWBA, whose members are various Kern and Kings County interests, including TCWD, which TCWD has a 2%interest in the KWBA. A parallel lawsuit was also filed by Central Delta in Kern County Superior Court on July 2, 2010, against Kern County Water Agency,also naming the Company and TCWD as real parties in interest, which has been stayed pending the outcome of the other action against DWR. The Companyis named on the ground that it “controls” TCWD. This lawsuit has since been moved to the Sacramento County Superior Court. Another lawsuit was filed inKern County Superior Court on June 3, 2010, by two districts adjacent to the KWB, namely Rosedale Rio Bravo and Buena Vista Water Storage Districts, orRosedale, asserting that the remedial EIR did not adequately evaluate potential impacts arising from operations of the KWB, but this lawsuit did not namethe Company, only TCWD. TCWD has a contract right for water stored in the KWB and rights to recharge and withdraw water. This lawsuit has since beenmoved to the Sacramento County Superior Court. In an initial favorable ruling on January 25, 2013, the court determined that the challenges to the validityof the Monterey Amendments, including the transfer of the KWB lands, were not timely and were barred by the statutes of limitation, the doctrine of laches,and by the annual validating statute. The substantive hearing on the challenges to the EIR was held on January 31, 2014. On March 5, 2014 the court issueda decision, rejecting all of Central Delta’s California Environmental Quality Act, or CEQA, claims, except the Rosedale claim, joined by Central Delta, thatthe EIR did not adequately evaluate future impacts from operation of the KWB, in particular potential impacts on groundwater and water quality.85On November 24, 2014, the court issued a writ of mandate (the “2014 Writ”) that requires DWR to prepare a revised EIR regarding the MontereyAmendments evaluating the potential operational impacts of the KWB. The 2014 Writ authorizes the continued operation of the KWB pending completionof the revised EIR subject to certain conditions including those described in an interim operating plan negotiated between the KWBA and Rosedale. The writof mandate, as revised by the court, requires DWR to certify the revised EIR and file the return to the writ of mandate by September 28, 2016. On September20, 2016 the Director of DWR (a) certified the Revised EIR as in compliance with CEQA, (b) adopted findings, a statement of overriding considerations, anda mitigation, monitoring and reporting program as required by CEQA, (c) made a new finding pertaining to carrying out the Monterey Amendments throughcontinued use and operation of the KWB by the KWBA, and (d) caused a notice of determination to be filed with the Office of Planning and Resources of theState of California on September 22, 2016. On September 28, 2016, DWR filed with the Superior Court its return to the 2014 Writ of mandate.On November 24, 2014, the court entered a judgment in the Central Delta case (1) dismissing the challenges to the validity of the Monterey Amendments andthe transfer of the KWB in their entirety and (2) granting in part, and denying, in part, the CEQA petition for writ of mandate. Central Delta has appealed thejudgment and the KWBA and certain other parties have filed a cross-appeal with regard to certain defenses to the CEQA cause of action. The appeals arepending in the California Court of Appeal.On December 3, 2014, the court entered judgment in the Rosedale case (i) in favor of Rosedale in the CEQA cause of action, and (ii) dismissing thedeclaratory relief cause of action. No appeal of the Rosedale judgment has been filed.On October 21, 2016, the Central Delta petitioners and a new party, the Center for Food Safety (“CFS Petitioners”), filed a new lawsuit against DWR andnaming a number of real parties in interest, including KWBA and TCWD (but not including the Company). The new lawsuit challenges DWR’s (i)certification of the Revised EIR, (ii) compliance with the 2014 Writ and CEQA, and (iii) finding concerning the continued use and operation of the KWB byKWBA. The Superior Court has not scheduled a hearing on DWR’s return to the 2014 Writ or on the CFS Petition. The CFS Petitioners indicate that theyintend to seek to stay the Superior Court proceedings on the return to the 2014 Writ and the CFS Petition until a decision of the Court of Appeal on CentralDelta’s appeal of the Judgment. To the extent that there may be an adverse outcome of the claims, the monetary value cannot be estimated at this time.To the extent there may be an adverse outcome of the claims still pending as described above, the monetary value cannot be estimated at this time.GrapevineOn December 6, 2016 the Kern County Board of Supervisors granted entitlement approval for the Grapevine project (described below). On January 5, 2017the Center for Biological Diversity (CBD) and the Center for Food Safety (CFS) filed an action in Kern County Superior Court pursuant to the CaliforniaEnvironmental Quality Act (CEQA), against Kern County and the Kern County Board of Supervisors (collectively, the “County”) concerning the County’sgranting of approvals for the Grapevine project, including certification of the final environmental impact report and related findings (EIR); approval ofassociated general plan amendments; adoption of associated zoning maps; adoption of Specific Plan Amendment No. 155, Map No. 500; adoption of SpecialPlan No. 1, Map No. 202; exclusion from Agricultural Preserve No. 19; and adoption of a development agreement, among other associated approvals. TheCompany and its wholly-owned subsidiary, Tejon Ranchcorp, are named as real parties in interest in this action.The action alleges that the County failed to properly follow the procedures and requirements of CEQA including failure to identify, analyze and mitigateimpacts to air quality, greenhouse gas emissions, biological resources, traffic, water supply and hydrology, growth inducing impacts, failure to adequatelyconsider project alternatives and to provide support for the County’s findings and statement of overriding considerations in adopting the EIR and failure toadequately describe the environmental setting and project description. As of the publication of this filing there have been no hearings on this matter and theCounty and real parties in interest have not filed their responsive pleadings. Petitioners seek to invalidate the County's approval of the project, theenvironmental approvals and require the County to revise the environmental documentation.Proceedings Incidental to BusinessFrom time to time, we are involved in other proceedings incidental to our business, including actions relating to employee claims, environmental law issues,real estate disputes, contractor disputes and grievance hearings before labor regulatory agencies.86The outcome of these other proceedings is not predictable. However, based on current circumstances, we do not believe that the ultimate resolution of theseother proceedings, after considering available defenses and any insurance coverage or indemnification rights, will have a material adverse effect on ourfinancial position, results of operations or cash flows either individually or in the aggregate.15. RETIREMENT PLANSThe Company sponsors a defined benefit retirement plan that covers eligible employees hired prior to February 1, 2007. The benefits are based on years ofservice and the employee’s five-year final average salary. The accounting for the defined benefit plan requires the use of assumptions and estimates in orderto calculate periodic benefit cost and the value of the plan's assets and benefit obligation. These assumptions include discount rates, investment returns, andproject salary increases, amongst others. The discount rates used in valuing the plan's benefits obligations were determined with reference to high qualitycorporate and government bonds that are appropriately matched to the duration of the plan's obligation.Contributions are intended to provide for benefits attributable to service both to date and expected to be provided in the future. The Company funds the planin accordance with the Employee Retirement Income Security Act of 1974, or ERISA. The following table sets forth changes in the plan's net benefitobligation and accumulated benefit information as of December 31:($ in thousands) 2016 2015Change in benefit obligation - Pension Benefit obligation at beginning of year $8,970 $11,051Service cost 223 265Interest cost 406 466Actuarial gain/assumption changes 378 (1,239)Benefits paid (50) (33)Settlements paid (22) (1,540)Benefit obligation at end of year $9,905 $8,970Accumulated benefit obligation at end of year $8,475 $7,661Change in Plan Assets Fair value of plan assets at beginning of year $6,707 $7,972Actual return on plan assets 339 (142)Employer contribution — 450Benefits/expenses paid (50) (33)Settlements paid (22) (1,540)Fair value of plan assets at end of year $6,974 $6,707Funded status - liability $(2,931) $(2,263) Amounts recorded in equity Net actuarial loss $3,465 $3,123Prior service cost (61) (90)Total amount recorded $3,404 $3,033Amount recorded, net taxes $2,042 $1,820Other changes in plan assets and benefit obligations recognized in other comprehensive income include the following as of December 31:($ in thousands) 2016 2015Net loss (gain) $556 $(482)Recognition of net actuarial loss (213) (849)Recognized prior service cost 29 29Total changes $372 $(1,302)Changes, net of taxes $188 $(781)87The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year: Amortization net actuarial gain$230Amortization prior service cost$(29)At December 31, 2016 and 2015 the Company had a long-term pension liability. The Company has always valued its plan assets as of December 31 each yearso there were no additional transition impacts upon implementation of a year-end measurement date for plan assets as required by ASC 715 "Compensation -Retirement Benefits." For 2017, the Company is estimating that contributions to the pension plan will be approximately $0.Based on actuarial estimates, it is expected that annual benefit payments from the pension trust will be as follows:2017 2018 2019 2020 2021 Thereafter$181 $179 $245 $257 $269 $2,121Plan assets consist of equity, debt and short-term money market investment funds. The plan’s current investment policy targets 65% equities, 25% debt and10% money market funds. Equity and debt investment percentages are allowed to fluctuate plus or minus 20% around the respective targets to takeadvantage of market conditions. As an example, equities can fluctuate from 78% to 52% of plan assets. At December 31, 2016, the investment mix wasapproximately 60% equity, 29% debt, and 11% money market funds. At December 31, 2015, the investment mix was approximately 61% equity, 33% debtand 6% money market funds. Equity investments consist of a combination of individual equity securities plus value funds, growth funds, large cap funds andinternational stock funds. Debt investments consist of U.S. Treasury securities and investment grade corporate debt. The weighted-average discount rate andrate of increase in future compensation levels used in determining the periodic pension cost is 4.3% in 2016 and 4.6% in 2015. The expected long-term rateof return on plan assets is 7.5% in 2016 and 2015. The long-term rate of return on plan assets is based on the historical returns within the plan andexpectations for future returns. See the following table for fair value hierarchy by investment type at December 31:($ in thousands) Fair Value Hierarchy 2016 2015Pension Plan Assets: Cash and Cash Equivalents Level 1 $776 $459Collective Funds Level 2 3,423 2,726Treasury/Corporate Notes Level 2 1,181 1,181Corporate Equities Level 1 1,594 2,341Fair value of plan assets $6,974 $6,707Total pension and retirement expense was as follows for each of the years ended December 31:($ in thousands) 2016 2015 2014Cost components: Service cost $(223) $(265) $(248)Interest cost (406) (466) (392)Expected return on plan assets 517 615 576Net amortization and deferral (184) (284) (45)Settlement recognition — (536) (407)Total net periodic pension cost $(296) $(936) $(516)88The Company has a Supplemental Executive Retirement Plan, or SERP, to restore to executives designated by the Compensation Committee of the Board ofDirectors the full benefits under the pension plan that would otherwise be restricted by certain limitations now imposed under the Internal Revenue Code.The SERP is currently unfunded. The following SERP benefit information is as of December 31:($ in thousands) 2016 2015Change in benefit obligation - SERP Benefit obligation at beginning of year $7,999 $7,431Service cost — —Interest cost 323 278Actuarial gain/assumption changes 129 726Benefits paid (436) (436)Benefit obligation at end of year $8,015 $7,999Accumulated benefit obligation at end of year $7,482 $7,117Funded status - liability $(8,015) $(7,999)($ in thousands) 2016 2015Amounts recorded in stockholders’ equity Net actuarial loss (gain) $2,248 $2,462Prior service cost — —Total amount recorded $2,248 $2,462Amount recorded, net taxes $1,349 $1,477Other changes in benefit obligations recognized in other comprehensive income for 2016 and 2015 include the following components: ($ in thousands) 2016 2015Net (gain) loss $129 $726Recognition of net actuarial gain or (loss) (343) (337)Total changes $(214) $389Changes, net of taxes $638 $233The Company expects to recognize the following amounts as a component of net periodic pension costs during the next fiscal year ($ in thousands):Amortization net actuarial gain or (loss)$372Based on actuarial estimates, it is expected that annual SERP benefit payments will be as follows ($ in thousands):2017 2018 2019 2020 2021 Thereafter$503 $498 $493 $488 $482 $2,559The weighted-average discount rate and rate of increase in future compensation levels used in determining the actuarial present value of projected benefitsobligation was 3.90% and 3.5% for 2016, 4.15% and 3.5% for 2015, and 3.85% and 3.5% for 2014. Total pension and retirement expense was as follows foreach of the years ended December 31:($ in thousands) 2016 2015 2014Cost components: Service cost $— $— $26Interest cost 323 278 258Net amortization and deferral 343 337 23Total net periodic pension cost $666 $615 $3078916. REPORTING SEGMENTS AND RELATED INFORMATIONWe currently operate in five reporting segments: commercial/industrial real estate development, resort/residential real estate development, mineral resources,farming, and ranch operations.Information pertaining to operating results of the Company's reporting segments are as follows:($ in thousands) December 31, 2016 December 31, 2015 December 31, 2014Revenues Real estate—commercial/industrial (1) $9,438 $8,272 $7,845Mineral resources 14,153 15,116 16,255Farming (2) 18,648 23,836 23,435Ranch operations (1) 3,338 3,923 3,534Segment revenues 45,577 51,147 51,069Equity in unconsolidated joint ventures, net 7,098 6,324 5,294Gain on sale of real estate 1,044 — —Investment income 457 528 696Other income 158 381 526Total revenues and other income 54,334 58,380 57,585Segment Profits (Losses) Real estate—commercial/industrial (1) 2,338 1,578 639Real estate—resort/residential (2) (1,630) (2,349) (2,608)Mineral resources 6,357 7,720 9,837Farming (2) (25) 4,852 7,185Ranch operations (1) (2,396) (2,189) (2,464)Segment profits (3) 4,644 9,612 12,589Equity in unconsolidated joint ventures, net 7,098 6,324 5,294Gain on sale of real estate 1,044 — —Investment income 457 528 696Other income 158 381 526Corporate expenses (12,550) (12,808) (10,646)Income from operations before income taxes $851 $4,037 $8,459 (1) During the fourth quarter of 2015, the Company reclassified revenues and expenses previously classified as commercial/industrial into a new segment called Ranch Operations.Ranch operations is comprised of grazing leases, game management and other ancillary services supporting the ranch.(2) During the fourth quarter of 2014, the Company determined hay crop sales previously recorded in the resort/residential segment revenues fit most appropriately with our farmingsegment revenues. The Company has reclassified prior periods to conform to the current year presentation.(3) Segment profits are revenues less operating expenses, excluding investment income and expense, corporate expenses, equity in earnings of unconsolidated joint ventures, andincome taxes.90The revenue components of the commercial/industrial real estate segment for the years ended December 31 are as follows:($ in thousands)2016 2015 2014Pastoria Energy Facility Lease$3,612 $3,694 $3,445Tejon Ranch Commerce Center2,014 1,567 908Commercial leases1,587 1,368 1,021Communication leases806 784 782Landscaping and other709 859 1,181Land Sale710 — 508Total commercial revenues$9,438 $8,272 $7,845Equity in earnings of unconsolidated joint ventures7,098 6,324 5,294Commercial revenues & equity in earnings of unconsolidated joint ventures$16,536 $14,596 $13,139Commercial lease revenue consists of land and building leases to tenants at our commercial retail and industrial developments, base and percentage rentsfrom our PEF power plant lease, communication tower rents, and payments from easement leases. On November 2016, we sold building and land, that waspart of our commercial segment, located in Rancho Santa Fe California for $4,700,000, recognizing a gain of $1,044,000, which is not included in thenumbers above.The resort/residential real estate development segment is actively involved in the land entitlement and development process internally and through jointventure entities. The segment produced losses of $1,630,000, $2,349,000, and $2,608,000 during the years ended December 31, 2016, 2015, and 2014,respectively.The mineral resources segment receives oil and mineral royalties from the exploration and development companies that extract or mine the natural resourcesfrom our land and receives revenue from water sales. The following table summarizes these activities for each of the years ended December 31:($ in thousands) 2016 2015 2014Oil and gas $1,549 $2,661 $6,096Rock aggregate 1,164 870 1,216Cement 1,299 1,263 1,043Land lease for oil exploration 176 157 198Water sales 9,601 10,165 7,702Reimbursable costs 364 — —Total mineral resources revenues $14,153 $15,116 $16,255The farming segment produces revenues from the sale of wine grapes, almonds, pistachios and hay. The revenue components of the farming segment were asfollows for each of the year ended December 31:($ in thousands) 2016 2015 2014Almonds $7,373 $12,238 $10,036Pistachios 6,199 6,425 7,585Wine grapes 3,744 4,338 3,978Hay 520 749 1,361Total crop proceeds 17,836 23,750 22,960Other farming revenues 812 86 475Total farming revenues $18,648 $23,836 $23,43591Ranch operations consists of game management revenues and ancillary land uses such as grazing leases and filming. Within game management we operateour High Desert Hunt Club, a premier upland bird hunting club. The High Desert Hunt Club offers over 6,400 acres and 35 hunting fields, each fieldproviding different terrain and challenges. The hunting season runs from mid-October through March. We sell individual hunting packages as well asmemberships. Ranch operations also includes Hunt at Tejon, which offers a wide variety of guided big game hunts including trophy Rocky Mountain elk,deer, turkey and wild pig. We offer guided hunts and memberships for both the Spring and Fall hunting seasons.($ in thousands) 2016 2015 2014Game management $1,296 $1,658 $1,652Grazing 1,187 1,484 1,155High Desert Hunt Club 334 351 302Filming and other 521 430 425Total ranch operations revenues $3,338 $3,923 $3,534Information pertaining to assets of the Company’s reporting segments is as follows for each of the years ended December 31: ($ in thousands) IdentifiableAssets Depreciation andAmortization CapitalExpenditures2016 Real estate - commercial/industrial $65,290 $551 $5,196Real estate - resort/residential 243,963 77 16,013Mineral resources 45,066 1,357 2,161Farming 36,895 1,150 2,006Ranch operations 3,893 641 523Corporate 44,594 773 481Total $439,701 $4,549 $26,3802015 Real estate - commercial/industrial $67,550 $469 $7,023Real estate - resort/residential 228,064 71 16,404Mineral resources 46,025 1,501 1,199Farming 32,542 929 2,583Ranch operations 4,313 460 299Corporate 53,425 1,660 540Total $431,919 $5,090 $28,0482014 Real estate - commercial/industrial $67,640 $645 $8,391Real estate - resort/residential 212,534 76 10,214Mineral resources 47,434 1,351 —Farming 34,464 1,633 4,701Ranch operations 4,295 453 561Corporate 65,556 713 908Total $431,923 $4,871 $24,775Segment profits (losses) are total revenues less operating expenses, excluding interest income, corporate expenses, equity in earnings of unconsolidated jointventures, and interest expense. Identifiable assets by segment include both assets directly identified with those operations and an allocable share of jointlyused assets. Corporate assets consist primarily of cash and cash equivalents, marketable securities, deferred income taxes, and land and buildings. Land isvalued at cost for acquisitions since 1936. Land acquired in 1936, upon organization of the Company, is stated on the basis carried by the Company’spredecessor.9217. INVESTMENT IN UNCONSOLIDATED AND CONSOLIDATED JOINT VENTURESThe Company maintains investments in joint ventures. The Company accounts for its investments in unconsolidated joint ventures using the equity methodof accounting unless the venture is a variable interest entity, or VIE, and meets the requirements for consolidation. The Company’s investment in itsunconsolidated joint ventures at December 31, 2016 was $33,803,000. The equity in the income of the unconsolidated joint ventures was $7,098,000 for thetwelve months ended December 31, 2016. The unconsolidated joint ventures have not been consolidated as of December 31, 2016, because theCompany does not control the investments. The Company’s current joint ventures are as follows:•Petro Travel Plaza Holdings LLC – TA/Petro is an unconsolidated joint venture with TravelCenters of America, LLC for the development andmanagement of travel plazas and convenience stores. The Company has 50% voting rights and shares 60% of profit and losses in this joint venture. Ithouses multiple commercial eating establishments as well as diesel and gasoline operations in TRCC. The Company does not control the investmentdue to its having only 50% voting rights, and because our partner in the joint venture is the managing partner and performs all of the day-to-dayoperations and has significant decision making authority regarding key business components such as fuel inventory and pricing at the facility. AtDecember 31, 2016, the Company had an equity investment balance of $18,372,000 in this joint venture.•Majestic Realty Co. – Majestic Realty Co., or Majestic, is a privately-held developer and owner of master planned business parks in the United States.The Company partnered with Majestic to form two 50/50 joint ventures to acquire, develop, manage, and operate industrial real estate at TRCC. Thepartners have equal voting rights and equally share in the profit and loss of the joint venture. At December 31, 2016, the Company's investment inthese joint ventures was $1,655,000, which includes our outside basis.◦In August 2016, we partnered with Majestic to form TRC-MRC 2, LLC to acquire, lease, and maintain a fully occupied warehouse at TRCC-West. The partnership acquired the 651,909 square foot building for $24,773,000 and was largely financed through a $21,080,000 promissorynote guaranteed by both partners. The note matures in September 2020 and currently has an outstanding principal balance of $21,080,000.◦In September 2016, TRC-MRC 1, LLC was formed to develop and operate an approximately 480,480 square foot industrial building at TRCC-East. The joint venture is currently constructing the industrial building.•Rockefeller Joint Ventures – The Company has three joint ventures with Rockefeller Group Development Corporation or Rockefeller. At December 31,2016, the Company’s combined equity investment balance in these three joint ventures was $13,776,000.◦Two joint ventures are for the development of buildings on approximately 91 acres and are part of an agreement for the potential developmentof up to 500 acres of land in TRCC including pursuing Foreign Trade Zone, or FTZ, designation and development of the property within theFTZ for warehouse distribution and light manufacturing. The Company owns a 50% interest in each of the joint ventures. Currently the FiveWest Parcel LLC joint venture owns and leases a 606,000 square foot building to Dollar General which has now been extended to April 2022,and includes an option to extend for an additional three years. For operating revenue, please see the following table. The Five West Parcel jointventure currently has an outstanding term loan with a balance of $10,251,000 that matures on May 5, 2022. The Company and Rockefellerguarantee the performance of the debt. The second of these joint ventures, 18-19 West LLC, was formed in August 2009 through thecontribution of 61.5 acres of land by the Company, which is being held for future development. Both of these joint ventures are beingaccounted for under the equity method due to both members having significant participating rights in the management of the ventures.93◦The third joint venture is the TRCC/Rock Outlet Center LLC joint venture that was formed during the second quarter of 2013 to develop, own,and manage a net leasable 326,000 square foot outlet center on land at TRCC-East. The cost of the outlet center was approximately$87,000,000 and was funded through a construction loan for up to 60% of the costs and the remaining 40% was through equity contributionsfrom the two members. The Company controls 50% of the voting interests of TRCC/Rock Outlet Center LLC, thus it does not control by votinginterest alone. The Company is the named managing member, as such we considered the presumption that a managing member controls thelimited liability company. The managing member's responsibilities relate to the routine day-to-day activities of TRCC/Rock Outlet Center LLC.However, all operating decisions during development and operations, including the setting and monitoring of the budget, leasing, marketing,financing and selection of the contractor for any of the project's construction, are jointly made by both members of the joint venture. Therefore,the Company concluded that both members have significant participating rights that are sufficient to overcome the presumption of theCompany controlling the joint venture through it being named the managing member. Therefore, the investment in TRCC/Rock Outlet CenterLLC is being accounted for under the equity method. The TRCC/Rock Outlet Center LLC joint venture is separate from the aforementionedagreement to potentially develop up to 500 acres of land in TRCC. During the fourth quarter of 2013, the TRCC/Rock Outlet Center LLC jointventure entered into a construction line of credit agreement with a financial institution for $52,000,000 that, as of December 31, 2016, had anoutstanding balance of $50,712,000. The Company and Rockefeller guarantee the performance of the debt.•Centennial Founders, LLC – Centennial Founders, LLC, or CFL, is a joint venture with TRI Pointe Homes, Lewis Investment Company, and CalAtlanticthat was organized to pursue the entitlement and development of land that the Company owns in Los Angeles County. Based on the Second Amendedand Restated Limited Company Agreement of Centennial Founders, LLC and the change in control and funding that resulted from the amendedagreement, Centennial Founders, LLC qualified as a VIE, beginning in the third quarter of 2009 and the Company was determined to be the primarybeneficiary. As a result, Centennial Founders, LLC has been consolidated into our financial statements beginning in that quarter. Our partners retained anoncontrolling interest in the joint venture. On November 30, 2016, CFL and Lewis entered a Redemption and Withdrawal Agreement (the Agreement),whereby Lewis irrevocably and unconditionally withdrew as a member of CFL, CFL redeemed Lewis' entire interest for no consideration. As a result, ournoncontrolling interest balance was reduced by $11,039,000. At December 31, 2016, the Company owned 84.07% of Centennial Founders, LLC.The Company’s investment balance in its unconsolidated joint ventures differs from its respective capital accounts in the respective joint ventures. Thedifferential represents the difference between the cost basis of assets contributed by the Company and the agreed upon contribution value of the assetscontributed.Condensed balance sheet information and statement of operations of the Company’s unconsolidated joint ventures are as follows:Balance Sheet Information as of December 31: Joint Venture TRC Assets Borrowings Equity Investment In 2016 2015 2016 2015 2016 2015 2016 2015Petro Travel Plaza Holdings, LLC$68,652 $64,484 $(15,275) $(14,914) $51,287 $46,710 $18,372 $15,626Five West Parcel, LLC16,614 17,278 (10,251) (10,725) 6,043 6,213 2,837 2,92218-19 West, LLC4,623 4,640 — — 4,621 4,640 1,741 1,750TRCC/Rock Outlet Center, LLC86,056 89,289 (50,712) (51,557) 34,523 36,891 9,198 10,382TRC-MRC 1, LLC199 — — — 199 — 224 —TRC-MRC 2, LLC23,965 — (21,080) — 2,592 — 1,431 —Total$200,109 $175,691 $(97,318) $(77,196) $99,265 $94,454 $33,803 $30,680 Centennial Founders, LLC$86,099 $81,981 $— $— $85,281 $81,227 Consolidated94Condensed Statement of Operations Information as of December 31: Joint Venture TRC Revenues Earnings(Loss) Equity in Earnings (Loss) 2016 2015 2014 2016 2015 2014 2016 2015 2014Petro Travel PlazaHoldings, LLC$114,947 $115,776 $122,584 $12,077 $10,629 $8,229 $7,246 $6,377 $4,937Five West Parcel, LLC2,887 3,408 3,635 1,029 1,084 442 515 $542 $22118-19 West, LLC10 20 60 (129) (108) 15 (65) $(54) $7TRCC/Rock OutletCenter, LLC19,542 8,988 5,220 (367) (1,082) 328 (184) $(541) $164TRC-MRC 1, LLC— — — — — — — $— $—TRC-MRC 2, LLC21,178 — — (828) — — (414) — —Tejon Mountain Village,LLC— — — — — (70) — — (35) $128,564 $128,192 $131,499 $11,782 $10,523 $8,944 $7,098 $6,324 $5,294 Centennial Founders,LLC$520 $749 $1,361 $(246) $(140) $415 Consolidated (1) Revenues for TRCC/Rock Outlet Center are presented net of non-cash tenant allowance amortization of $1.9 million, $2.1 million, and $0.7 million as of December 31, 2016,2015, and 2014, respectively.(2)Earnings for TRC-MRC 2, LLC include non-cash amortization of purchase accounting adjustments related to in-place leases of $1.2 million that will be amortized over theremaining lease period.18. RELATED PARTY TRANSACTIONSDuring 2014, we had a gain of $1,145,000 related to a land sale of $1,268,000 sold to the TA/Petro joint venture. Related to the sale, we recognized$458,000 of the gain and deferred $687,000 of the gain, which will be recognized at the time we exit the joint venture or the joint venture is terminated.TA/Petro is an unconsolidated joint venture with TravelCenters of America, LLC for the development and management of travel plazas and conveniencestores. The company has 50% voting rights and shares 60% of profit and losses in this joint venture, which owns and operates travel plazas/commercialhighway operations in TRCC. See Note 17 (Investments in Unconsolidated and Consolidated Joint Ventures) of the Notes to Consolidated FinancialStatements for further detail regarding the TA/Petro unconsolidated joint venture. Also during 2014, the Company completed the asset purchase of DMBTMV LLC's membership interest in TMV LLC, which increased our development in process balance by $101,648,000.TCWD is a not-for-profit governmental entity, organized on December 28, 1965, pursuant to Division 13 of the Water Code, State of California. TCWD is alandowner voting district, which requires an elector, or voter, to be an owner of land located within the district. TCWD was organized to provide the waterneeds for future municipal and industrial development. The Company is the largest landowner and taxpayer within TCWD. The Company has a water servicecontract with TCWD that entitles us to receive all of TCWD’s State Water Project entitlement and all of TCWD’s banked water. TCWD is also entitled tomake assessments of all taxpayers within the district, to the extent funds are required to cover expenses and to charge water users within the district for the useof water. From time to time, we transact with TCWD in the ordinary course of business. We believe that the terms negotiated for all transactions are no lessfavorable than those that could be negotiated in arm’s length transactions.9519. UNAUDITED QUARTERLY OPERATING RESULTSThe following is a tabulation of unaudited quarterly operating results for the years indicated: ($ in thousands, exceptper share) TotalRevenue1 SegmentProfit(Loss) Net Income (Loss) Net Income(Loss)attributableto CommonStockholders Net Income (loss)Per Share NetIncome(Loss),Per Shareattributable toCommonStockholders22016 First Quarter $13,122 $3,186 $1,195 $1,209 $0.06 $0.06Second Quarter 7,006 56 (728) (688) (0.04) $(0.03)Third Quarter 13,223 1,187 317 324 0.02 $0.02Fourth Quarter 12,841 215 (269) (287) (0.01) (0.01) $46,192 $4,644 $515 $558 2015 First Quarter $16,826 $4,643 $1,601 $1,617$0.08 $0.08Second Quarter 7,159 1,362 377 4060.02 $0.02Third Quarter 12,187 (614) (811) (788)(0.04) $(0.04)Fourth Quarter 15,884 4,221 1,745 1,7150.08 $0.08 $52,056 $9,612 $2,912 $2,950 _______________________________(1) Includes investment income and other income.(2) Net income (loss) per share on a diluted basis. Quarterly rounding of per share amounts can result in a variance from the reported annual amount.96Exhibit 10.39REDEMPTION AND WITHDRAWAL AGREEMENTTHIS REDEMPTION AND WITHDRAWAL AGREEMENT (this "Agreement") ismade and entered as of November 30, 2016 (the "Effective Date"), by and among CENTENNIAL FOUNDERS, LLC, a Delawarelimited liability company, formerly known as RM Development Associates, LLC (the "Company"), LEWIS TEJON MEMBER, LLC, aDelaware limited liability company, and Lewis Investment Company, LLC, a California limited liability company ("Lewis").Capitalized terms used herein and not otherwise defined herein shall have the meanings given to them in the Second Amended andRestated LLC Agreement (as defined in Recital A below). This Agreement is entered into with reference to the following facts andcircumstances:R E C I T A L SA.The Company is governed by that certain Second Amended and Restated Limited Liability Company Agreement ofCentennial Founders, LLC dated as of July 31, 2009 (the "Second Amended and Restated LLC Agreement"), entered into by andamong Tejon Ranchcorp, a California corporation ("Tejon"), Pardee Homes, a California corporation ("Pardee"), Standard PacificInvestment Corp., a Delaware limited liability company ("SPIC"), and Standard Pacific Corp., a Delaware corporation ("StandardPacific", which is now known as CalAtlantic Group, Inc., a Delaware corporation ("CalAtlantic Group")), and Lewis. Lewis TejonMember, LLC succeeded to all of the Interest (as such term is defined herein) of Lewis in the Company (on behalf of itself and Lewiscollectively the “Withdrawing Member”). CalAtlantic Group succeeded to all of Standard Pacific's Interest in the Company (on behalfof itself and SPIC, collectively, "CalAtlantic").B.Pursuant to Article 10 of the Second Amended and Restated LLC Agreement, each Developer has the right to purchaseLots from the Company for the development of for- sale single family attached and/or detached residences.C.The affiliates of the Withdrawing Member previously sold their home building business and have no present intentionto engage directly in the home building business.D.Pursuant to Section 13.1A of the Second Amended and Restated LLC Agreement, the Withdrawing Member has theright to withdraw as a member of the Company. The Withdrawing Member now desires to exercise its withdrawal right, in part, since itdoes not presently intend to engage directly in the home building business in the future. The withdrawal of the Withdrawing Memberas a member of the Company shall be irrevocable and unconditional and will be further acknowledged and agreed to by theWithdrawing Member pursuant to that certain First Amendment to Second Amended and Restated Limited Liability CompanyAgreement of Centennial Founders, LLC in the form attached hereto as Exhibit A (the "First Amendment") to be executedconcurrently with this Agreement.E.Conditioned upon the irrevocable and unconditional withdrawal of the Withdrawing Member as a member of theCompany, Pardee and CalAtlantic (individually, a "Remaining Developer" and collectively, the "Remaining Developers") and Tejonhave agreed, immediately following the Withdrawing Member's withdrawal, to enter into a SecondAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC (the "SecondAmendment"). The Remaining Developers and Tejon are sometimes hereinafter referred to individually, as a "Remaining Member"and collectively, as the "Remaining Members."F.The Company and the Withdrawing Member now desire to enter into this Agreement, and the Remaining Membersnow desire to enter into the Consent, Ratification and Agreement of the Remaining Members in the form attached as Exhibit “A” tothis Agreement (the "CRA"), to provide for (i) the full and complete redemption of the Withdrawing Member's Interest in theCompany, and (ii) such other matters as are agreed to by the Company and the Withdrawing Member.Exhibit 10.39A G R E E M E N TNOW THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, the parties heretoagree as follows:1.Withdrawal/Redemption of the Interest. Pursuant to the terms and conditions set forth in this Agreement and the FirstAmendment, the Withdrawing Member hereby irrevocably and unconditionally withdraws as a member of the Company and theCompany hereby redeems the Withdrawing Member's entire "Interest" (as defined in the Second Amended and Restated LLCAgreement and as further defined in this Section 1) in the Company (provided the foregoing shall not limit or modify the rights of theWithdrawing Member under Section 2(c) below). For purposes of this Agreement, the Withdrawing Member's "Interest" includes,without limitation, all of the Withdrawing Member's right, title and interest in and to and claims against the Company (including,without limitation, any claims released under Section 7(a) below), any management, voting or other rights under any organizationaland operational agreement (whether arising in connection with the Executive Committee, as a member, Developer or otherwise), anyright to return of the Withdrawing Member's capital and any yield or return thereon, rights to distributions or allocations of income,profits, credits, losses or deductions, and claims for payment of any fees, debts (including, without limitation, any right to treat theWithdrawing Member's unreturned Capital Contribution as or receive payment of Subordinated Debt) or reimbursement or payment ofany other amounts together with any interest thereon owing now or in the future by the Company to the Withdrawing Member and anyright, title or interest in or to purchase or acquire any property of the Company, including, without limitation, any right to acquire orpurchase Private Sale Lots and Private Sale Commercial Parcels. On the Effective Date, the following actions shall occur concurrently:(a) the Company will redeem in full the Withdrawing Member's Interest, and (b) the Withdrawing Member will irrevocably andunconditionally withdraw from the Company (collectively, the "Transaction").2.Consideration.(a)Adequacy of Consideration. The Withdrawing Member acknowledges that the release from the Company andTejon and the indemnity from the Company under thisAgreement for the benefit of the Withdrawing Member constitutes fair, adequate and sufficient consideration under this Agreement forthe Transaction.(b)Non-Responsibility of the Remaining Members and the Company. For the avoidance of any doubt,(i)in no event shall (A) any Remaining Member or the Company be required to make any payment to theWithdrawing Member in consideration for the Withdrawing Member withdrawing as a member of the Company, (B) any RemainingMember be responsible for the breach of any obligation of any other Remaining Member under this Agreement, the CRA, the FirstAmendment or any other agreement between any of the Remaining Members and the Withdrawing Member related to the Transactionor otherwise, or(C) the Company be responsible for the breach of any obligation of a Remaining Member under this Agreement, the CRA, the FirstAmendment or any other agreement between any of the Remaining Members and the Withdrawing Member related to the Transactionor otherwise; and(ii)the Transaction shall remain in full force and effect and shall not be subject to rescission, set aside, orany similar claim or remedy by the Withdrawing Member, all of which rights and remedies are hereby irrevocably and unconditionallywaived by the Withdrawing Member and shall be considered as having been released pursuant to the Withdrawing Member's Release(provided for in Section 7(a) below).(c)Survival of Indemnification Provisions. Notwithstanding the Transaction (or any other provision set forth inthis Agreement or the First Amendment), the indemnification and other provisions set forth inExhibit 10.39Section 16.2 of the Second Amended and Restated LLC Agreement for the benefit of the Withdrawing Member and the otherIndemnified Parties described therein shall survive the Withdrawing Member's withdrawal from the Company with respect to any claimthat arises on or prior to the Effective Date which is covered under Section16.2 of the Second Amended and Restated LLC Agreement (an "Indemnifiable Claim"); provided however that such indemnificationand other provisions shall not cover any breach by the Withdrawing Member of this Agreement or the First Amendment, and providedfurther that the Withdrawing Member's rights under Section 16.2 of the Second Amended and Restated LLC Agreement shall besubject to the express terms and limitations contained therein and in Section 16.3 of the Second Amended and Restated LLCAgreement. Except as provided above in this Section 2(c) or in the First Amendment, the Withdrawing Member no longer possesses orretains its Interest or any other right, title or interest in or to or claims against the Company. Except as otherwise provided in thisAgreement or the First Amendment, the Withdrawing Member has no further duties, liabilities and/or obligations to the Company orany of the Remaining Members with respect to its Interest and/or under the LLC Agreement.3.Representations and Warranties.(a)Withdrawing Member's Representations and Warranties. The Withdrawing Member makes the followingrepresentations and warranties to the Company as of the Effective Date:(i)The Withdrawing Member is a limited liability company, duly organized and validly existing under thelaws of the state of Delaware, with all requisite power to carry on its business as presently owned or conducted and to take any actioncontemplated by it pursuant to this Agreement.(ii)The Withdrawing Member has full power and authority to enter into this Agreement and toconsummate the transactions contemplated hereby. This Agreement and the consummation of the transactions contemplated herebyhave been duly authorized by all necessary action on the part of the Withdrawing Member, no further consent or approval is required,and this Agreement constitutes the legal, valid and binding obligation of the Withdrawing Member, enforceable in accordance with itsterms, except as enforcement may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditor'srights generally or by general equity principles.(iii)The execution, delivery and performance of this Agreement does not, and the performance of thisAgreement will not: (1) violate or result in a default under the organizational documents of the Withdrawing Member; or (2) violateany existing applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court havingjurisdiction over the Withdrawing Member.(iv)The execution, delivery and performance of this Agreement, the Transaction and any othertransactions contemplated hereby do not conflict, and are not inconsistent, with and will not result (with or without the giving of noticeor passage of time or both) in a breach of or creation of any lien, charge or encumbrance upon any of the Withdrawing Member'sInterest pursuant to the terms of any credit agreement, indenture, lease, guarantee or other instrument to which the WithdrawingMember is a party or by which the Withdrawing Member may be bound or to which it may be subject.(v)The Withdrawing Member owns its Interest free and clear of all liens and encumbrances or otherrestrictions of any kind whatsoever of any person whether claiming through the Withdrawing Member or otherwise, except to theextent expressly set forth in the Second Amended and Restated LLC Agreement. The Withdrawing Member's Interest constitutes theentire right, title and interest in and to claims against the Company owned by the Withdrawing Member or any affiliates of theWithdrawing Member.(vi)Excepting the Withdrawing Member Unreleased Claims (defined below), from and after the EffectiveDate, the Withdrawing Member shall not have any right, title or interest in or to or claim against the Company or under the SecondAmended and Restated LLC Agreement, including, without limitation, any right, title or interest in or to or against any cash flow orany other distributions, capital, profits and losses, management, voting or other rights under any organizational and operationalagreement (whether arising in connection with theExhibit 10.39Executive Committee, as a member, Developer or otherwise), or any rights to any receivables (including, without limitation, any rightto the Withdrawing Member's unreturned Capital Contribution and/or any right to treat the Withdrawing Member's unreturned CapitalContribution as or receive payment of Subordinated Debt) relating to the Company, including but not limited to, member loans,voluntary loans, payment of fees, repayment of any loan or any other such receivables or any right, title or interest in or to purchase oracquire anyproperty of the Company, including, without limitation, any right to acquire or purchase Private Sale Lots and Private Sale CommercialParcels (provided the foregoing shall not limit or modify the rights of the Withdrawing Member under Section 2(c) above or under theFirst Amendment).(vii)The Withdrawing Member hereby represents and warrants that it is the owner of the WithdrawingMember Claims and that it has not previously assigned or transferred any of the Withdrawing Member Claims.(viii)The Withdrawing Member hereby acknowledges and understands that (i) the Company and theRemaining Members intend to carry on with the business of the Company, (ii) the Withdrawing Member has been provided with dueopportunity to inquire regarding the ongoing and future prospects of the business and affairs of the Company, and (iii) the Companyand its Remaining Members have no affirmative duty to disclose or other duty (including, without limitation, any fiduciary duty)regarding the ongoing and future business and affairs of the Company (including, without limitation, any potential opportunities,profits or earnings which the Withdrawing Member may be foregoing by withdrawing from the Company pursuant to this Agreement)to the Withdrawing Member however such duty might arise by contract, law or otherwise. The Withdrawing Member hereby waives allrights it may have against the Company, its assets or the Remaining Members in connection with the duties and obligations describedin the foregoing subsections (i) to (iii) (collectively, the "Partnership Opportunity Disclosure Obligations").(b)Company's Representations and Warranties. The Company hereby represents and warrants to theWithdrawing Member as of the Effective Date as follows:(i)The Company is a limited liability company duly organized and validly existing under the laws of thestate of Delaware, with all requisite power to carry on its business as presently owned or conducted and to take any actioncontemplated by it pursuant to this Agreement.(ii)The Company has full power and authority to enter into this Agreement and to consummate theTransaction and any other transactions contemplated hereby. This Agreement and the consummation of the Transaction and any othertransactions contemplated hereby have been duly authorized by all necessary action on the part of the Company, no further consent orapproval is required from the Remaining Members or any other Person except for such consents or approval being obtained prior tothe Effective Date and all such consents and approvals have been obtained as of the Effective Date, and this Agreement constitutes thelegal, valid and binding obligation of the Company enforceable in accordance with its terms, except as enforcement may be limited bybankruptcy, insolvency or other laws relating to or affecting enforcement of creditor's rights generally or by general equity principles.(iii)The execution, delivery and performance of this Agreement does not, and the performance of thisAgreement as of the Effective Date will not: (1) violate the organizational documents of the Company; (2) violate any existingapplicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court having jurisdiction over theCompany, or (3) require the Company to obtain any authorization, consent,approval or waiver from, or to make any filing with, any governmental body or authority except for such consents or approval beingobtained prior to the Effective Date and all such consents and approvals have been obtained as of the Effective Date.Exhibit 10.39(iv)The execution, delivery and performance of this Agreement, the Transaction and any othertransactions contemplated hereby as of the Effective Date do not conflict and are not inconsistent with, and will not result (with orwithout the giving of notice or passage of time or both) in a breach of any credit agreement, indenture, lease, guarantee or otherinstrument to which the Company is a party or by which the Company may be bound or to which it may be subject.(v)Any and all third party consents or approvals necessary for the performance of this Agreement and thetransactions contemplated hereby, including without limitation, the Approval from each of the Remaining Members, has been obtainedas of the Effective Date.(vi)The Company hereby represents and warrants that it is the owner of the Company Claims and that ithas not previously assigned or transferred any of the Company Claims.(c)Remaining Member Representations and Warranties. Each Remaining Member hereby represents and warrantsto the Withdrawing Member as of the Effective Date as follows:(i)Such Remaining Member is a limited liability company or corporation duly organized and validlyexisting under the laws of the state of its formation, with all requisite power to carry on its business as presently owned or conductedand to take any action contemplated by it pursuant to this Agreement.(ii)Such Remaining Member has full power and authority to enter into the CRA and to consummate thetransactions contemplated hereby. The CRA and the consummation of the transactions contemplated thereby have been dulyauthorized by all necessary action on the part of such Remaining Member, no further consent or approval is required from theRemaining Member or any other Person except for such consents or approval being obtained prior to the Effective Date and all suchconsents and approvals have been obtained as of the Effective Date, and the CRA constitutes the legal, valid and binding obligation ofsuch Remaining Member enforceable in accordance with its terms, except as enforcement may be limited by bankruptcy, insolvencyor other laws relating to or affecting enforcement of creditor's rights generally or by general equity principles.(iii)The execution, delivery and performance of the CRA does not, and the performance of the CRA andthe transactions contemplated thereby as of the Effective Date will not: (1) violate the organizational documents of such RemainingMember; (2) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality orcourt having jurisdiction over such Remaining Member, or (3) require such Remaining Member to obtain any authorization, consent,approval or waiver from, or to make any filing with, any governmental body or authority except for such consents or approval beingobtained prior to the Effective Date and all such consents and approvals have been obtained as of the Effective Date.(iv)The execution, delivery and performance of the CRA and the transactions contemplated thereby as ofthe Effective Date do not conflict and are not inconsistent with, and will not result (with or without the giving of notice or passage oftime or both) in a breach of any credit agreement, indenture, lease, guarantee or other instrument to which such Remaining Member isa party or by which such Remaining Member may be bound or to which it may be subject.(d)Survival. Each of the representations and warranties of the Company, the Withdrawing Member and eachRemaining Member set forth in this Section 3 shall expire if a claim has not been commenced against the applicable party with respectto a breach of a representation or warranty within one (1) year from the Effective Date.4.Company Acknowledgment. As a material inducement to the Withdrawing Member to enter into this Agreement, theCompany hereby acknowledges and agrees that:(a)AS-IS ACQUISITION. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT AND THE FIRSTAMENDMENT, THE COMPANY IS REDEEMING AND ACQUIRING THE WITHDRAWINGExhibit 10.39MEMBER'S INTEREST IN THE COMPANY ON AN "AS-IS/WHERE-IS" AND "WITH ALL FAULTS AND DEFECTS" BASISWITHOUT ANY REPRESENTATION OR WARRANTY OF THE WITHDRAWING MEMBER (OR ANY AFFILIATE ORREPRESENTATIVE OF THE WITHDRAWING MEMBER), EXPRESS, IMPLIED OR STATUTORY, AS TO SUCH INTEREST, THECOMPANY, OR THE NATURE OR CONDITION OF OR TITLE TO ALL OR ANY OF THE ASSETS OF THE COMPANY.(b)No Representations. Other than the express representations, warranties, agreements and covenants of theWithdrawing Member as set forth in this Agreement and the First Amendment, neither the Withdrawing Member, nor any Personacting by or on behalf of the Withdrawing Member, has made any representation, warranty, inducement, promise, agreement,assurance or statement, oral or written, of any kind to the Company or to any of the Remaining Members upon which the Company orany such Remaining Member is relying, or in connection with which the Company or any such Remaining Member has made or willmake any decision concerning the Withdrawing Member's Interest, the Company, the Agreement, the liabilities of the Company and/orthe assets of the Company (including, without limitation, the Master Project).5.Management Rights. On the Effective Date, (i) the Withdrawing Member's management, voting, approval or othersimilar rights with respect to the Company (whether arising in connection with any Voting Interest, the Executive Committee, as amember, Developer or otherwise) shall have been irrevocably and unconditionally terminated, and (ii) all of the WithdrawingMember's appointed Representatives and Alternates to the Executive Committee shall be deemed to have irrevocably andunconditionally resigned from the Executive Committee and the Withdrawing Member shall have no further representation on theExecutive Committee of any kind or nature.6.Deliveries and Transaction Costs.(a)Withdrawing Member's Deliveries. At or before the Effective Date, the Withdrawing Member shall deliver tothe Company the following:(i)an executed acknowledgement to the First Amendment, in the Withdrawing Member's capacity as awithdrawing member of the Company;(ii)the written resignation of its Representatives and Alternates from the Executive Committee in the formattached as Exhibit B hereto; and(iii)such resolutions, authorizations, or other corporate and/or limited liability company documents oragreements relating to the Withdrawing Member and the Company's Members as shall be reasonably requested by the Company.(b)The Company's Deliveries. At or before the Effective Date, the Company shall deliver to the WithdrawingMember the following:(i)the First Amendment, duly executed by the Company and the Remaining Members; and(ii)the CRA duly executed by the Remaining Members (the "CRA").(c)Transaction Costs. Each of the parties shall be responsible for the payment of its own out-of-pocket costs,including attorneys' fees, incurred in connection with this Agreement, whether consummated or not.7.Releases.(a)As of the Effective Date, the Withdrawing Member, for itself and its affiliates, partners, directors, members,owners, managers, officers, employees and agents (individually, a "Withdrawing Member Releasing Party" and collectively, the"Withdrawing Member Releasing Parties"), hereby releases and dischargesExhibit 10.39(the "Withdrawing Member Release") the Company, the Executive Committee (and its appointed Representatives and Alternates),Tejon, each of their respective affiliates, and each of their respective partners, directors, members (excluding the RemainingDevelopers), owners, managers, officers, employees and agents (collectively, "Company Releasees") from all causes of action,actions, debts, sums of money, accounts, bonds, bills, covenants, contracts, controversies, promises, agreements, trespasses, variances,judgments, damages, executions, claims, demands, whatsoever, in law or equity, which any Withdrawing Member Releasing Party,individually or collectively, has, ever had or may have in the future against any Company Releasee, by reason of any matter, cause orthing whatsoever accruing or arising from the beginning of time to the Effective Date with respect to the Second Amended andRestated LLC Agreement, the First Amendment, the Partnership Opportunity Disclosure Obligations, the Company, the Master Projector the Adjacent Property (collectively, the "Withdrawing Member Claims"); provided, however, that this Withdrawing MemberRelease shall not extend to any Withdrawing Member Claims against any Company Releasee arising out of any breach by any suchCompany Releasee of any of its obligations or representations and warranties expressly set forth in this Agreement, the FirstAmendment and/or the CRA (or any dispute regarding the interpretation or enforceability of this Agreement, the First Amendmentand/or the CRA) (collectively, the "Withdrawing Member Unreleased Claims").It is the intention of the Withdrawing Member Releasing Parties that the release under Section 7(a), with the exception of theWithdrawing Member Unreleased Claims, be effective as a bar to each of the Withdrawing Member Claims hereinabove specified.Each Withdrawing Member Releasing Party understands, acknowledges, and agrees that no Withdrawing Member Unknown Claims(as hereinafter defined), or any facts, events, circumstances, evidence or transactions which could now be asserted or which mayhereafter be discovered, shall affect the final, absolute and unconditional nature of the release under Section 7(a). For purposes of thisAgreement, "Withdrawing Member Unknown Claims" means any and all Withdrawing Member Claims (except for the WithdrawingMember Unreleased Claims) that a Withdrawing Member Releasing Party does not know or suspect to exist in his, her or its favor atthe time of the effectiveness of the release under Section 7(a), which if known by such Withdrawing Member Releasing Party wouldhave affected his, her or its decision to give the Withdrawing Member Release provided for herein. With respect to any and allWithdrawing Member Claims, except for Withdrawing Member Unreleased Claims, each of the WithdrawingMember Releasing Parties agrees that upon the Effective Date, each Withdrawing Member Releasing Party shall be deemed to have,and shall have, knowingly and expressly waived any and all provisions, rights and benefits conferred by any law of any state orterritory of the United States, or any other state, sovereign or jurisdiction, or principle of common law which is similar, comparable, orequivalent to California Civil Code Section 1542 which provides:"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."(b)As of the Effective Date, the Company, for itself and its affiliates, directors, members (exclusive of theRemaining Members), owners, managers, officers, employees and agents (individually, a "Company Releasing Party" andcollectively, the "Company Releasing Parties"), hereby releases and discharges (the "Company Release") the Withdrawing Member,its affiliates, and their respective partners, directors, members, owners, managers, officers, employees and agents (collectively,"Withdrawing Member Releasees") from all causes of action, actions, debts, sums of money, accounts, bonds, bills, covenants,contracts, controversies, promises, agreements, trespasses, variances, judgments, damages, executions, claims, demands, whatsoever,in law or equity, which any Company Releasing Party, individually or collectively, has, ever had or may have in the future against anyWithdrawing Member Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the Second Amended and Restated LLC Agreement, the Company, the Master Project or theAdjacent Property (collectively, the "Company Claims"); provided, however, that this Company Release shall not extend to (i) anyCompany Claims against the Withdrawing Member arising out of any breach by the Withdrawing Member of any of its obligationsExhibit 10.39or representations and warranties expressly set forth in this Agreement, the First Amendment and/or the other documents deliveredpursuant to Section 6(a) hereof (or any dispute regarding the interpretation or enforceability of this Agreement and/or the FirstAmendment), or any Company Claims against the Withdrawing Member that the Company Releasing Parties may have in response toor defending against an indemnification claim that is not an Indemnifiable Claim made by the Withdrawing Member Releaseespursuant to Section 16.2 of the Second Amended and Restated LLC Agreement (collectively, the "Company Unreleased Claims"). Itis the intention of the Company Releasing Parties that the release under this Section 7(b), with the exception of the CompanyUnreleased Claims, be effective as a bar to each of the Company Claims hereinabove specified. Each Company Releasing Partyunderstands, acknowledges, and agrees that no Company Unknown Claims (as hereinafter defined), or any facts, events,circumstances, evidence or transactions which could now be asserted or which may hereafter be discovered, shall affect the final,absolute and unconditional nature of the release under this Section 7(b). For purposes of this Agreement, "Company UnknownClaims" means any and all Company Claims (except for the Company Unreleased Claims) that a Company Releasing Party does notknow or suspect to exist in his, her or its favor at the time of the effectiveness of the release under this Section 7(b), which if known bysuch Company Releasing Party would have affected his, her or its decision to give the Company Release provided for herein. Withrespect to any and all Company Claims, each of the Company Releasing Parties agrees that upon the Effective Date, each CompanyReleasing Party shall be deemed to have, and shall have, knowingly and expressly waived any and all provisions, rights and benefitsconferred by any law of any state or territory of the United States, or any other state, sovereign or jurisdiction, or principle of commonlaw which is similar, comparable, or equivalent to California Civil Code Section 1542 which provides:"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."(c)EACH OF THE PARTIES HERETO SPECIFICALLY ACKNOWLEDGES THAT IT HAS CAREFULLYREVIEWED THIS SECTION AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL AND THAT THE PROVISIONS OF THISSECTION ARE A MATERIAL PART OF THIS AGREEMENT. AL JMG Company's Initials Withdrawing Member'sInitials 8.Brokers And Finders. Neither party has had any contact or dealings regarding the Master Project, or anycommunication in connection with the subject matter of this Agreement, through any real estate broker or other person who can claima right to a commission or finder's fee in connection with the transactions contemplated herein. In the event that any broker or finderclaims a commission or finder's fee based upon any contact, dealings or communication, the party through whom the broker or findermakes its claim shall hold harmless, indemnify and defend the other party hereto, its successors and assigns, agents, employees,officers, trustees, members and managers from and against any and all obligations, liabilities, claims, demands,liens, encumbrances and losses (including reasonable attorneys' fees), whether direct, contingent or consequential, arising out of,based on, or incurred as a result of such claim. The provisions of this paragraph shall survive the termination of this Agreement.9.Miscellaneous.(a)Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties heretoand their respective successors, heirs, administrators and assigns. Neither the Company nor the Withdrawing Member shall assign anyof their respective right, title or interest in or to this Agreement.Exhibit 10.39(b)Amendments. This Agreement may be amended or modified only by a written instrument executed by theWithdrawing Member and the Company.(c)Dispute Resolution. Notwithstanding anything to the contrary set forth in this Agreement, in the event of aclaim by a party hereto or to the CRA against another party hereto or the CRA arising out of or otherwise relating to this Agreementor the CRA, the parties shall promptly and in good faith attempt to resolve such claim by mutual agreement. In the event the partiesare unable to resolve such claim by mutual agreement, the matter shall be settled exclusively by a binding arbitration ("Arbitration"),conducted by a single arbitrator (the "Arbitrator") chosen by the parties as described below. Any party may initiate the Arbitrationby written notice to the other party(ies) and to the Arbitration Tribunal.The date on which the notice is given is called the "Arbitration Initiation Date". The fees and expenses of theArbitration Tribunal and the Arbitrator shall be shared equally by the Withdrawing Member and the Company, and advanced by themfrom time to time as required; provided, however, that at the conclusion of the Arbitration, the Arbitrator may award costs andexpenses (including the costs of the Arbitration previously advanced and the fees and expenses of attorneys, accountants and otherexperts) to the prevailing party.Except as expressly modified herein, the Arbitration shall be conducted in accordance with the provisions of Section1280 et seq. of the California Code of Civil Procedure or their successor sections ("CCP"), except that Section 1283.05 (discovery)shall not apply, and shall constitute the exclusive procedure and forum for the determination of any claim, including whether theclaim is subject to arbitration. The Arbitration shall be conducted under the procedures of the Arbitration Tribunal, except as modifiedherein. The "Arbitration Tribunal" shall be the Los Angeles Office of JAMS/ENDISPUTE ("JAMS"), unless the parties to the disputecannot agree on a JAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles Office of the American ArbitrationAssociation ("AAA").The Arbitrator shall be a retired judge or other arbitrator employed by JAMS selected by mutual agreement of theparties to the dispute, and if they cannot so agree within thirty (30) days after the Arbitration Initiation Date, then the Arbitrator shallbe selected from the Large and Complex Case Project ("LCCP") panel of the AAA, by mutual agreement of the parties to the dispute.If the parties to the dispute cannot agree on an Arbitrator within sixty (60) days after the Arbitration Initiation Date, then the Arbitratorshall be selected by the AAA, from its LCCP panel, through such procedures as the AAA regularly follows. In all events, theArbitrator must have had not less than fifteen (15) years' experience as a transactional or litigation lawyer), judge or arbitrator ofcomplex business transactions. If for any reason the AAA does not so act, then any party to the dispute may apply to the SuperiorCourt in and for Los Angeles County, California, for the appointment of a single arbitrator.No pre-arbitration discovery shall be permitted, except that the Arbitrator shall have the power in his or her solediscretion, on application by any party to the Arbitration, to order pre-arbitration examination solely of those witnesses and documentsthat the other party intends to introduce as its case-in-chief at the arbitration hearing. Prior to the commencement of arbitrationhearings, the Arbitrator shall have the power, in his or her discretion, upon the Withdrawing Member's and/or the Company's motionbut not the Arbitrator's own initiative, to order the parties to engage in pre-arbitration mediation for a period not exceeding thirty (30)days before a mediator mutually acceptable to the parties.The Arbitrator shall try any and all issues of law or fact and be prepared to make the award within ninety (90) days afterthe close of evidence in the Arbitration. When prepared to make the award, the Arbitrator shall first so inform the parties, who shallhave ten (10) days to attempt to resolve the matter by a binding agreement between them. If the parties so resolve the matter, then theArbitrator shall not make any award. If the parties do not so resolve the matter, the Arbitrator shall make the award on the eleventh dayfollowing his notice of being prepared to make the award. The Arbitrator's award shall dispose of all of the claims that are the subjectof the Arbitration and shall follow Delaware law and precedent, and shall be a reasoned opinion. The Arbitrator shall be empowered to(i) enter equitable as well as legal relief, (ii) provide all temporary and/or provisional remedies, and (iii) enterExhibit 10.39binding equitable orders. The award rendered by the Arbitrator shall be final and not subject to judicial review, and judgment thereonmay be entered in any court of competent jurisdiction.(d)Governing Law; Choice of Forum.(i)Subject to Section 9(c) above, this Agreement and the rights of the parties hereunder shall be governedby and interpreted in accordance with the internal laws of the State of Delaware, without reference to the rules regarding conflict orchoice of laws of such State.(ii)The Withdrawing Member and the Company each acknowledge and agree that, subject to Section 9(c)above, the Superior Court of the State of California in and for Los Angeles County, and the associated federal and appellate courts,shall have exclusive jurisdiction to hear and decide any dispute, controversy or litigation regarding this Agreement or any portionthereof.(e)Interpretation. The headings contained in this Agreement are for reference purposes only and shall not in anyway affect the meaning or interpretation hereof. Whenever the context hereof shall so require, the singular shall include the plural, themale gender shall include the female gender and the neuter, and vice versa. This Agreement shall not be construed against either theCompany or the Withdrawing Member but shall be construed as a whole, in accordance with its fair meaning, and as if prepared by theCompany and the Withdrawing Member jointly.(f)No Obligation to Third Parties. Except as set forth in the CRA, the execution and delivery of this Agreementshall not be deemed to confer any rights upon, nor obligate either of the parties hereto to, any person or entity not a party to thisAgreement.(g)Further Assurances. Each of the parties shall execute such other and further documents and do such furtheracts as may be reasonably required to effectuate the intent of the parties and carry out the terms of this Agreement. This provision shallsurvive the Effective Date.(h)Merger of Prior Agreements. This Agreement constitutes the entire agreement between the parties andsupersedes all prior agreements and understandings between the parties relating to the subject matter hereof, including withoutlimitation, any letter of intent or nonbinding proposal, which shall be of no further force or effect upon execution of this Agreement bythe Company and the Withdrawing Member.(i)Enforcement. The parties shall bear their own attorneys' fees and costs incurred in connection with thenegotiation and execution of this Agreement. In the event a dispute arises concerning the performance, meaning or interpretation ofany provision of this Agreement or any document executed in connection with this Agreement (including, without limitation, anydispute as to whether a Claim is an Indemnifiable Claim under Section 16.2 of the Second Amended and Restated LLC Agreement),the prevailing party in such dispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing,defending or establishing its rights hereunder or thereunder, including, without limitation, court costs and reasonable attorneys andexpert witness fees. In addition to the foregoing award of costs and fees, the prevailing party shall also be entitled to recover itsreasonable attorneys' fees incurred in any post judgment proceedings to collect or enforce any judgment. This provision is separateand several and shall survive the Effective Date.(j)Time. Time is of the essence of this Agreement. For purposes of this Agreement "business day" shall mean anyday other than a Saturday and those days specified as a "holiday" in Section 7 of the California Civil Code. Unless otherwise specified,in computing any period of time described in this Agreement, the day of the act or event after which the designated period of timebegins to run is not to be included and the last day of the period so computed is to be included, unless such last day is not a businessday, in which event the period shall run to and include the next day which is a business day.(k)Severability. If any provision of this Agreement, or the application thereof to any person, place, orcircumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, thenExhibit 10.39the remainder of this Agreement and such provisions as applied to other persons, places and circumstances shall remain in full forceand effect.(l)No Waiver. No delay or failure on the part of any party hereto in exercising any right, power or privilege underthis Agreement or under any other instrument or document given in connection with or pursuant to this Agreement shall impair anysuch right, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise ofany such right, power or privilege shall preclude the further exercise of such right, power or privilege. No waiver shall be valid againstany party hereto unless made in writing and executed by the party against whom enforcement of such waiver is sought and then onlyto the extent expressly specified therein.(m)No Offer or Binding Contract. The parties hereto agree that the submission of an unexecuted copy orcounterpart of this Agreement by one party to another is not intended by either party to be, or be deemed to be a legally bindingcontract or an offer to enter into a legally binding contract. The parties shall be legally bound pursuant to the terms of this Agreementonly if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable toeach of the parties in their respective sole discretion, and (i) both the Withdrawing Member and the Company have fully executed anddelivered this Agreement (and the Remaining Members have executed and delivered the Consent, Ratification and Agreement of theRemaining Members attached to this Agreement), and (ii) the Remaining Members and the Withdrawing Member have fully executedand delivered the First Amendment.(n)Counterparts. This Agreement, and any document executed in connection with this Agreement, may beexecuted in any number of counterparts each of which shall be deemed an original and all of which shall constitute one and the sameagreement with the same effect as if all parties had signed the same signature page.(o)Notices. Notices or other communications shall be given only by the following methods: (i) hand deliveredwith a receipt of the addressee or the addressee's agent, (ii) deposited with the United States Post Office by registered or certified mail,return receipt requested, postage prepaid, (iii) deposited with a recognized global or national overnight delivery service, (iv) sent byfacsimile transmission, with a telephone or written receipt by the addressee or the addressee's agent, or (v) transmitted by e-mail, with atelephone or written receipt by the addressee or the addressee's agent. All notices and other communications shall be deemed receivedby the addressee for all purposes of this Agreement on the date of the receipt for delivery (as provided in each case above).To Withdrawing Member: Lewis Tejon Member, LLC1156 N. Mountain Avenue Upland, CA 91785-0670Attention: Mr. John M. Goodman Facsimile: (909) 981-9799With a copy to:Lewis Management Corp. 1156 N. Mountain Avenue Upland, CA 91785-0670Attention: W. Bradford Francke Facsimile: (909) 949-6725To the Company:Centennial Partners, LLC c/o Tejon RanchcorpP.O. Box 1000 Lebec, CA 93243Facsimile: (661) 248-3100 Attention: General CounselWith a copy to:Cox, Castle & Nicholson LLP 50 CaliforniaExhibit 10.39Street, Suite 3200 San Francisco, CA 94111Attention: Mathew A. Wyman, Esq.Facsimile: (415) 262-5166(p)Joint and Several Liability. Lewis and Lewis Tejon Member, LLC shall be jointly and severally liable for theobligations of the Withdrawing Member under this Agreement.[Signatures appear on next page]Exhibit 10.39IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be executed bytheir duly authorized representatives as of the day and year first above written.WITHDRAWING MEMBER: LEWIS TEJON MEMBER, LLC,a Delaware limited liability companyBy: Lewis Management Corp., a Delaware corporation, its Sole ManagerBy: /s/John M GoodmanJohn GoodmanIts: Executive Vice President/CEO/CFOLEWIS INVESTMENT COMPANY, LLC,a California limited liability companyBy: Lewis Management Corp., a Delaware corporation, its Sole ManagerBy: /s/John M GoodmanJohn GoodmanIts: Executive Vice President/CEO/CFOCOMPANY:CENTENNIAL FOUNDERS, LLC,a Delaware limited liability companyBy: Tejon Ranchcorp,a California corporation, its Development ManagerBy: /s/Allen E. LydaAllen E. LydaIts: Executive Vice President and Chief Financial Officer033187\8239754[Signature Page - Redemption and Withdrawal Agreement]Exhibit 10.39CONSENT, RATIFICATION AND AGREEMENT OF THE REMAINING MEMBERSEach of the undersigned hereby consents to all of the terms and conditions of the foregoing Redemption and WithdrawalAgreement (the "Agreement"). Without limiting the generality of the foregoing, (i) each Remaining Member hereby consents to theCompany's execution and delivery of the Agreement, and (ii) each Remaining Member hereby agrees to be bound by the provisions ofSections 3(c), 3(d), 4, 9(c) and 9(i) of the Agreement. Except where otherwise defined herein, the capitalized terms used herein shallhave the respective meanings assigned to such terms in the Agreement.In consideration for the release given by the Withdrawing Member Releasing Parties to Tejon pursuant to Section 7(a) above, Tejon,for itself and its affiliates, partners, directors, members, owners, managers, officers, employees and agents (individually, a "TejonReleasing Party" and collectively, the "Tejon Releasing Parties"), hereby releases and discharges (the "Tejon Release") theWithdrawing Member Releasees, from all claims each Tejon Releasing Party has, ever had or may have in the future against anyWithdrawing Member Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the Second Amended and Restated LLC Agreement, the Company, the Master Project or theAdjacent Property (collectively, the "Tejon Claims"); provided, however, that this Tejon Release shall not extend to (i) any TejonClaims against the Withdrawing Member arising out of any breach by the Withdrawing Member of any of its obligations orrepresentations and warranties expressly set forth in the Agreement, the First Amendment and/or the other documents deliveredpursuant to Section 6(a) of the Agreement (or any dispute regarding the interpretation or enforceability of this Agreement and/or theFirst Amendment), or(ii) Tejon Claims against the Withdrawing Member that the Tejon Releasing Parties may have in response to or defending against anindemnification claim that is not an Indemnifiable Claim made by the Withdrawing Member Releasees pursuant to Section 16.2 of theSecond Amended and Restated LLC Agreement.Tejon hereby represents and warrants that it is the owner of the Tejon Claims and that it has not previously assigned or transferred anyof the Tejon Claims. It is the intention of the Tejon Releasing Parties that the foregoing release with the exception of the CompanyUnreleased Claims, be effective as a bar to each of the Company Claims hereinabove specified. Each Tejon Releasing Partyunderstands, acknowledges, and agrees that no Company Unknown Claims, or any facts, events, circumstances, evidence ortransactions which could now be asserted or which may hereafter be discovered, shall affect the final, absolute and unconditionalnature of the release under this Consent, Ratification and Agreement of the Remaining Members.With respect to any and all Company Claims, each of the Tejon Releasing Parties agrees that upon the Effective Date, each TejonReleasing Party shall be deemed to have, and shall have, knowingly and expressly waived any and all provisions, rights and benefitsconferred by any law of any state or territory of the United States, or any other state, sovereign or jurisdiction, or principle of commonlaw which is similar, comparable, or equivalent to California Civil Code Section 1542 which provides:"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."TEJON SPECIFICALLY ACKNOWLEDGES THAT IT HAS CAREFULLY REVIEWED THIS CONSENT, RATIFICATION ANDAGREEMENT OF THE REMAINING MEMBERS AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL AND THAT THEPROVISIONS OF THIS CONSENT, RATIFICATION AND AGREEMENT OF THE REMAINING MEMBERS ARE A MATERIALPART OF THE AGREEMENT.ALTejon's Initials[Signatures appear on next page]Exhibit 10.39REMAINING DEVELOPERS/MEMBERS:PARDEE HOMES,a California corporationBy: /s/ Thomas J. MitchellThomas J. MitchellIts: PresidentBy:Name: Its: Authorized RepresentativeCALATLANTIC GROUP, INC.,a Delaware corporation, formerly known as Standard Pacific Corp., a DelawarecorporationBy: /s/ Edward T. McKibbinEdward T. McKibbinIts: Authorized RepresentativeBy: /s/ Elliot MannElliot MannIts: Authorized RepresentativeSTANDARD PACIFIC INVESTMENT CORP.,a Delaware corporationBy: /s/ Edward T. McKibbinEdward T. McKibbinIts: Authorized RepresentativeBy: /s/ Elliot MannElliot MannIts: Authorized Representative[signatures continue on following page]Exhibit 10.39REMAINING MEMBER:TEJON RANCH CORP,a California corporationBy: /s/Allen E. LydaAllen E. LydaIts: Executive Vice President and Chief Financial Officer[end of signatures]Exhibit 10.39EXHIBIT AFIRST AMENDMENT TO SECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENTOF CENTENNIAL FOUNDERS, LLC[Attached]Exhibit 10.39FIRST AMENDMENTtoSECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENTofCENTENNIAL FOUNDERS, LLCThis First Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC(this “Amendment”) is made and effective as of November 30, 2016, by and among Tejon Ranchcorp, a California corporation(“Tejon”), Standard Pacific Investment Corp., a Delaware limited liability company (“SPIC”), CalAtlantic Group, Inc., a Delawarecorporation, formerly known as Standard Pacific Corp., a Delaware corporation (“Standard Pacific”) (on behalf of itself and SPIC(unless otherwise noted), collectively, “CalAtlantic”), and Pardee Homes, a California corporation (“Pardee”; together with Tejon andCalAtlantic, the “Remaining Members” and each a “Remaining Member”), and acknowledged by Lewis Tejon Member, LLC, aDelaware limited liability company (the “Withdrawing Member”) and Lewis Investment Company, LLC, a California limited liabilitycompany (“Lewis”).RECITALSA.SPIC, Standard Pacific, Pardee, Tejon and Lewis entered into that certain Second Amended and Restated Limited LiabilityCompany Agreement of Centennial Founders, LLC (formerly known as RM Development Associates, LLC) (the “Company”),dated as of July 31, 2009 (the “Second Amended and Restated LLC Effective Date”) (such agreement, the “SecondAmended and Restated LLC Agreement” and as amended by this Amendment, the “LLC Agreement”).B.Effective December 31, 2014, Lewis formed the Withdrawing Member and contributed and assigned all of its Interest as amember in the Company to the Withdrawing Member. The Withdrawing Member has succeeded to the entire Interest of Lewisin the Company (and Lewis is the sole member of the Withdrawing Member).C.As of the Second Amended and Restated LLC Effective Date, Lewis, Pardee, SPIC and Standard Pacific elected to becomeNon-Funding Members. Prior to the Amendment Effective Date (as hereinafter defined), the Withdrawing Member, Pardee andCalAtlantic (on behalf of itself and SPIC) remain Non-Funding Members.D.As a result of the Non-Funding Members’ failure to fund any additional capital requested under the Second Amended andRestated LLC Agreement, the Percentage Interests of the Members as of immediately prior to the Amendment Effective Dateare as follows (the “Amendment Effective Date Percentage Interests”):Tejon77.11%Pardee7.63%CalAtlantic/SPIC7.63%Withdrawing Member7.63%E.Effective concurrently herewith, the Withdrawing Member has agreed to withdraw from the Company and to accept aliquidation of its interest therein (the “Withdrawal”) pursuant to that certain Redemption and Withdrawal Agreement dated asof the date hereof by and between the Company and the WithdrawingExhibit 10.39Member (the “Redemption Agreement”).F.Effective upon the Withdrawal, the Percentage Interests of the Remaining Members shall be adjusted (by reallocating theWithdrawing Member’s Amendment Effective Date Percentage Interest to the Remaining Members in proportion to suchRemaining Members’ relative Amendment Effective Date Percentage Interests) and the Percentage Interests of the RemainingMembers immediately following such adjustment shall be as follows:Tejon83.48%Pardee8.26%CalAtlantic/SPIC8.26%Such reallocation of Percentage Interests shall be for all purposes used in the LLC Agreement, including, without limitation, theobligation to contribute Capital Contributions. Such Percentage Interests shall remain subject to further adjustment and dilutionas provided in the LLC Agreement.F. The Remaining Members now desire to amend the Second Amended and Restated LLC Agreement as set forth herein and theWithdrawing Member desires to acknowledge the same and its withdrawal from the Company as provided in the RedemptionAgreement, all as set forth below.AGREEMENTFor good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Remaining Members andthe Withdrawing Member, the Remaining Members and the Withdrawing Member agree and acknowledge as follows:1.Recitals. The parties confirm the accuracy of the foregoing Recitals, which are incorporated herein by reference.2.Withdrawal of the Withdrawing Member. Pursuant to the Redemption Agreement, the Withdrawing Member has concurrentlyherewith withdrawn as a member of the Company. All of the Withdrawing Member's Representatives and Alternates on the ExecutiveCommittee have concurrently herewith resigned. The Company has not dissolved or terminated as a result of this withdrawal of theWithdrawing Member as a member of the Company; on the contrary, the Company's business has continued without interruption andwithout any breach in continuity.3.Definitions. Capitalized terms that are used but not otherwise defined in this Amendment are used as defined in the SecondAmended and Restated LLC Agreement.(a)The following definitions are added to Section 1.1A of the Second Amended and Restated LLC Agreement inalphabetical order:“Amendment” shall have the meaning provided in the Preamble to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Amendment Effective Date” shall mean the effective date of the execution and delivery of the First Amendment toSecond Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC and theRedemption Agreement.“Amendment Effective Date Percentage Interests” shall have the meaning provided in the Recitals to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.Exhibit 10.39“CalAtlantic” shall have the meaning provided in the Preamble to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“LLC Agreement” shall have the meaning provided in the Recitals to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Redemption Agreement” shall have the meaning provided in the Recitals to the First Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Remaining Member” or “Remaining Members” shall have the meaning provided in the Preamble to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Amended and Restated LLC Agreement” shall have the meaning provided in the Recitals to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Amended and Restated LLC Effective Date” shall have the meaning provided in the Recitals to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Withdrawal” shall have the meaning provided in the Recitals to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Withdrawing Member” shall have the meaning provided in the Preamble to the First Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.(b)The following definitions shall replace the existing definitions in Section 1.1A of the Second Amended andRestated LLC Agreement as follows:“Company” shall have the meaning provided in the Recitals to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Developer(s)” shall mean and be limited to, individually and collectively, Pardee and CalAtlantic. Pardee andCalAtlantic are sometimes each referred to as a “Developer”. SPIC shall not be deemed a “Developer” hereunder.“Lewis” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Member(s)” shall mean and be limited to, collectively, Tejon, Pardee and CalAtlantic (on behalf of itself and SPIC).“Pardee” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“SPIC” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Standard Pacific” shall have the meaning provided in the Preamble to the First Amendment toExhibit 10.39Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Tejon” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.(c)Defined terms and their corresponding definitions that are used in the Second Amended and Restated LLCAgreement, but which by virtue of the amended terms and conditions thereof pursuant to this Amendment are no longer used, shall bedeemed deleted in their entirety from Section 1.1A of the Second Amended and Restated LLC Agreement.4.Retention and Access to Books and Records. The Withdrawing Member and its representatives shall continue to have access tothe books and records of the Company that are retained by or on behalf of the Company for the period on or prior to the AmendmentEffective Date during normal business hours upon reasonable notice to Tejon. The Withdrawing Member may copy all or any part ofthe books and records for any purpose at its own expense.5.Tax Allocation. Net Profits and Net Losses for the 2016 taxable year shall be allocated between the Withdrawing Member andthe Remaining Members pursuant to a computation method that is in conformity with the methods prescribed by Section 706 of theCode andTreasury Regulation Section 1.706-1(c)(2)(ii) as reasonably determined by the Executive Committee and reasonably approved by theWithdrawing Member.6.Tax Returns. The Company shall deliver to the Withdrawing Member a copy of the Company's 2016 federal and state taxreturns on the same date that such tax returns are distributed to the Remaining Members.7.Full Force and Effect. The Second Amended and Restated LLC Agreement as amended by this Amendment shall remain in fullforce and effect. In the event of a conflict between this Amendment and the Second Amended and Restated LLC Agreement, thisAmendment shall govern.8.Multiple Counterparts and Electronic Signatures. This Amendment may be executed in multiple counterparts, each of whichwill be considered an original and together will constitute one and the same agreement, binding upon all of the parties hereto.Signatures of the parties to this Amendment may be transmitted by facsimile or other electronic means and shall be treated as originalsfor all purposes.9.Joint and Several Liability. Lewis and the Withdrawing Member shall be jointly and severally liable for the obligations of theWithdrawing Member under this Amendment.[Signatures appear on next page]Exhibit 10.39IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be executed by a duly authorized officer asof the date first set forth above.REMAINING MEMBERS: TEJON RANCH CORP,a California corporationBy: ________________________________Allen E. LydaIts: Executive Vice President and Chief Financial OfficerSTANDARD PACIFIC INVESTMENT CORP.,a Delaware corporationBy:________________________________Name:Its: Authorized RepresentativeBy: ________________________________Name:Its: Authorized RepresentativePARDEE HOMES,a California corporationBy:________________________________Thomas J. MitchellIts: PresidentBy:________________________________Name:Its: Authorized Representative[signatures continue on following page]Exhibit 10.39CALATLANTIC GROUP, INC.,a Delaware corporation, formerly known as Standard Pacific Corp., a DelawarecorporationBy:________________________________Name: Its: Authorized RepresentativeBy:________________________________Name:Its: Authorized Representative[signatures continue on following page]Exhibit 10.39ACKNOWLEDGED AND AGREED TO BY THE WITHDRAWING MEMBER AND LEWIS:LEWIS TEJON MEMBER, LLC,a Delaware limited liability companyBy: Lewis Management Corp., a Delaware corporationIts: Sole ManagerBy:________________________________John Goodmanits Executive Vice-President/CEO/CFOLEWIS INVESTMENT COMPANY, LLC,a California limited liability companyBy: Lewis Management Corp., a Delaware corporationIts: Sole ManagerBy:________________________________John Goodmanits Executive Vice-President/CEO/CFO[end of signatures]033187\8274011[Acknowledgment and Agreement - First Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialExhibit 10.39EXHIBIT BRESIGNATION OF REPRESENTATIVES AND ALTERNATES FROM THE EXECUTIVE COMMITTEE[Attached]Exhibit 10.39033187\8239754[Exhibit B - Redemption and Withdrawal Agreement]To: CENTENNIAL FOUNDERS, LLCIn accordance with that certain Redemption and Withdrawal Agreement dated as of November 30, 2016 (the “EffectiveDate”) by and among Centennial Founders, LLC, a Delaware limited liability company, formerly known as RM DevelopmentAssociates, LLC (the “Company”), Lewis Tejon Member, LLC, a Delaware limited liability company (“Lewis Tejon Member”),and Lewis Investment Company, LLC, a California limited liability company (“Lewis”; Lewis Tejon Member on behalf of itself andLewis collectively, the “Withdrawing Member”) (such agreement, the “Redemption Agreement”), (i) John M. Goodman herebyresigns as the sole Representative of the Withdrawing Member, (ii) Randall W. Lewis hereby resigns as an Alternate of theWithdrawing Member, and (iii) Richard A. Lewis hereby resigns as an Alternate of the Withdrawing Member. Such resignations shallbe effective as of the concurrent execution of the Redemption Agreement and the First Amendment (as defined hereinafter).Capitalized terms used but not defined herein shall have the meaning set forth in that certain Second Amended and Restated LimitedLiability Company Agreement of Centennial Founders, LLC dated as of July 31, 2009, by and among Tejon Ranchcorp, a Californiacorporation (“Tejon”), Standard Pacific Corp., a Delaware corporation (“Standard Pacific”), Standard Pacific Investment Corp., aDelaware limited liability company (“SPIC”), Lewis, and Pardee Homes, a California corporation (“Pardee”), as amended by thatcertain First Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC (the“First Amendment”) dated as of the Effective Date, by and among Tejon, SPIC, CalAtlantic Group, Inc., a Delaware corporation,formerly known as Standard Pacific Corp., a Delaware corporation (on behalf of itself and SPIC (unless otherwise noted)), andPardee.The undersigned represent that they constitute the current appointed Representative and Alternates of Withdrawing Member.Dated as of this 30th day of November, 2016. /s/ John M. Goodman/s/ Randall W. Lewis/s/ Richard A. Lewis[Exhibit B - Resignation of Representatives and Alternates from the Executive Committee]Exhibit 10.40FIRST AMENDMENTtoSECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENTofCENTENNIAL FOUNDERS, LLCThis First Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC(this “Amendment”) is made and effective as of November 30, 2016, by and among Tejon Ranchcorp, a California corporation(“Tejon”), Standard Pacific Investment Corp., a Delaware limited liability company (“SPIC”), CalAtlantic Group, Inc., a Delawarecorporation, formerly known as Standard Pacific Corp., a Delaware corporation (“Standard Pacific”) (on behalf of itself and SPIC(unless otherwise noted), collectively, “CalAtlantic”), and Pardee Homes, a California corporation (“Pardee”; together with Tejon andCalAtlantic, the “Remaining Members” and each a “Remaining Member”), and acknowledged by Lewis Tejon Member, LLC, aDelaware limited liability company (the “Withdrawing Member”) and Lewis Investment Company, LLC, a California limited liabilitycompany (“Lewis”).RECITALSA.SPIC, Standard Pacific, Pardee, Tejon and Lewis entered into that certain Second Amended and Restated Limited LiabilityCompany Agreement of Centennial Founders, LLC (formerly known as RM Development Associates, LLC) (the “Company”),dated as of July 31, 2009 (the “Second Amended and Restated LLC Effective Date”) (such agreement, the “SecondAmended and Restated LLC Agreement” and as amended by this Amendment, the “LLC Agreement”).B.Effective December 31, 2014, Lewis formed the Withdrawing Member and contributed and assigned all of its Interest as amember in the Company to the Withdrawing Member. The Withdrawing Member has succeeded to the entire Interest of Lewisin the Company (and Lewis is the sole member of the Withdrawing Member).C.As of the Second Amended and Restated LLC Effective Date, Lewis, Pardee, SPIC and Standard Pacific elected to becomeNon-Funding Members. Prior to the Amendment Effective Date (as hereinafter defined), the Withdrawing Member, Pardee andCalAtlantic (on behalf of itself and SPIC) remain Non-Funding Members.D.As a result of the Non-Funding Members’ failure to fund any additional capital requested under the Second Amended andRestated LLC Agreement, the Percentage Interests of the Members as of immediately prior to the Amendment Effective Dateare as follows (the “Amendment Effective Date Percentage Interests”):Tejon77.11%Pardee7.63%CalAtlantic/SPIC7.63%Withdrawing Member7.63%E.Effective concurrently herewith, the Withdrawing Member has agreed to withdraw from the Company and to accept aliquidation of its interest therein (the “Withdrawal”) pursuant to that certain Redemption and Withdrawal Agreement dated asof the date hereof by and between the Company and the Withdrawing Member (the “Redemption Agreement”).Exhibit 10.40F.Effective upon the Withdrawal, the Percentage Interests of the Remaining Members shall be adjusted (by reallocating theWithdrawing Member’s Amendment Effective Date Percentage Interest to the Remaining Members in proportion to suchRemaining Members’ relative Amendment Effective Date Percentage Interests) and the Percentage Interests of the RemainingMembers immediately following such adjustment shall be as follows:Tejon83.48%Pardee8.26%CalAtlantic/SPIC8.26%Such reallocation of Percentage Interests shall be for all purposes used in the LLC Agreement, including, without limitation, theobligation to contribute Capital Contributions. Such Percentage Interests shall remain subject to further adjustment and dilutionas provided in the LLC Agreement.F. The Remaining Members now desire to amend the Second Amended and Restated LLC Agreement as set forth herein and theWithdrawing Member desires to acknowledge the same and its withdrawal from the Company as provided in the RedemptionAgreement, all as set forth below.AGREEMENTFor good and valuable consideration, the receipt and sufficiency of which are acknowledged by the Remaining Members andthe Withdrawing Member, the Remaining Members and the Withdrawing Member agree and acknowledge as follows:1.Recitals. The parties confirm the accuracy of the foregoing Recitals, which are incorporated herein by reference.2.Withdrawal of the Withdrawing Member. Pursuant to the Redemption Agreement, the Withdrawing Member has concurrentlyherewith withdrawn as a member of the Company. All of the Withdrawing Member's Representatives and Alternates on the ExecutiveCommittee have concurrently herewith resigned. The Company has not dissolved or terminated as a result of this withdrawal of theWithdrawing Member as a member of the Company; on the contrary, the Company's business has continued without interruption andwithout any breach in continuity.3.Definitions. Capitalized terms that are used but not otherwise defined in this Amendment are used as defined in the SecondAmended and Restated LLC Agreement.(a)The following definitions are added to Section 1.1A of the Second Amended and Restated LLC Agreement inalphabetical order:“Amendment” shall have the meaning provided in the Preamble to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Amendment Effective Date” shall mean the effective date of the execution and delivery of the First Amendment toSecond Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC and theRedemption Agreement.“Amendment Effective Date Percentage Interests” shall have the meaning provided in the Recitals to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“CalAtlantic” shall have the meaning provided in the Preamble to the First Amendment to SecondExhibit 10.40Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“LLC Agreement” shall have the meaning provided in the Recitals to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Redemption Agreement” shall have the meaning provided in the Recitals to the First Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Remaining Member” or “Remaining Members” shall have the meaning provided in the Preamble to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Amended and Restated LLC Agreement” shall have the meaning provided in the Recitals to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Amended and Restated LLC Effective Date” shall have the meaning provided in the Recitals to the FirstAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Withdrawal” shall have the meaning provided in the Recitals to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Withdrawing Member” shall have the meaning provided in the Preamble to the First Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.(b)The following definitions shall replace the existing definitions in Section 1.1A of the Second Amended andRestated LLC Agreement as follows:“Company” shall have the meaning provided in the Recitals to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Developer(s)” shall mean and be limited to, individually and collectively, Pardee and CalAtlantic. Pardee andCalAtlantic are sometimes each referred to as a “Developer”. SPIC shall not be deemed a “Developer” hereunder.“Lewis” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Member(s)” shall mean and be limited to, collectively, Tejon, Pardee and CalAtlantic (on behalf of itself and SPIC).“Pardee” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“SPIC” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Standard Pacific” shall have the meaning provided in the Preamble to the First Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders,Exhibit 10.40LLC.“Tejon” shall have the meaning provided in the Preamble to the First Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.(c)Defined terms and their corresponding definitions that are used in the Second Amended and Restated LLCAgreement, but which by virtue of the amended terms and conditions thereof pursuant to this Amendment are no longer used, shall bedeemed deleted in their entirety from Section 1.1A of the Second Amended and Restated LLC Agreement.4.Retention and Access to Books and Records. The Withdrawing Member and its representatives shall continue to have access tothe books and records of the Company that are retained by or on behalf of the Company for the period on or prior to the AmendmentEffective Date during normal business hours upon reasonable notice to Tejon. The Withdrawing Member may copy all or any part ofthe books and records for any purpose at its own expense.5.Tax Allocation. Net Profits and Net Losses for the 2016 taxable year shall be allocated between the Withdrawing Member andthe Remaining Members pursuant to a computation method that is in conformity with the methods prescribed by Section 706 of theCode andTreasury Regulation Section 1.706-1(c)(2)(ii) as reasonably determined by the Executive Committee and reasonably approved by theWithdrawing Member.6.Tax Returns. The Company shall deliver to the Withdrawing Member a copy of the Company's 2016 federal and state taxreturns on the same date that such tax returns are distributed to the Remaining Members.7.Full Force and Effect. The Second Amended and Restated LLC Agreement as amended by this Amendment shall remain in fullforce and effect. In the event of a conflict between this Amendment and the Second Amended and Restated LLC Agreement, thisAmendment shall govern.8.Multiple Counterparts and Electronic Signatures. This Amendment may be executed in multiple counterparts, each of whichwill be considered an original and together will constitute one and the same agreement, binding upon all of the parties hereto.Signatures of the parties to this Amendment may be transmitted by facsimile or other electronic means and shall be treated as originalsfor all purposes.9.Joint and Several Liability. Lewis and the Withdrawing Member shall be jointly and severally liable for the obligations of theWithdrawing Member under this Amendment.[Signatures appear on next page]Exhibit 10.40IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be executed by a duly authorized officer as of thedate first set forth above.REMAINING MEMBERS: TEJON RANCH CORP,a California corporationBy: /s/ Allen E. Lyda Allen E. LydaIts: Executive Vice President and Chief Financial OfficerSTANDARD PACIFIC INVESTMENT CORP.,a Delaware corporationBy: /s/ Edward T. McKibbin Name: Edward T. McKibbinIts: Authorized RepresentativeBy: /s/ Elliot MannName: Elliot MannIts: Authorized RepresentativePARDEE HOMES,a California corporationBy: /s/ Thomas J. MitchellThomas J. MitchellIts: PresidentBy: /s/ Michael A.McMillenName: Michael A. McMillenIts: Vice President[signatures continue on following page]Exhibit 10.40CALATLANTIC GROUP, INC.,a Delaware corporation, formerly known as Standard Pacific Corp., a Delaware corporationBy: /s/ Edward T. McKibbin Name: Edward T. McKibbinIts: Authorized RepresentativeBy: /s/ Elliot MannName: Elliot MannIts: Authorized Representative[signatures continue on following page]Exhibit 10.40ACKNOWLEDGED AND AGREED TO BY THE WITHDRAWING MEMBER AND LEWIS:LEWIS TEJON MEMBER, LLC,a Delaware limited liability companyBy: Lewis Management Corp., a Delaware corporation Its: Sole ManagerBy: /s/ John M GoodmanJohn Goodmanits Executive Vice-President/CEO/CFOLEWIS INVESTMENT COMPANY, LLC,a California limited liability companyBy: Lewis Management Corp., a Delaware corporation Its: Sole ManagerBy:/s/ John M Goodman John Goodman its Executive Vice-President/CEO/CFO[end of signatures]033187\8274011[Acknowledgment and Agreement - First Amendment to Second Amended and Restated Limited Liability Company Agreement of CentennialExhibit 10.41SECOND AMENDMENTtoSECOND AMENDED AND RESTATED LIMITED LIABILITY COMPANY AGREEMENTofCENTENNIAL FOUNDERS, LLCThis Second Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC (this“Amendment”) is made and entered into as of November 30, 2016 (the “Second Amendment Effective Date”), by and among TejonRanchcorp, a California corporation (“Tejon”), Standard Pacific Investment Corp., a Delaware limited liability company (“SPIC”),CalAtlantic Group, Inc., a Delaware corporation, formerly known as Standard Pacific Corp., a Delaware corporation (“StandardPacific”) (on behalf of itself and SPIC (unless otherwise noted), collectively, “CalAtlantic”), and Pardee Homes, a Californiacorporation (“Pardee”). Except where otherwise defined herein, the capitalized terms used in this Amendment shall have therespective meanings assigned to such terms in the Second Amended and Restated LLC Agreement (as defined in Recital A below).This Amendment is entered into with reference to the following facts and circumstances:RECITALSA.The Company is governed by that certain Second Amended and Restated Limited Liability Company Agreement of CentennialFounders, LLC dated as of July 31, 2009, entered into by and among Tejon, SPIC, Standard Pacific, Pardee and LewisInvestment Company, LLC, a California limited liability company (“Lewis”), as amended by that certain First Amendment toSecond Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC (the “First Amendment”),made and entered into on November 30, 2016, by the Members and acknowledged and agreed to by Lewis Tejon Member,LLC, a Delaware limited liability company (“LTM”), the successor-in-interest to Lewis (collectively, the “Second Amendedand Restated LLC Agreement” and as amended by this Amendment, the “LLC Agreement”).B.Pursuant to that certain Redemption and Withdrawal Agreement entered into on November 30, 2016, by and between theCompany and LTM (the “Redemption Agreement”), LTM agreed to the redemption of its entire Interest in the Company andto withdraw as a member of the Company. The withdrawal of LTM as a member of the Company was memorialized pursuantto the First Amendment.C.As of July 31, 2009, Pardee, SPIC and Standard Pacific elected to become Non- Funding Members. Pardee and CalAtlantic (onbehalf of itself and SPIC) have remained as Non-Funding Members under the Second Amended and Restated LLC Agreementthrough the Second Amendment Effective Date.D.The Members now desire to amend the Second Amended and Restated LLC Agreement as set forth herein.AGREEMENTFor good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Members agree andacknowledge as follows:1.Recitals. The Members confirm the accuracy of the foregoing Recitals, which are incorporated hereinExhibit 10.41by reference.2.Definitions.(a)The following definitions are added to Section 1.1A of the Second Amended and Restated LLC Agreement inalphabetical order:“Amendment” shall have the meaning provided in the Preamble to the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Applicable Lot Credit” means $7,000,000 with respect to each Developer, divided by the total number of developedlots determined to be Private Sale Lots under Section 10.1 based upon such Developer’s then existing Private Sale LotPercentage.“Applicable Aggregate Lot Credit” shall have the meaning given such term in Section 8 of the Second Amendment toSecond Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“CalAtlantic” shall have the meaning provided in the Preamble to the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Call Notice” shall have the meaning given such term in Section 9 of the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Company Call Election” shall have the meaning given such term in Section 9 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Disqualified Developer” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Eligible Developer” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“First Amendment” shall have the meaning provided in the Recitals to the Second Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“First Offered Lot Group” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“First Offered Lot Group Termination” shall have the meaning given such term in Section 8 of the SecondAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Limited Approval Rights” shall have the meaning given such term in Section 7 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“LLC Agreement” shall have the meaning provided in the Recitals to the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.Exhibit 10.41“LTM” shall have the meaning provided in the Recitals to the Second Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Non-Electing Developer” shall have the meaning given such term in Section 9 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Phase(s)” shall have the meaning given such term in Section 8 of the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Planning Area” shall have the meaning given such term in Section 8 of the Second Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Private Sale Lot Percentage” shall have the meaning given such term in Section 8 of the Second Amendment toSecond Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Redemption Agreement” shall have the meaning provided in the Recitals to the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Amended and Restated LLC Agreement” shall have the meaning provided in the Recitals to the SecondAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Amendment Effective Date” shall have the meaning provided in the Preamble to the Second Amendment toSecond Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Specific Plan” shall mean that certain specific plan and related entitlement applications for the Centennial FoundersSpecific Plan filed by the Company with the County of Los Angeles, as the same may be modified from time to time.“Specific Plan Approval(s)” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Specific Plan Approvals Deadline(s)” shall have the meaning given such term in Section 8 of the Second Amendmentto Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Subsequent Withdrawing Developer” shall have the meaning given such term in Section 9 of the Second Amendmentto Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Terminated Subsequent Offered Lot Group” shall have the meaning given such term in Section 8 of the SecondAmendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Withdrawal Agreement” shall have the meaning given such term in Section 9 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Withdrawal Date” shall have the meaning given such term in Section 9 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.Exhibit 10.41(b)The following definitions shall replace the existing definitions in Section 1.1A of the Second Amended andRestated LLC Agreement as follows:“Company Offer” shall have the meaning given such term in Section 8 of the Second Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Counter-Offer” shall have the meaning given such term in Section 8 of the Second Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Developer(s)” shall mean and be limited to, individually and collectively, Pardee and CalAtlantic. Pardee andCalAtlantic are sometimes individually referred to as a “Developer”. SPIC shall not be deemed a “Developer”hereunder. Upon the withdrawal of a Member that is a Developer hereunder, the definition of Developers shall beautomatically revised to no longer refer to such withdrawing Member as a Developer.“Developer Acceptance” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“First Developer” shall have the meaning given such term in Section 8 of the Second Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Lewis” shall have the meaning provided in the Recitals to the Second Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Lots” shall have the meaning given such term in Section 8 of the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Member(s)” shall mean and be limited to, collectively, Tejon, Pardee and CalAtlantic (on behalf of itself and SPIC);provided that upon the withdrawal of a Member hereunder, the definition of Members shall be automatically revised tono longer refer to such withdrawing Member.“New Offered Lot Group” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Offered Lot Group” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Open Market Lots” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Pardee” shall have the meaning provided in the Preamble to the Second Amendment to Second Amended andRestated Limited Liability Company Agreement of Centennial Founders, LLC.“Previous Offered Lot Group” shall have the meaning given such term in Section 8 of the Second Amendment toSecond Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Private Sale Lots” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.Exhibit 10.41“Responding Developer” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Second Developer” shall have the meaning given such term in Section 8 of the Second Amendment to SecondAmended and Restated Limited Liability Company Agreement of Centennial Founders, LLC.“SPIC” shall have the meaning provided in the Preamble to the Second Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.“Standard Pacific” shall have the meaning provided in the Preamble to the Second Amendment to Second Amendedand Restated Limited Liability Company Agreement of Centennial Founders, LLC.“Tejon” shall have the meaning provided in the Preamble to the Second Amendment to Second Amended and RestatedLimited Liability Company Agreement of Centennial Founders, LLC.(c)Defined terms and their corresponding definitions that are used in the Second Amended and Restated LLCAgreement, but which by virtue of the amended terms and conditions thereof pursuant to this Amendment are no longer used, shall bedeemed deleted in their entirety from Section 1.1A of the Second Amended and Restated LLC Agreement.3.Sections 2.2 and 2.3/Entitlement Stage and Development Stage. Notwithstanding any other provision of the LLC Agreement,the Executive Committee and Tejon shall have the exclusive right to determine, prepare, approve, amend, modify or waive any aspectof the Entitlement Stage Business, Entitlement Stage Business Plan, Pre- Development Period Business Plan, Development StageConditions, Development Stage Business and/or Development Stage Business Plan. In addition, Section 2.3E is deleted in its entiretyand replaced with the words “[Intentionally Deleted].”4.Section 4.2/Rescission of Non Funding Status. As of the Second Amendment Effective Date, neither Developer has rescindedits prior election not to fund any Remaining Entitlement Period Contributions or Pre-Development Period Contributions. The Membersacknowledge that any rescission by a Developer of its prior election not to fund any Remaining Entitlement Period Contributions orPre-Development Period Contributions pursuant to Section 4.2 of the Second Amended and Restated LLC Agreement will require anamendment to the LLC Agreement and that the effectiveness of any such rescission shall be contingent upon each Member approvingsuch amendment in such Member’s sole, absolute and good faith discretion. Accordingly, the Members agree that it shall bereasonable for the Executive Committee to disapprove any such rescission by a Non-Funding Member in accordance with Section 4.2if Tejon and the other Members are unable to agree upon such required amendment in their respective sole, absolute and good faithdiscretion within ten (10) business days from the date such Non-Funding Member notifies the Executive Committee and the otherMembers of its desire to rescind its status as a Non-Funding Member. Upon any disapproval by the Executive Committee of suchrescission election by a Non-Funding Member, such election shall become ineffective. The Members further agree that any Developerthat has not rescinded its status as a Non-Funding Member prior to the date the Development Stage commences shall not automaticallybecome a Funding Member on such date(notwithstanding the last sentence of Section 4.2A), provided further that such Non- Funding Member shall be subject to theCompany’s right to call and redeem the Non- Funding Member’s Interest pursuant to Section 13.1C of the LLC Agreement.5.Section 4.3F/Contribution to Fund Consultant Invoices. Section 4.3F of the Second Amended and Restated LLC Agreement isdeleted in its entirety.Exhibit 10.416.Section 4.5A/Financing of the Master Project. Section 4.5A of the Second Amended and Restated LLC Agreement is herebyamended by adding the following sentence at the end of Section 4.5A as follows:“Notwithstanding any other term of this Agreement, a Non-Funding Member shall not be obligated to provide aguaranty or credit enhancement in connection with any obligation of the Company, including, without limitation, inconnection with any Third Party Financing obtained by the Company.”7.Article 7/Approval Rights of Developer and Non-Funding Members. Without limiting the provisions of Article VII of theSecond Amended and Restated LLC Agreement granting the Executive Committee sole and exclusive control over the business andaffairs of the Company and the Master Project, the Members agree to the following amendments and clarifications regarding themanagement and approval rights of the Developers and Non-Funding Members:(a)Wherever in the Second Amended and Restated LLC Agreement any "Developer" is provided with voting,agreement, consent or approval rights regarding or related to any matter, business or affairs of the Company or theMaster Project or any action or decision taken by the Executive Committee or Tejon, such rights shall be of no furtherforce or effect (provided the foregoing shall not limit, modify or reduce any rights provided to any Member which areexpressly provided to such Member in its capacity as a “Member” under the LLC Agreement). Notwithstandinganything to the contrary in the LLC Agreement, the Non-Funding Members shall have no Voting Interest, management,voting, consent or approval rights regarding or related to any matter, business or affairs of the Company or the MasterProject, provided (A) each Non-Funding Member shall continue to have a Representative on the Executive Committee(which Representative shall be non-voting and advisory only except for the Limited Approval Rights), and (B) eachNon-Funding Member shall continue to have the Limited Approval Rights on and subject to the terms of the LLCAgreement. The term “Limited Approval Rights” means and shall be limited to those approval rights specifically of theNon-Funding Members provided in Sections 7.1C(4)(c) and (d) of the Second Amended and Restated LLC Agreementand, without limiting the foregoing, other than such Sections 7.1C(4)(c) and (d), any other provision of the LLCAgreement that provides or requires approval or consent of a Member for any matter other than the Limited ApprovalRights in anycapacity shall not apply to the Non-Funding Members. In furtherance of the foregoing, the Members agree as follows:(i)Section 7.1B is amended and restated in its entirety as follows:“Each Business Plan and any modifications to any Business Plan shall require the Approval of the ExecutiveCommittee.”(ii)Section 7.1C(1) is amended and restated in its entirety as follows:"The Representatives of the Represented Members are as follows:Tejon: Greg S. Bielli Allen E. LydaPardee: Thomas MitchellCalAtlantic Ted McKibbin(iii)Section 7.1C(2) is amended and restated in its entirety as follows:Exhibit 10.41“Any actions which require Approval of the Executive Committee shall be deemed Approved only ifRepresentatives with a Voting Interest representing a Majority-in-Interest of the Members vote in favor of suchaction.”(iv)Sections 7.1C(3) and 7.1C(4)(a) and (b) are amended and restated in their entirety by replacing the textthereof with “[Intentionally Deleted]”.(v)Section 7.1D is amended and restated in its entirety as follows:“Participation of Non-Funding Members. Notwithstanding anything to the contrary herein (other than withrespect to the Limited Approval Rights), for any period that a Member is a Non-Funding Member, its VotingInterest shall only be advisory in nature and shall not be counted in determining the Approval of the ExecutiveCommittee of any action or any approval requirements of the Members herein. In such event, any actions whichrequire the Approval of the Executive Committee or Members (other than the Limited Approval Rights) shall bedeemed Approved only if Representatives with a Voting Interest representing a Majority-in-Interest of theFunding Members vote in favor of such action. A Member’s Voting Interest shall be restored only on the datesuch Membersuccessfully rescinds its non-funding status in accordance with Section 4.2 above; provided, however, its VotingInterest shall reflect its adjusted Percentage Interest calculated as of the date immediately preceding theExecutive Committee’s Approval of the rescission of its non-funding status.”(vi)Section 7.1E is amended by deleting the last sentence thereof and replacing it as follows:"The Alternates of the Represented Members are as follows:Tejon: Hugh McMahonPardee: Mike McMillenCalAtlantic Elliot Mann"(v) Section 7.3 is amended by deleting the last two (2) sentences thereof in their entirety.(b)Section 7.4 is amended and restated in its entirety as follows:“Control by Tejon. Any decisions and actions pertaining to the ownership, operation, financing, construction ordevelopment of the Balance of the Ranch shall be exclusively controlled by Tejon. Tejon shall control, withoutlimitation, (i) the construction and development of Regional Improvements on the Balance of the Ranch, and(ii) the selection, engagement and supervision of engineers, architects, underwriters, attorneys, and any otherconsultants which Tejon, in its sole and absolute discretion, desires to employ in connection with the Balance ofthe Ranch.”Exhibit 10.41follows:(c)Section 7.5B is amended and restated in its entirety as“LA County Portion. Tejon intends to develop the LA County Portion either itself or in a joint venture with one(1) or more other developers and shall have no obligation to deliver notices to or obtain Approval from the other Members inconnection with such activity.”(d)The following is added to the end of the penultimate sentence of Section 7.5D:“; provided, however, that if such withdrawing Member qualifies as a Subsequent Withdrawing Developerpursuantto Section 13.1A of the LLC Agreement, then such withdrawing Member shall no longer be subject to thisSection 7.5D immediately upon the effective date of such withdrawal.”(e)Section 7.9 is added to Article VII as follows:“Waiver of Fiduciary Duty. The Members waive any fiduciary duties to each other and any fiduciary duties ofthe Executive Committee or Tejon in connection with the management of the business and affairs of or related tothe Company or the Master Project (provided the foregoing shall not limit the covenant of the Members, theRepresentatives and the Alternates to act in good faith in accordance with fair dealing set forth in Section 18.19of the Second Amended and Restated LLC Agreement).”(f)Section 7.10 is added to Article VII as follows:“Provision of Reports to Developer Representatives. During the time that a Developer is a Non-FundingMember, the reports described in Section 11.3 (entitled “Company Interim Reports”) shall only be delivered tosuch Developer’s Representative upon the Representative’s prior written request to the Company, and suchreports shall not be automatically delivered absent such a request.”8.Article 10/Sale of Planning Areas. Article 10 of the Second Amended and Restated LLC Agreement is amended as follows:follows:(a)Section 10.1 is amended and restated in its entirety as“Sales to Developers. Subject to Section 10.1A, once developed pursuant to the Development Business Plan, theCompany shall offer for sale to each Eligible Developer (or one or more of its designated Affiliates) suchEligible Developer’s Private Sale Lot Percentage of the total number of lots approved under the Entitlements forthe development of for-sale single family attached and/or detached residences (collectively, the “Lots”), withoutinitially offering such Lots for sale on the open market (the “Private Sale Lots”), in accordance with the termsof this Section 10.1 and Section 10.3 below. The term “Eligible Developer” means any Developer that is aFunding Member or a Subsequent Withdrawing Developer. The Company’s remaining Lots (including, withoutlimitation, those Private Sale Lots that are converted to Open Markets Lots pursuant to this Article 10)(collectively, the “Open Market Lots”) may be sold by the Company on the openExhibit 10.41market to other buyers (which may include one or more Members and/or their Affiliates). For the avoidance ofdoubt, nothing in this Article 10 is intended to limit the rights of either Developer to make or not make offers onOpen Market Lots or otherwise limit the rights or obligations of the Company or the Executive Committee toinvite, negotiate or accept any offers from any Developer with respect to any Open Market Lots. The ApplicableLot Credit may not be applied to any Open Market Lots, it being agreed that the Applicable Lot Credit is to beapplied only to the Private Sale Lots (on a Private Sale Lot by Private Sale Lot basis).In calculating the number of Private Sale Lots that may be purchased by each Eligible Developer (and/or itsdesignated Affiliates), any Lots sold as part of a bulk sale of unimproved land to any third-party that is not anAffiliate of Tejon shall not be included in the total number of Lots against which such Eligible Developer’sPrivate Sale Lot Percentage shall be applied to determine the total number of Private Sale Lots that such EligibleDeveloper is entitled to purchase with the application of its Applicable Lot Credit under this Section 10. Subjectto Section 10.1A, each Eligible Developer (and its designated Affiliates), in each case as a merchant builder,shall be entitled, subject to the dilution described below, to purchase pursuant to the terms of Section 10.3, notless than 8.26% which is each such Member’s Percentage Interest on the Second Amendment Effective Date, ofthe Private Sale Lots (such percentage with respect to each Eligible Developer, as the same may be furtherdiluted downward in accordance with Section 10.1A, shall be referred to herein as such Eligible Developer’s“Private Sale Lot Percentage”). For the avoidance of any doubt, the Private Sale Lot Percentage of eachEligible Developer shall not be eliminated or reduced as a result of such Eligible Developer’s withdrawal as amember of the Company in a manner that complies with the Subsequent Withdrawing Developer provisions inSection 13.1A hereof, provided the Private Sale Lot Percentage of such Eligible Developer shall be thatpercentage in effect on the date of withdrawal pursuant to Section 10.1A.The specific Lots that are to be offered for sale to each Eligible Developer (and its designated Affiliates) and/orin the open market pursuant to this Section 10 and the method of marketing such Lots shall be determined bytheExecutive Committee in good faith. In that connection, the Members have agreed that the Private Sale Lots shallbe conveyed to the Eligible Developers (and/or their respective designated Affiliates) on the then prevailingmarket rate and terms so as to maximize the earnings generated by the Company from the Master Projectconsistent with prudent and customary master land development business practices all as determined by theExecutive Committee in its sole, absolute and good faith discretion. Subject to the foregoing, the Members haveagreed to the procedures set forth in Section 10.3 below with respect to the Private Sale Lots to be offered forsale to the Eligible Developers (and their respective designated Affiliates). The procedures set forth below maybe modified by the Executive Committee in good faith to the extent necessary to accomplish the intention of thisSection 10.1.The Company intends to release the Lots for sale over several phases (individually, a "Phase" and collectively,the "Phases") and over an extendedExhibit 10.41time period. As the Company releases each Phase of Lots for sale, the Executive Committee shall have the sole,absolute and good faith discretion to identify one or more planning areas within such Phase (each a “PlanningArea”). Without limiting the general discretion of the Executive Committee provided herein to develop,establish, improve, phase, release, market and sell Lots and Planning Areas for the Master Project, the ExecutiveCommittee may in its sole, absolute and good faith discretion determine the following with respect to the Lots,Phases and Planning Areas: (i) the size, configuration, location and character of each Phase and the number ofPhases making up the Master Project,(i)the number and character (Private Sale Lots versus Open Market Lots, premium Lots, etc.) of PlanningAreas within each Phase, (iii) the number and character of Lots within each Planning Area, (iv) the size, locationand configuration of Planning Areas and the Lots within each Planning Area, (v) the product type andsegmentation, market, square footage, or other segmentation of both Lots within a Planning Area and PlanningAreas within each Phase and each Phase within the Master Project, (vi) marketing and pricing of the Lots (andother terms, covenants, conditions and restrictions of how and on what terms such Planning Areas and Lots shallbe sold by the Company), and (vii) any other characteristic of a Phase ofthe Master Project, a Planning Area or the Lots within such Planning Area.Notwithstanding anything herein to the contrary, if (i) the Company does not obtain final approval from the LosAngeles Board of Supervisors of the Specific Plan on or before March 15, 2018, or (ii) if any litigationchallenging such approved Specific Plan is not resolved favorably (as determined in the Executive Committee'ssole, absolute and good faith discretion) by December 31, 2019 ((i) and (ii), in either case, the “Specific PlanApproval(s)” and respective dates by which such approval(s) need to be obtained, in either case, “Specific PlanApprovals Deadline(s)”), then the Eligible Developers’ (and their respective designated Affiliates’) rights tomake offers to purchase or otherwise acquire Private Sale Lots and to use their respective Applicable Lot Creditsfor such purchases or any other purchases of Lots as described in this Article 10 or otherwise shall terminateautomatically and be of no further force and effect as of the earliest of the date that a Specific Plan Approvaldoes not occur by its applicable Specific Plan Approvals Deadline and all Private Sale Lots shall then becomeOpen Market Lots.Any Developer that is not a Funding Member and otherwise fails to meet the qualifications of a SubsequentWithdrawing Developer shall not have any rights (on behalf of itself or its Affiliates) to make offers to purchaseor otherwise acquire Private Sale Lots or to use its respective Applicable Lot Credits for such purchases or anyother purchases of Lots as described in this Article 10 or otherwise, all of which shall terminate automaticallyand be of no further force and effect and the Private Sale Lots no longer allocated to such Developer as theresult thereof shall then become subject to Section 10.3A(5).A.Effect of Dilution of Percentage Interest. The dilution of the Percentage Interest of an EligibleDeveloper pursuant to Section 4.4A(1) shall cause such Eligible Developer’s Private Sale Lot Percentageto be automatically reduced to the same percentage. For example, if an Eligible Developer’s PercentageInterest is diluted from 8.26% to 5%, then its Private Sale Lot Percentage would be reduced to 5%. TheLotsExhibit 10.41no longer allocated to a Eligible Developer as the result of the automatic dilution of its PercentageInterest shall then become subject to Section 10.3A(5). In the case ofCalAtlantic, its Percentage Interest shall equal the combined Percentage Interest owned by bothCalAtlantic and SPIC, and the Lot allocation dilution shall reflect the combined percentage reduction inthe Percentage Interests of CalAtlantic and SPIC.”(b)Section 10.2 is amended and restated in its entirety as follows:"Responsibilities Regarding Sales Packages and Solicitation of Offers. The Executive Committee shall, orshall designate its representatives to, prepare sales packages and, where appropriate, provide a“Company Offer” (as defined in Section 10.3A(4)(a)), and solicit offers from third-party merchantbuilders or from the appropriate Eligible Developers or its Affiliate in accordance with the proceduresdescribed in Section 10.3. Such sales packages and solicitations shall be prepared as Approved by theExecutive Committee."(c)Section 10.3A is amended and restated in its entirety as follows:“A. Eligible Developer Response. Unless otherwise approved by Tejon, only one (1) Eligible Developerat a time may accept a “Company Offer” or submit a “Counter-Offer” for any “Offered Lot Group” (assuch quoted terms are defined below). If there is more than one (1) Eligible Developer, then suchacceptance or submission shall be in accordance with the rotation system described below and otherwiseas determined by the Executive Committee in its sole, absolute and good faith discretion:(1)In order to determine the order in which each Eligible Developer has the right to submit anoffer, the following rotation system shall be utilized. Prior to the first Phase of Lots being released forsale by the Company, the Executive Committee shall identify those Planning Areas which contain PrivateSale Lots (each an “Offered Lot Group”) contained in such Phase and the Eligible Developers shalldraw straws to determine the order of the rotation system with the first Eligible Developer being the onethat draws the shortest straw and the second Eligible Developer being the one that draws the nextshortest straw.Tejon shall officiate the drawing of straws. At any point in time with respect to each Offered Lot Group,the Eligible Developer first in line that is entitled to make an offer to purchase such Offered Lot Groupshall be referred to as the “First Developer” with respect to such Offered Lot Group and the EligibleDeveloper second in line that is entitled to make an offer to purchase such Offered Lot Group shall bereferred to herein as the “Second Developer” with respect to such Offered Lot Group.Unless otherwise consented to by the applicable Developer in its sole and absolute discretion, eachDeveloper shall be offered no more than one Planning Area for each Phase (and no other Lots shall beoffered to such Developer under this Article X).Exhibit 10.41(2)If more than one Offered Lot Group is being offered for sale by the Company to the EligibleDevelopers at the same time, then the First Developer shall have the right to choose which Offered LotGroup shall be offered to such First Developer in the same order of priority established pursuant to therotation system established in this Section 10.3A (i.e., the First Developer in the rotation system at thetime of such offer of sale by the Company shall select first, then the Second Developer, and so on).(3)As the next Offered Lot Group (the “New Offered Lot Group”) is offered for sale by theCompany, the First Developer on the previous Offered Lot Group offered for sale by the Company (the“Previous Offered Lot Group”) shall become the Second Developer on the New Offered Lot Group andthe Second Developer on the Previous Offered Lot Group shall become the First Developer on the NewOffered Lot Group. Notwithstanding the foregoing:(a)if an Eligible Developer fails, in its capacity as the First Developer, (i) to reach anagreement with the Company to purchase the First Offered Lot Group (as defined below) offered to suchEligible Developer, or (ii) to purchase the First Offered Group offered to such Eligible Developer, andprovided that any failure to purchase such FirstOffered Lot Group is not due to the Executive Committee’s failure to act in its sole, absolute and goodfaith discretion or the Company’s breach of its obligations to convey such lots pursuant to the applicablepurchase and sale agreement governing the purchase of such lots (a “First Offered Lot GroupTermination”), then such Eligible Developer (a “Disqualified Developer”) shall have no further rights(on behalf of itself or its designated Affiliates) to make any further offers to purchase or otherwiseacquire Private Sale Lots, or to use its respective Applicable Lot Credit for such purchases or any otherpurchases of Lots as described in this Article 10 or otherwise, all of which shall terminate automaticallyand be of no further force and effect. The term “First Offered Lot Group” means the first Offered LotGroup that the Company makes available to each First Developer for purchase pursuant to this Section10.3. The Private Sale Lots no longer allocated to any Disqualified Developer pursuant to the foregoingprovisions of this Section 10.3A(3)(a) shall then become subject to Section 10.3A(5); and(b)provided that a First Offered Lot Group Termination has not occurred for an EligibleDeveloper, if an Eligible Developer fails to make an offer on or purchase any Offered Lot Groupsubsequent to its First Offered Lot Group, in its capacity as a First Developer for such Offered LotGroup, which the Company makes available to such Developer pursuant to this Section 10.3 andprovided such failure is not due to the Executive Committee’s failure to act in its sole, absolute goodfaith discretion or the Company's breach of its obligations to convey such lots pursuant to the applicablepurchase and sale agreement governing the purchase of such lots, then (A)(i) Section 10.3A(5) belowshall apply with respect to such Offered Lot Group, and (ii) such Eligible Developer shall have no furtherrights (on behalf of itself or its designated Affiliates) to make any further offers to purchase or otherwiseacquire such Offered Lot Group (a “Terminated Subsequent Offered Lot Group”) or to use itsApplicable Lot Credit for such Terminated Subsequent Offered LotExhibit 10.41Group, but (B) such Eligible Developer shall not lose itsrights to acquire any Offered Lot Group (other than such Terminated Subsequent Offered Lot Group)offered by the Company or its right to apply the Applicable Lot Credit allocable to such other OfferedLot Group for which it is a First Developer in accordance with this Section 10.3.(4)With respect to each Offered Lot Group, the following procedure shall apply:(a)If the First Developer desires to purchase such Offered Lot Group (a “RespondingDeveloper”), then it shall either (i) accept the offer presented by the Company with respect tosuch Offered Lot Group (the “Company Offer”) and agree to purchase the Offered Lot Group inaccordance with the Company’s sales package for such Offered Lot Group by delivering to theExecutive Committee written notice of such acceptance within the time period set forth in theCompany Offer (provided such time period shall not be less than thirty (30) days from the FirstDeveloper’s receipt of such offer) (“Developer Acceptance”), or (ii) deliver a written offer to theExecutive Committee at such price and on such terms and conditions as are determined in thesole and absolute discretion of such Responding Developer prior to the expiration of the timeperiod set forth in the Company Offer (provided such time period shall not be less than thirty (30)days from the First Developer’s receipt of such offer) (the “Counter-Offer”). If a RespondingDeveloper timely delivers a Developer Acceptance, then the Company shall sell such Offered LotGroup to such Developer (or its Affiliate) on the terms and conditions set forth in the CompanyOffer. If the Responding Developer timely delivers a Counter-Offer, then the ExecutiveCommittee may accept or reject such Counter-Offer in its sole and absolute discretion. If theExecutive Committee does not accept such Responding Developer’s Counter-Offer (or theCompany and the FirstDeveloper otherwise do not agree to the purchase and sale of the Offered Lot Group), then suchOffered Lot Group shall be subject to Section 10.3A(5); or(b)If such First Developer does not either timely deliver a Developer Acceptance or aCounter-Offer, then such Offered Lot Group shall be subject to Section 10.3A(5).(5)If, after the foregoing procedures have been applied to the First Developer, (i) a DeveloperAcceptance is not timely delivered by any Developer, and/or (ii) the Executive Committee fails to reachan agreement with any Developer in accordance with the procedures described above, then such OfferedLot Group shall be offered by the Executive Committee in its sole, absolute and good faith discretion toTejon or at the election of Tejon shall no longer be considered an OfferedExhibit 10.41Lot Group and shall be considered Open Market Lots.(6)If a Subsequent Withdrawing Developer and the Company agree on the terms and conditionsof a Private Sale Lot as provided above, then such Subsequent Withdrawing Developer shall have itsApplicable Lot Credit applied against the purchase price for each such Lot. Under no circumstances shallthe aggregate Applicable Lot Credit for each Subsequent Withdrawing Developer exceed its ApplicableAggregate Lot Credit. The “Applicable Aggregate Lot Credit” shall equal $7,000,000 reduced dollarfor dollar by the sum of (i) the Applicable Lot Credit applied for each Private Sale Lot acquired by suchSubsequent Withdrawing Developer, plus (ii) the Applicable Lot Credit which was otherwise allocable toeach Lot within a Terminated Subsequent Offered Lot Group. For the avoidance of any doubt, anyDeveloper that (x) does not qualify as a Subsequent Withdrawing Developer, (y) is a Funding Member or(z) is a Disqualified Developer shall not have the right to apply its Applicable Lot Credit to the purchaseof any Lots.”(7)The right of each Subsequent Withdrawing Developer to purchase Private Sale Lots and to usethe Applicable Lot Credit for such purchases on and subject to the terms and conditions of this Article 10shall survive such Subsequent Withdrawing Developer’s withdrawal as a member of the Company andthe dissolution of the Company and shall apply regardless of whether Tejon contributes the ExistingProperty to the Company.(d)Section 10.4 is deleted in its entirety and replaced with the words “[Intentionally Deleted]”. The Membersacknowledge and agree that Tejon shall have the right to purchase any Private Sale Commercial Parcels on such terms and conditionsas Tejon and the Executive Committee agree upon in good faith.9.Article 13/Withdrawal. Article 13 of the Second Amended and Restated LLC Agreement is amended as follows:(a)Section 13.1A is amended and restated in its entirety as follows:“A. Subsequent Withdrawing Developers. A Developer that is a Non-Funding Member may elect to withdraw asa member of the Company at any time by delivering written notice of such election to Tejon. Any Developerthat is a Non-Funding Member that elects to withdraw prior to the date that is eighteen (18) months after theSecond Amendment Effective Date (the “Withdrawal Date”) is referred to herein as a “SubsequentWithdrawing Developer”. A withdrawing Member shall (and such Member shall only be treated as aSubsequent Withdrawing Developer if such withdrawing Member agrees to) release all right, title and interest inand to and claims against the Company, including, without limitation, any management, voting or other rightsunder any organizational and operational agreement (whether arising in connection with the ExecutiveCommittee, as a Member, Developer or otherwise), any right to the return of such withdrawing Member’s capitaland any yield or return thereon, rights to distributions or allocations of income, profits, credits, losses ordeductions, and claims for payment of any fees, debts (including, without limitation, any right to treat suchwithdrawing Member’s unreturned Capital Contribution as or receive payment of a debt from the Company) orreimbursement or payment of any other amounts together with any interest thereon owing now or in the futureto such withdrawing Member and any right, title or interest in or to purchase or acquire any property of theCompany other than a Subsequent Withdrawing Developer’s rights to purchase Private Sale Lots and to apply itsApplicable LotExhibit 10.41Credit pursuant to Article 10 hereof (which shall survivesuch Subsequent Withdrawing Developer's withdrawal as a member of the Company). Such withdrawal shall befurther evidenced by a withdrawal and redemption agreement between the Company and such withdrawingMember substantially in the form of the agreement attached to the Second Amended and Restated LLCAgreement as Exhibit “A” (such agreement, the “Withdrawal Agreement”).”(b)Section 13.1C is amended and restated in its entirety as follows:“C. Company Right To Call and Redeem Developer’s Interest. A Developer (“Non-Electing Developer”) that isnot a Subsequent Withdrawing Developer (and who has not made an effective election to rescind its Non-Funding Member status with the approval of the Executive Committee in accordance with this Agreement) shallbe subject to the Company’s right to call and redeem its Interest in accordance with this Section 13.1C (a“Company Call Election”) at any time following the earlier of (i) the failure to obtain a Specific Plan Approvalby the Specific Plan Approvals Deadline applicable thereto,(ii) the Withdrawal Date, (iii) the occurrence of an Event of Default with respect to such Developer, or (iv) thirty(30) days following delivery of written notice of commencement of the Development Stage to the Non- ElectingDeveloper. A Company Call Election shall be made, in each case, by written notice (“Call Notice”) deliveredwith the authorization of the Executive Committee to such Non-Electing Developer. Upon a Company CallElection, the applicable Non-Electing Developer shall automatically be deemed to have withdrawn as a Memberand shall have released all right, title and interest in and to and claims against the Company, including, withoutlimitation, any management, voting or other rights under any organizational and operational agreement (whetherarising in connection with the Executive Committee, as a Member, Developer or otherwise), any right to returnof such Developer’s capital and any yield or return thereon, rights to distributions or allocations of income,profits, credits, losses or deductions, and claims for payment of any fees, debts (including, without limitation,any right to treat such Developer’s unreturned Capital Contribution as or receive payment of a debt from theCompany) or reimbursement or payment of any other amounts together with any interest thereon owingnow or in the future to such Developer and any right, title or interest in or to purchase or acquire any property ofthe Company, including, without limitation, such Non-Electing Developer’s rights (on behalf of itself or itsAffiliates) to make offers to purchase or otherwise acquire Private Sale Lots or to use its Applicable Lot Creditfor such purchases or any other purchases of Lots pursuant to Article 10 or otherwise. Such withdrawal shall befurther evidenced by a Withdrawal Agreement between such Non-Electing Developer and the Company onterms and conditions set forth in the Withdrawal Agreement and shall include a termination of Non-ElectingDeveloper’s right to acquire Private Sale Lots and to apply its Applicable Lot Credit as described above. Theexecution and delivery of the Withdrawal Agreement by a Non-Electing Developer shall not be a condition tothe effectiveness of the withdrawal of the Non-Electing Developer following a Company Call Election.”Exhibit 10.41(c)Section 13.2 is hereby amended by inserting immediately prior to the colon in Section 13.2 the phrase, “exceptas otherwise Approved by the Executive Committee or a withdrawal pursuant to a Company Call Election.”10.Article 14/Dissolution and Liquidation. Article 14 of the Second Amended and Restated LLC Agreement is amended asfollows:(a)Section 14.1A is amended and restated in its entirety as follows:“A. Unanimous Agreement. The unanimous written approval and consent of the Members to dissolve theCompany.”(b)Subsections B, C, D, E, F, G, I and J of Section 14.1 are deleted in their entirety and replaced with the words“[Intentionally Deleted]”, and new Subsection L is added which provides as follows:“L. Failure to Obtain Specific Plan Approval(s). At the election of Tejon, if the Company does not obtain aSpecific Plan Approval by the Specific Plan Approvals Deadline applicable thereto.”(c)The paragraph following Section D in Section 14.3 shall be amended and restated in its entirety as follows:“No payment or distribution in any of the foregoing categories shall be made until all payments in each priorcategory shall have been made in full. If the payments due to be made in any of the foregoing categories exceedthe remaining assets available for such purpose, then suchpayments shall be made to the Persons entitled to receive the same pro rata in accordance with the respectiveamount due them. Payments described in clause (D) above may be made in cash or in assets of the Company inkind, upon the Approval of the Executive Committee and any Member receiving such distribution in kind. Anyasset distributed in kind shall be valued at its fair market value as determined by the Executive Committee in itssole and good faith discretion and for all purposes of this Agreement shall be treated as if such asset had beensold at its fair market value, subject to existing liens and encumbrances, and the net cash proceeds therefromdistributed to the Members receiving the distribution in kind.”(c) Section 14.5 is deleted in its entirety and replaced with the words “[Intentionally Deleted]”.11.Article 19/Special Provisions Relating to CalAtlantic and SPIC. The Second Amended and Restated LLC Agreement,including without limitation, Article 19 thereof is amended by replacing the term “Standard Pacific” wherever it appears with the term“CalAtlantic” to reflect that CalAtlantic has succeeded to all of the right, title, and interests in and to, and claims against, the Companyformerly held by Standard Pacific.12.Exhibit “F” attached to the Second Amended and Restated LLC Agreement is deleted in its entirety and replaced with the newExhibit “F” attached hereto as Schedule 1.13.Exhibit “K” attached to the Second Amended and Restated LLC Agreement is deleted in its entirety.14.Full Force and Effect. The Second Amended and Restated LLC Agreement as amended by this Amendment shall remain infull force and effect. In the event of a conflict between this Amendment and the Second Amended and Restated LLC Agreement, thisAmendment shall govern.Exhibit 10.4115.Multiple Counterparts and Electronic Signatures. This Amendment may be executed in multiple counterparts, each of whichwill be considered an original and together will constitute one and the same agreement, binding upon all of the parties hereto.Signatures of the parties to this Amendment may be transmitted by facsimile or other electronic means and shall be treated as originalsfor all purposes.[remainder of page intentionally left blank; signatures to follow]Exhibit 10.41IN WITNESS WHEREOF, each of the undersigned has caused this Amendment to be executed by a duly authorized officer as of thedate first set forth above.MEMBERS:TEJON RANCHCORP,a California corporationBy: /s/ Allen E. LydaAllen E. Lyda, its Executive Vice President and ChiefFinancial OfficerBy: /s/ Gregory S. BielliName: Gregory S. Bielli, President and CEOIts: Authorized RepresentativeSTANDARD PACIFIC INVESTMENT CORP.,a Delaware corporationBy: /s/ Edward T. McKibbinName: Edward T. McKibbinIts: Authorized RepresentativeBy: /s/ Elliot MannName: Elliot MannIts: Authorized RepresentativePARDEE HOMES,a California corporationBy: /s/ Thomas J. MitchellName: Thomas J. MitchellIts: PresidentBy: /s/ Michael A. McMillen Name: Michael A. McMillenIts: Vice President[signatures continue on following page]Exhibit 10.41CALATLANTIC GROUP, INC.,a Delaware corporation, formerly known as Standard Pacific Corp., a DelawarecorporationBy: /s/ Edward T. McKibbinName: Edward T. McKibbinIts: Authorized RepresentativeBy: /s/ Elliot MannName: Elliot MannIts: Authorized Representative[end of signatures]Exhibit 10.41EXHIBIT “A”Form of Redemption Agreement[attached]Exhibit 10.41FORM OF REDEMPTION AND WITHDRAWAL AGREEMENTTHIS REDEMPTION AND WITHDRAWAL AGREEMENT (this "Agreement") ismade and entered as of , 20 (the "Effective Date"), by and among CENTENNIAL FOUNDERS, LLC, a Delaware limited liabilitycompany, formerly known as RM Development Associates, LLC (the "Company"), and , a (the “Withdrawing Member”). Capitalized terms used herein and not otherwise defined herein shall have the meanings given tothem in the LLC Agreement (as defined in Recital A below). This Agreement is entered into with reference to the following facts andcircumstances:R E C I T A L SA.The Company is governed by that certain Second Amended and Restated Limited Liability Company Agreement ofCentennial Founders, LLC dated as of July 31, 2009 (the "Second Amended and Restated LLC Agreement"), entered into by andamong Tejon Ranchcorp, a California corporation ("Tejon"), Pardee Homes, a California corporation ("Pardee"), Standard PacificInvestment Corp., a Delaware limited liability company ("SPIC"), and Standard Pacific Corp., a Delaware corporation ("StandardPacific", which is now known as CalAtlantic Group, Inc., a Delaware corporation ("CalAtlantic Group")), and Lewis InvestmentCompany, LLC, a California limited liability company (“Lewis Investment Company”), as amended by that certain First Amendmentto Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC dated as of November 30,2016 (the “First Amendment”), as further amended by that certain Second Amendment to Second Amended and Restated LimitedLiability Company of Centennial Founders, LLC dated as of November 30, 2016 (the “Second Amendment”; together with the SecondAmended and Restated LLC Agreement and the First Amendment, the “LLC Agreement”). [NTD: UPDATE THE PRECEDINGSENTENCE TO REFLECT FURTHER AMENDMENTS AS APPROPRIATE.] Lewis Tejon Member, LLC, a Delaware limitedliability company, succeeded to all of the Interest (as such term is defined herein) of Lewis Investment Company in the Company (onbehalf of itself and Lewis Investment Company, collectively, “Lewis”), and subsequently withdrew as a Member of the Company asdescribed in the First Amendment. CalAtlantic Group succeeded to all of Standard Pacific's Interest in the Company (on behalf of itselfand SPIC, collectively, "CalAtlantic").B.On and subject to the terms and conditions of the LLC Agreement, each Developer has the right to purchase Lots andto apply its Applicable Lot Credit (collectively, the “Article 10 Lot Purchase Rights”) from the Company for the development of for-sale single family attached and/or detached residences.C.Pursuant to Section 13.1A of the LLC Agreement, the Withdrawing Member has the right to withdraw as a member ofthe Company. The Withdrawing Member now desires to exercise its withdrawal right. [NTD: REVISE THE TWO PRECEDINGSENTENCES IF THE WITHDRAWING MEMBER IS A NON-ELECTING MEMBER THAT IS BEING REDEEMED AS ARESULT OF THE COMPANY'S ELECTION PURSUANT TO THE LLC AGREEMENT.] The withdrawal of the WithdrawingMember as a member of the Company shall be irrevocable and unconditional.D.Conditioned upon the irrevocable and unconditional withdrawal of the Withdrawing Member as a member of theCompany, [[NTD: INSERT IF THE OTHER DEVELOPER HAS NOT BEEN REDEEMED] [ ] ("Remaining Developer")]] andTejon have agreed, concurrently with the Withdrawing Member's withdrawal, to enter into an amendment to the LLC Agreement (the"Withdrawal Amendment") substantially in the form of the First Amendment, which Withdrawal Amendment shall include, withoutlimitation, the provisions related to retention and access of the Company’s books and records and receipt of the Company’s tax returnsset forth in Sections 4 and 6, respectively, of the First Amendment. [The Remaining Developer and Tejon are sometimes hereinafterreferred to individually, as a "Remaining Member" and collectively, as the "Remaining Members."]]E.The Company and the Withdrawing Member now desire to enter into this Agreement, and the Remaining Membersnow desire to enter into the Consent, Ratification and Agreement of the Remaining MembersExhibit 10.41in the form attached as Schedule 1 to this Agreement (the "CRA"), to provide for (i) the full and complete redemption of theWithdrawing Member's Interest in the Company, and (ii) such other matters as are agreed to by the Company and the WithdrawingMember.A G R E E M E N TNOW THEREFORE, in consideration of the foregoing and of the mutual promises hereinafter set forth, the parties heretoagree as follows:1.Withdrawal/Redemption of the Interest. Pursuant to the terms and conditions set forth in this Agreement and theWithdrawal Amendment, the Withdrawing Member hereby irrevocably and unconditionally withdraws as a member of the Companyand the Company hereby redeems the Withdrawing Member's entire "Interest" (as defined in the LLC Agreement and as furtherdefined in this Section 1) in the Company provided the foregoing shall not limit or modify (i) the Withdrawing Member's Article 10Lot Purchase Rights, [NTD: THIS ONLY APPLIES IF THE WITHDRAWING MEMBER IS A SUBSEQUENT WITHDRAWINGDEVELOPER UNDER SECTION 13.1A], or (ii) the rights of the Withdrawing Member under Section 2(c) below. For purposes ofthis Agreement, the Withdrawing Member's "Interest" includes, without limitation, all of the Withdrawing Member's right, title andinterest in and to and claims against the Company (including, without limitation, any claims released under Section 7(a) below), anymanagement, voting or other rights under any organizational and operational agreement (whether arising in connection with theExecutive Committee, as a member, Developer or otherwise), any right to return of the Withdrawing Member's capital and any yield orreturn thereon, rights to distributions or allocations of income, profits, credits, losses or deductions, and claims for payment of anyfees, debts (including, without limitation, any right to treat the Withdrawing Member's unreturned Capital Contribution as or receivepayment of Subordinated Debt) or reimbursement or payment of any other amounts together with any interest thereon owing now or inthe future by the Company to the Withdrawing Member [[NTD: INSERT IF WITHDRAWING MEMBER IS A NON-ELECTINGDEVELOPER] [and any right, title or interest in or to purchase or acquire any property of the Company, including, without limitation,any right to acquire or purchase Private Sale Lots and Private Sale Commercial Parcels] / [INSERT IF A SUBSEQUENTWITHDRAWING DEVELOPER][other than the Article 10 Lot Purchase Rights]]. On the Effective Date, the following actions shall occur concurrently: (a) theCompany will redeem in full the Withdrawing Member's Interest, and (b) the Withdrawing Member will irrevocably andunconditionally withdraw from the Company (collectively, the "Transaction").2.Consideration.(a)Adequacy of Consideration. The Withdrawing Member acknowledges that [NTD: INSERT IFWITHDRAWING MEMBER IS A SUBSEQUENT WITHDRAWING DEVELOPER.] (i) the retention of the Article 10 LotPurchase Rights, and(ii) the release from the Company and Tejon and the indemnity from the Company under this Agreement for the benefit of theWithdrawing Member constitutes fair, adequate and sufficient consideration under this Agreement for the Transaction.(b)Non-Responsibility of the Remaining Members and the Company. For the avoidance of any doubt,(i)in no event shall (A) any Remaining Member or the Company be required to make any payment to theWithdrawing Member in consideration for the Withdrawing Member withdrawing as a member of the Company, (B) any RemainingMember be responsible for the breach of any obligation of any other Remaining Member under this Agreement, the CRA, theWithdrawal Amendment or any other agreement between any of the Remaining Members and the Withdrawing Member related to theTransaction or otherwise, or (C) the Company be responsible for the breach of any obligation of a Remaining Member under thisAgreement, the CRA, the WithdrawalExhibit 10.41Amendment or any other agreement between any of the Remaining Members and the Withdrawing Member related to the Transactionor otherwise; and(ii)the Transaction shall remain in full force and effect and shall not be subject to rescission, set aside, orany similar claim or remedy by the Withdrawing Member, all of which rights and remedies are hereby irrevocably and unconditionallywaived by the Withdrawing Member and shall be considered as having been released pursuant to the Withdrawing Member's Release(provided for in Section 7(a) below).(c)Survival of Indemnification Provisions. Notwithstanding the Transaction (or any other provision set forth inthis Agreement or the Withdrawal Amendment), the indemnification and other provisions set forth in Section 16.2 of the LLCAgreement for the benefit of the Withdrawing Member and the other Indemnified Parties described therein shall survive theWithdrawing Member's withdrawal from the Company with respect to any claim that arises on or prior to the Effective Date which iscovered under Section 16.2 of the LLC Agreement (an "Indemnifiable Claim"); provided however that such indemnification and otherprovisions shall not cover any breach by the Withdrawing Member of this Agreement or the Withdrawal Amendment, and providedfurther that the Withdrawing Member's rights under Section 16.2 of the LLC Agreement shall be subject to the express terms andlimitations contained therein and in Section 16.3 of the LLC Agreement. Except as provided above in this Section 2(c), [[NTD:INSERT IF SUBSEQUENT WITHDRAWING DEVELOPER] [or with respect to the Article 10 Lot Purchase Rights,]] or in theWithdrawal Amendment, the Withdrawing Member no longer possesses or retains its Interest or any other right, title orinterest in or to or claims against the Company. Except as otherwise provided in this Agreement, [[NTD: INSERT IF SUBSEQUENTWITHDRAWING DEVELOPER] [including, withoutlimitation, the Withdrawing Member's Article 10 Lot Purchase Rights,]] or the Withdrawal Amendment, the Withdrawing Member hasno further duties, liabilities and/or obligations to the Company or any of the Remaining Members with respect to its Interest and/orunder the LLC Agreement.3.Representations and Warranties.(a)Withdrawing Member's Representations and Warranties. The Withdrawing Member makes the followingrepresentations and warranties to the Company as of the Effective Date:(i)The Withdrawing Member is a [NTD: INSERT ENTITY TYPE], duly organized and validly existingunder the laws of the state of [NTD: INSERT STATE OF FORMATION], with all requisite power to carry on its business as presently owned or conducted andto take any action contemplated by it pursuant to this Agreement.(ii)The Withdrawing Member has full power and authority to enter into this Agreement and toconsummate the transactions contemplated hereby. This Agreement and the consummation of the transactions contemplated herebyhave been duly authorized by all necessary action on the part of the Withdrawing Member, no further consent or approval is required,and this Agreement constitutes the legal, valid and binding obligation of the Withdrawing Member, enforceable in accordance with itsterms, except as enforcement may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditor'srights generally or by general equity principles.(iii)The execution, delivery and performance of this Agreement does not, and the performance of thisAgreement will not: (1) violate or result in a default under the organizational documents of the Withdrawing Member; or (2) violateany existing applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court havingjurisdiction over the Withdrawing Member.(iv)The execution, delivery and performance of this Agreement, the Transaction and any othertransactions contemplated hereby do not conflict, and are not inconsistent, with and will not result (with or without the giving of noticeor passage of time or both) in a breach of or creation of any lien, charge or encumbranceExhibit 10.41upon any of the Withdrawing Member's Interest pursuant to the terms of any credit agreement, indenture, lease, guarantee or otherinstrument to which the Withdrawing Member is a party or by which the Withdrawing Member may be bound or to which it may besubject.(v)The Withdrawing Member owns its Interest free and clear of all liens and encumbrances or otherrestrictions of any kind whatsoever of any person whether claiming through the Withdrawing Member or otherwise, except to theextent expressly set forth in the LLC Agreement. The Withdrawing Member's Interest constitutes the entire right, title andinterest in and to claims against the Company owned by the Withdrawing Member or any affiliates of the Withdrawing Member.(vi)Excepting the Withdrawing Member Unreleased Claims (defined below), from and after the EffectiveDate, the Withdrawing Member shall not have any right, title or interest in or to or claim against the Company or under the LLCAgreement, including, without limitation, any right, title or interest in or to or against any cash flow or any other distributions, capital,profits and losses, management, voting or other rights under any organizational and operational agreement (whether arising inconnection with the Executive Committee, as a member, Developer or otherwise), or any rights to any receivables (including, withoutlimitation, any right to the Withdrawing Member's unreturned Capital Contribution and/or any right to treat the Withdrawing Member'sunreturned Capital Contribution as or receive payment of Subordinated Debt) relating to the Company, including but not limited to,member loans, voluntary loans, payment of fees, repayment of any loan or any other such receivables or any right, title or interest in or[NTD: DELETE THIS PROVISION FOR EACH SUBSEQUENT WITHDRAWING DEVELOPER.] [to purchase or acquire] anyproperty of the Company, including, without limitation, any right to acquire or purchase Private Sale Lots (provided the foregoing shallnot limit or modify (A) the rights of the Withdrawing Member under Section 2(c) above, [[NTD: INSERT IF SUBSEQUENTWITHDRAWING DEVELOPER] [(B) the Withdrawing Member's Article 10 Lot Purchase Rights]], or (C) the WithdrawingMember's rights under the Withdrawal Amendment).(vii)The Withdrawing Member hereby represents and warrants that it is the owner of the WithdrawingMember Claims and that it has not previously assigned or transferred any of the Withdrawing Member Claims.(viii)The Withdrawing Member hereby acknowledges and understands that (i) the Company and theRemaining Members intend to carry on with the business of the Company, (ii) the Withdrawing Member has been provided with dueopportunity to inquire regarding the ongoing and future prospects of the business and affairs of the Company, and (iii) the Companyand its Remaining Members have no affirmative duty to disclose or other duty (including, without limitation, any fiduciary duty)regarding the ongoing and future business and affairs of the Company (including, without limitation, any potential opportunities,profits or earnings which the Withdrawing Member may be foregoing by withdrawing from the Company pursuant to this Agreement)to the Withdrawing Member however such duty might arise by contract, law or otherwise. The Withdrawing Member hereby waives allrights it may have against the Company, its assets or the Remaining Members in connection with the duties and obligations describedin the foregoing subsections (i) to (iii) (collectively, the "Partnership Opportunity Disclosure Obligations").(b)Company's Representations and Warranties. The Company hereby represents and warrants to theWithdrawing Member as of the Effective Date as follows:(i)The Company is a limited liability company duly organized and validly existing under the laws of thestate of Delaware, with all requisite power to carry on its business as presently owned or conducted and to take any actioncontemplated by it pursuant to this Agreement.(ii)The Company has full power and authority to enter into this Agreement and toExhibit 10.41consummate the Transaction and any other transactions contemplated hereby. This Agreement and the consummation of theTransaction and any other transactions contemplated hereby have been duly authorized by all necessary action on the part of theCompany, no further consent or approval is required from the Remaining Members or any other Person except for such consents orapproval being obtained prior to the Effective Date and all such consents and approvals have been obtained as of the Effective Date,and this Agreement constitutes the legal, valid and binding obligation of the Company enforceable in accordance with its terms, exceptas enforcement may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement of creditor's rightsgenerally or by general equity principles.(iii)The execution, delivery and performance of this Agreement does not, and the performance of thisAgreement as of the Effective Date will not: (1) violate the organizational documents of the Company; (2) violate any existingapplicable law, rule, regulation, judgment, order or decree of any governmental instrumentality or court having jurisdiction over theCompany, or (3) require the Company to obtain any authorization, consent, approval or waiver from, or to make any filing with, anygovernmental body or authority except for such consents or approval being obtained prior to the Effective Date and all such consentsand approvals have been obtained as of the Effective Date.(iv)The execution, delivery and performance of this Agreement, the Transaction and any othertransactions contemplated hereby as of the Effective Date do not conflict and are not inconsistent with, and will not result (with orwithout the giving of notice or passage of time or both) in a breach of any credit agreement, indenture, lease, guarantee or otherinstrument to which the Company is a party or by which the Company may be bound or to which it may be subject.(v)Any and all third party consents or approvals necessary for the performance of this Agreement and thetransactions contemplated hereby, including without limitation, the Approval from each of the Remaining Members, has been obtainedas of the Effective Date.(vi)The Company hereby represents and warrants that it is the owner of the Company Claims and that ithas not previously assigned or transferred any of the Company Claims.(c)Remaining Member Representations and Warranties. Each Remaining Member hereby represents and warrantsto the Withdrawing Member as of the Effective Date as follows:(i)Such Remaining Member is a limited liability company or corporation duly organized and validlyexisting under the laws of the state of its formation, with all requisite power to carry on its business as presently owned or conductedand to take any action contemplated by it pursuant to this Agreement.(ii)Such Remaining Member has full power and authority to enter into the CRA and to consummate thetransactions contemplated hereby. The CRA and theconsummation of the transactions contemplated thereby have been duly authorized by all necessary action on the part of suchRemaining Member, no further consent or approval is required from the Remaining Member or any other Person except for suchconsents or approval being obtained prior to the Effective Date and all such consents and approvals have been obtained as of theEffective Date, and the CRA constitutes the legal, valid and binding obligation of such Remaining Member enforceable in accordancewith its terms, except as enforcement may be limited by bankruptcy, insolvency or other laws relating to or affecting enforcement ofcreditor's rights generally or by general equity principles.(iii)The execution, delivery and performance of the CRA does not, and the performance of the CRA andthe transactions contemplated thereby as of the Effective Date will not: (1) violate the organizational documents of such RemainingMember; (2) violate any existing applicable law, rule, regulation, judgment, order or decree of any governmental instrumentality orcourt having jurisdiction over such Remaining Member, or (3) require such Remaining Member to obtain any authorization, consent,approval or waiver from, or to make any filing with,Exhibit 10.41any governmental body or authority except for such consents or approval being obtained prior to the Effective Date and all suchconsents and approvals have been obtained as of the Effective Date.(iv)The execution, delivery and performance of the CRA and the transactions contemplated thereby as ofthe Effective Date do not conflict and are not inconsistent with, and will not result (with or without the giving of notice or passage oftime or both) in a breach of any credit agreement, indenture, lease, guarantee or other instrument to which such Remaining Member isa party or by which such Remaining Member may be bound or to which it may be subject.(d)Survival. Each of the representations and warranties of the Company, the Withdrawing Member and eachRemaining Member set forth in this Section 3 shall expire if a claim has not been commenced against the applicable party with respectto a breach of a representation or warranty within one (1) year from the Effective Date.4.Company Acknowledgment. As a material inducement to the Withdrawing Member to enter into this Agreement, theCompany hereby acknowledges and agrees that:(a)AS-IS ACQUISITION. EXCEPT AS OTHERWISE SET FORTH IN THIS AGREEMENT AND THEWITHDRAWAL AMENDMENT, THE COMPANY IS REDEEMING AND ACQUIRING THE WITHDRAWING MEMBER'SINTEREST IN THE COMPANY ON AN "AS-IS/WHERE-IS" AND "WITH ALL FAULTS AND DEFECTS" BASIS WITHOUT ANYREPRESENTATION OR WARRANTY OF THE WITHDRAWING MEMBER (OR ANY AFFILIATE OR REPRESENTATIVE OFTHE WITHDRAWING MEMBER), EXPRESS, IMPLIED OR STATUTORY, AS TO SUCH INTEREST, THE COMPANY, OR THENATURE OR CONDITION OF OR TITLE TO ALL OR ANY OF THE ASSETS OF THE COMPANY.(b)No Representations. Other than the express representations, warranties, agreements and covenants of theWithdrawing Member as set forth in this Agreement and the Withdrawal Amendment, neither the Withdrawing Member, nor anyPerson acting by or onbehalf of the Withdrawing Member, has made any representation, warranty, inducement, promise, agreement, assurance or statement,oral or written, of any kind to the Company or to any of the Remaining Members upon which the Company or any such RemainingMember is relying, or in connection with which the Company or any such Remaining Member has made or will make any decisionconcerning the Withdrawing Member's Interest, the Company, the Agreement, the liabilities of the Company and/or the assets of theCompany (including, without limitation, the Master Project).5.Management Rights. On the Effective Date, (i) the Withdrawing Member's management, voting, approval or othersimilar rights with respect to the Company (whether arising in connection with any Voting Interest, the Executive Committee, as amember, Developer or otherwise) shall have been irrevocably and unconditionally terminated, and (ii) all of the WithdrawingMember's appointed Representatives and Alternates to the Executive Committee shall be deemed to have irrevocably andunconditionally resigned from the Executive Committee and the Withdrawing Member shall have no further representation on theExecutive Committee of any kind or nature.6.Deliveries and Transaction Costs.(a)Withdrawing Member's Deliveries. At or before the Effective Date, the Withdrawing Member shall deliver tothe Company the following:(i)an executed acknowledgement to the Withdrawal Amendment, in the Withdrawing Member's capacityas a withdrawing member of the Company;(ii)the written resignation of its Representatives and Alternates from the Executive Committee; andExhibit 10.41(iii)such resolutions, authorizations, or other corporate and/or limited liability company documents oragreements relating to the Withdrawing Member and the Company's Members as shall be reasonably requested by the Company.(b)The Company's Deliveries. At or before the Effective Date, the Company shall deliver to the WithdrawingMember the following:(i)the Withdrawal Amendment, duly executed by the Company and the Remaining Members; and(ii)the CRA duly executed by the Remaining Members (the "CRA").(c)Transaction Costs. Each of the parties shall be responsible for the payment of its own out-of-pocket costs,including attorneys' fees, incurred in connection with this Agreement, whether consummated or not.7.Releases.(a)As of the Effective Date, the Withdrawing Member, for itself and its affiliates, partners, directors, members,owners, managers, officers, employees and agents(individually, a "Withdrawing Member Releasing Party" and collectively, the "Withdrawing Member Releasing Parties"), herebyreleases and discharges (the "Withdrawing Member Release") the Company, the Executive Committee (and its appointedRepresentatives and Alternates), Tejon, each of their respective affiliates, and each of their respective partners, directors, members[[NTD: INSERT IF APPLICABLE] [(excluding the Remaining Developer)]], owners, managers, officers, employees and agents(collectively, "Company Releasees") from all causes of action, actions, debts, sums of money, accounts, bonds, bills, covenants,contracts, controversies, promises, agreements, trespasses, variances, judgments, damages, executions, claims, demands, whatsoever,in law or equity, which any Withdrawing Member Releasing Party, individually or collectively, has, ever had or may have in the futureagainst any Company Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the LLC Agreement, the Withdrawal Amendment, the Partnership Opportunity DisclosureObligations, the Company, the Master Project or the Adjacent Property (collectively, the "Withdrawing Member Claims"); provided,however, that this Withdrawing Member Release shall not extend to any Withdrawing Member Claims against any Company Releaseearising out of (i) any breach by any such Company Releasee of any of its obligations or representations and warranties expressly setforth in this Agreement, the Withdrawal Amendment and/or the CRA (or any dispute regarding the interpretation or enforceability ofthis Agreement, the Withdrawal Amendment and/or the CRA), or [[NTD: INSERT IF SUBSEQUENT WITHDRAWINGDEVELOPER] [(ii) theWithdrawing Member's Article 10 Lot Purchase Rights]] (collectively, the "Withdrawing Member Unreleased Claims").It is the intention of the Withdrawing Member Releasing Parties that the release under Section 7(a), with the exception of theWithdrawing Member Unreleased Claims, be effective as a bar to each of the Withdrawing Member Claims hereinabove specified.Each Withdrawing Member Releasing Party understands, acknowledges, and agrees that no Withdrawing Member Unknown Claims(as hereinafter defined), or any facts, events, circumstances, evidence or transactions which could now be asserted or which mayhereafter be discovered, shall affect the final, absolute and unconditional nature of the release under Section 7(a). For purposes of thisAgreement, "Withdrawing Member Unknown Claims" means any and all Withdrawing Member Claims (except for the WithdrawingMember Unreleased Claims) that a Withdrawing Member Releasing Party does not know or suspect to exist in his, her or its favor atthe time of the effectiveness of the release under Section 7(a), which if known by such Withdrawing Member Releasing Party wouldhave affected his, her or its decision to give the Withdrawing Member Release provided for herein. With respect to any and allWithdrawing Member Claims, except for Withdrawing Member Unreleased Claims, each of the Withdrawing Member ReleasingParties agrees that upon theExhibit 10.41Effective Date, each Withdrawing Member Releasing Party shall be deemed to have, and shall have, knowingly and expressly waivedany and all provisions, rights and benefits conferred by any law of any state or territory of the United States, or any other state,sovereign or jurisdiction, or principle of common law which is similar, comparable, or equivalent to California Civil Code Section1542 which provides:"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him orher must have materially affected his or her settlement with the debtor."(b)As of the Effective Date, the Company, for itself and its affiliates, directors, members (exclusive of theRemaining Members), owners, managers, officers, employees and agents (individually, a "Company Releasing Party" andcollectively, the "Company Releasing Parties"), hereby releases and discharges (the "Company Release") the Withdrawing Member,its affiliates, and their respective partners, directors, members, owners, managers, officers, employees and agents (collectively,"Withdrawing Member Releasees") from all causes of action, actions, debts, sums of money, accounts, bonds, bills, covenants,contracts, controversies, promises, agreements, trespasses, variances, judgments, damages, executions, claims, demands, whatsoever,in law or equity, which any Company Releasing Party, individually or collectively, has, ever had or may have in the future against anyWithdrawing Member Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the LLC Agreement, the Company, the Master Project or the Adjacent Property (collectively, the"Company Claims"); provided, however, that this Company Release shall not extend to any Company Claims against theWithdrawing Member arising out of any breach by the Withdrawing Member of any of its obligations or representations and warrantiesexpressly set forth in this Agreement, the Withdrawal Amendment and/or the other documents delivered pursuant to Section 6(a)hereof (or any dispute regarding the interpretation or enforceability of this Agreement and/or the Withdrawal Amendment), or anyCompany Claims against the Withdrawing Member that the Company Releasing Parties may have in response to or defending against(i) an indemnification claim that is not an Indemnifiable Claim made by the Withdrawing Member Releasees pursuant to Section 16.2of the LLC Agreement, or [[NTD: INSERT IF APPLICABLE] [(ii) any Company Claims against the Withdrawing Member arisingafter the Effective Date pertaining to the Article 10 Lot Purchase Rights]] (collectively, the "Company Unreleased Claims"). It is theintention of the Company Releasing Parties that the release under this Section 7(b), with the exception of the Company UnreleasedClaims, be effective as a bar to each of the Company Claims hereinabove specified. Each Company Releasing Party understands,acknowledges, and agrees that no Company Unknown Claims (as hereinafter defined), or any facts, events, circumstances, evidence ortransactions which could now be asserted or which may hereafter be discovered, shall affect the final, absolute and unconditionalnature of the release under this Section 7(b). For purposes of this Agreement, "Company Unknown Claims" means any and allCompany Claims (except for the Company Unreleased Claims) that a Company Releasing Party does not know or suspect to exist inhis, her or its favor at the time of the effectiveness of the release under this Section 7(b), which if known by such Company ReleasingParty would have affected his, her or its decision to give the Company Release provided for herein. With respect to any and allCompany Claims, each of the Company Releasing Parties agrees that upon the Effective Date, each Company Releasing Party shall bedeemed to have, and shall have, knowingly and expressly waived any and all provisions, rights and benefits conferred by any law ofany state or territory of the United States, or any other state, sovereign or jurisdiction, or principle of common law which is similar,comparable, or equivalent to California Civil Code Section 1542 which provides:"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favorat the time of executing the release, which if known by him or her must have materially affected his or her settlementwith the debtor."Exhibit 10.41(c)EACH OF THE PARTIES HERETO SPECIFICALLY ACKNOWLEDGES THAT IT HAS CAREFULLYREVIEWED THIS SECTION AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL AND THAT THE PROVISIONS OF THISSECTION ARE A MATERIAL PART OF THIS AGREEMENT. Company's Initials Withdrawing Member'sInitials 8.Brokers And Finders. Neither party has had any contact or dealings regarding the Master Project, or anycommunication in connection with the subject matter of this Agreement, through any real estate broker or other person who can claima right to a commission or finder's fee in connection with the transactions contemplated herein. In the event that any broker or finderclaims a commission or finder's fee based upon any contact, dealings or communication, the party through whom the broker or findermakes its claim shall hold harmless, indemnify and defend the other party hereto, its successors and assigns, agents, employees,officers, trustees, members and managers from and against any and all obligations, liabilities, claims, demands, liens, encumbrancesand losses (including reasonable attorneys' fees), whether direct, contingent or consequential, arising out of, based on, or incurred as aresult of such claim. The provisions of this paragraph shall survive the termination of this Agreement.9.Miscellaneous.(a)Successors and Assigns. This Agreement shall be binding upon, and inure to the benefit of, the parties heretoand their respective successors, heirs, administrators and assigns. Neither the Company nor the Withdrawing Member shall assign anyof their respective right, title or interest in or to this Agreement.(b)Amendments. This Agreement may be amended or modified only by a written instrument executed by theWithdrawing Member and the Company.(c)Dispute Resolution. Notwithstanding anything to the contrary set forth in this Agreement, in the event of aclaim by a party hereto or to the CRA against another party hereto or the CRA arising out of or otherwise relating to this Agreement orthe CRA, the parties shall promptly and in good faith attempt to resolve such claim by mutual agreement. In the event the parties areunable to resolve such claim by mutual agreement, the matter shall be settled exclusively by a binding arbitration ("Arbitration"),conducted by a single arbitrator (the "Arbitrator") chosen by the parties as described below. Any party may initiate the Arbitration bywritten notice to the other party(ies) and to the Arbitration Tribunal.The date on which the notice is given is called the "Arbitration Initiation Date". The fees and expenses of theArbitration Tribunal and the Arbitrator shall be shared equally by the Withdrawing Member and the Company, and advanced by themfrom time to time as required; provided, however, that at the conclusion of the Arbitration, the Arbitrator may awardcosts and expenses (including the costs of the Arbitration previously advanced and the fees and expenses of attorneys, accountantsand other experts) to the prevailing party.Except as expressly modified herein, the Arbitration shall be conducted in accordance with the provisions of Section1280 et seq. of the California Code of Civil Procedure or their successor sections ("CCP"), except that Section 1283.05 (discovery)shall not apply, and shall constitute the exclusive procedure and forum for the determination of any claim, including whether the claimis subject to arbitration. The Arbitration shall be conducted under the procedures of the Arbitration Tribunal, except as modifiedherein. The "Arbitration Tribunal" shall be the Los Angeles Office of JAMS/ENDISPUTE ("JAMS"), unless the parties to the disputecannot agree onExhibit 10.41a JAMS arbitrator, in which case the Arbitration Tribunal shall be the Los Angeles Office of the American Arbitration Association("AAA").The Arbitrator shall be a retired judge or other arbitrator employed by JAMS selected by mutual agreement of theparties to the dispute, and if they cannot so agree within thirty (30) days after the Arbitration Initiation Date, then the Arbitrator shall beselected from the Large and Complex Case Project ("LCCP") panel of the AAA, by mutual agreement of the parties to the dispute. Ifthe parties to the dispute cannot agree on an Arbitrator within sixty (60) days after the Arbitration Initiation Date, then the Arbitratorshall be selected by the AAA, from its LCCP panel, through such procedures as the AAA regularly follows. In all events, the Arbitratormust have had not less than fifteen (15) years' experience as a transactional or litigation lawyer), judge or arbitrator of complexbusiness transactions. If for any reason the AAA does not so act, then any party to the dispute may apply to the Superior Court in andfor Los Angeles County, California, for the appointment of a single arbitrator.No pre-arbitration discovery shall be permitted, except that the Arbitrator shall have the power in his or her solediscretion, on application by any party to the Arbitration, to order pre-arbitration examination solely of those witnesses and documentsthat the other party intends to introduce as its case-in-chief at the arbitration hearing. Prior to the commencement of arbitrationhearings, the Arbitrator shall have the power, in his or her discretion, upon the Withdrawing Member's and/or the Company's motionbut not the Arbitrator's own initiative, to order the parties to engage in pre-arbitration mediation for a period not exceeding thirty (30)days before a mediator mutually acceptable to the parties.The Arbitrator shall try any and all issues of law or fact and be prepared to make the award within ninety (90) days afterthe close of evidence in the Arbitration. When prepared to make the award, the Arbitrator shall first so inform the parties, who shallhave ten (10) days to attempt to resolve the matter by a binding agreement between them. If the parties so resolve the matter, then theArbitrator shall not make any award. If the parties do not so resolve the matter, the Arbitrator shall make the award on the eleventh dayfollowing his notice of being prepared to make the award. The Arbitrator's award shall dispose of all of the claims that are the subjectof the Arbitration and shall follow Delaware law and precedent, and shall be a reasoned opinion. The Arbitrator shall be empowered to(i) enter equitable as well as legal relief, (ii) provide all temporary and/or provisional remedies, and (iii) enter binding equitable orders.The award rendered by the Arbitrator shall be final and not subject to judicial review, and judgment thereon may be entered in anycourt of competent jurisdiction.(d)Governing Law; Choice of Forum.(i)Subject to Section 9(c) above, this Agreement and the rights of the parties hereunder shall be governedby and interpreted in accordance with the internal laws of the State of Delaware, without reference to the rules regarding conflict orchoice of laws of such State.(ii)The Withdrawing Member and the Company each acknowledge and agree that, subject to Section 9(c)above, the Superior Court of the State of California in and for Los Angeles County, and the associated federal and appellate courts,shall have exclusive jurisdiction to hear and decide any dispute, controversy or litigation regarding this Agreement or any portionthereof.(e)Interpretation. The headings contained in this Agreement are for reference purposes only and shall not in anyway affect the meaning or interpretation hereof. Whenever the context hereof shall so require, the singular shall include the plural, themale gender shall include the female gender and the neuter, and vice versa. This Agreement shall not be construed against either theCompany or the Withdrawing Member but shall be construed as a whole, in accordance with its fair meaning, and as if prepared by theCompany and the Withdrawing Member jointly.(f)No Obligation to Third Parties. Except as set forth in the CRA, the execution and delivery of this Agreementshall not be deemed to confer any rights upon, nor obligate either of the parties hereto to, any person or entity not a party to thisAgreement.Exhibit 10.41(g)Further Assurances. Each of the parties shall execute such other and further documents and do such furtheracts as may be reasonably required to effectuate the intent of the parties and carry out the terms of this Agreement. This provision shallsurvive the Effective Date.(h)Merger of Prior Agreements. This Agreement constitutes the entire agreement between the parties andsupersedes all prior agreements and understandings between the parties relating to the subject matter hereof, including withoutlimitation, any letter of intent or nonbinding proposal, which shall be of no further force or effect upon execution of this Agreement bythe Company and the Withdrawing Member.(i)Enforcement. The parties shall bear their own attorneys' fees and costs incurred in connection with thenegotiation and execution of this Agreement. In the event a dispute arises concerning the performance, meaning or interpretation ofany provision of this Agreement or any document executed in connection with this Agreement (including, without limitation, anydispute as to whether a Claim is an Indemnifiable Claim under Section 16.2 of the LLC Agreement), the prevailing party in suchdispute shall be awarded any and all costs and expenses incurred by the prevailing party in enforcing, defending or establishing itsrights hereunder or thereunder, including, without limitation, court costs and reasonable attorneys and expert witness fees. In additionto the foregoing award of costs and fees, the prevailing party shall also be entitled to recover its reasonable attorneys' fees incurred inany post judgmentproceedings to collect or enforce any judgment. This provision is separate and several and shall survive the Effective Date.(j)Time. Time is of the essence of this Agreement. For purposes of this Agreement "business day" shall mean anyday other than a Saturday and those days specified as a "holiday" in Section 7 of the California Civil Code. Unless otherwise specified,in computing any period of time described in this Agreement, the day of the act or event after which the designated period of timebegins to run is not to be included and the last day of the period so computed is to be included, unless such last day is not a businessday, in which event the period shall run to and include the next day which is a business day.(k)Severability. If any provision of this Agreement, or the application thereof to any person, place, orcircumstance, shall be held by a court of competent jurisdiction to be invalid, unenforceable or void, then the remainder of thisAgreement and such provisions as applied to other persons, places and circumstances shall remain in full force and effect.(l)No Waiver. No delay or failure on the part of any party hereto in exercising any right, power or privilege underthis Agreement or under any other instrument or document given in connection with or pursuant to this Agreement shall impair anysuch right, power or privilege or be construed as a waiver of any default or any acquiescence therein. No single or partial exercise ofany such right, power or privilege shall preclude the further exercise of such right, power or privilege. No waiver shall be valid againstany party hereto unless made in writing and executed by the party against whom enforcement of such waiver is sought and then onlyto the extent expressly specified therein.(m)No Offer or Binding Contract. The parties hereto agree that the submission of an unexecuted copy orcounterpart of this Agreement by one party to another is not intended by either party to be, or be deemed to be a legally bindingcontract or an offer to enter into a legally binding contract. The parties shall be legally bound pursuant to the terms of this Agreementonly if and when the parties have been able to negotiate all of the terms and provisions of this Agreement in a manner acceptable toeach of the parties in their respective sole discretion, and (i) both the Withdrawing Member and the Company have fully executed anddelivered this Agreement (and the Remaining Members have executed and delivered the Consent, Ratification and Agreement of theRemaining Members attached to this Agreement), and (ii) the Remaining Members and the Withdrawing Member have fully executedand delivered the Withdrawal Amendment.Exhibit 10.41(n)Counterparts. This Agreement, and any document executed in connection with this Agreement, may beexecuted in any number of counterparts each of which shall be deemed an original and all of which shall constitute one and the sameagreement with the same effect as if all parties had signed the same signature page.(o)Notices. Notices or other communications shall be given only by the following methods: (i) hand deliveredwith a receipt of the addressee or the addressee's agent, (ii) deposited with the United States Post Office by registered or certified mail,return receipt requested, postage prepaid, (iii) deposited with a recognized global or national overnight delivery service, (iv) sent byfacsimile transmission, with a telephone or written receipt by the addresseeor the addressee's agent, or (v) transmitted by e-mail, with a telephone or written receipt by the addressee or the addressee's agent. Allnotices and other communications shall be deemed received by the addressee for all purposes of this Agreement on the date of thereceipt for delivery (as provided in each case above).To Withdrawing Member: ____________________________________________________________________________________________________________________________ With a copy to: ____________________________________________________________________________________________________________________________To the Company:Centennial Partners, LLC c/o Tejon RanchcorpP.O. Box 1000 Lebec, CA 93243Facsimile: (661) 248-3100 Attention: General CounselWith a copy to:Cox, Castle & Nicholson LLP 50 California Street, Suite 3200 San Francisco, CA 94111Attention: Mathew A. Wyman, Esq.Facsimile: (415) 262-5166(p)Joint and Several Liability. To the extent applicable, the parties constituting the Withdrawing Member shall bejointly and severally liable for the obligations of the Withdrawing Member under this Agreement.[Signatures appear on next page]Exhibit 10.41IN WITNESS WHEREOF, intending to be legally bound, the parties hereto have caused this Agreement to be executed bytheir duly authorized representatives as of the day and year first above written.WITHDRAWING MEMBER:[NTD: SIGNATURE BLOCK TO BE INSERTED]COMPANY:CENTENNIAL FOUNDERS, LLC,a Delaware limited liability companyBy: Tejon Ranchcorp,a California corporation,its Development Manager_______________________By:____________________Its:____________________Exhibit 10.41SCHEDULE 1CONSENT, RATIFICATION AND AGREEMENT OF THE REMAINING MEMBERSEach of the undersigned hereby consents to all of the terms and conditions of the foregoing Redemption and WithdrawalAgreement (the "Agreement"). Without limiting the generality of the foregoing, (i) each Remaining Member hereby consents to theCompany's execution and delivery of the Agreement, and (ii) each Remaining Member hereby agrees to be bound by the provisions ofSections 3(c), 3(d), 4, 9(c) and 9(i) of the Agreement. Except where otherwise defined herein, the capitalized terms used herein shallhave the respective meanings assigned to such terms in the Agreement.In consideration for the release given by the Withdrawing Member Releasing Parties to Tejon pursuant to Section 7(a) above, Tejon,for itself and its affiliates, partners, directors, members, owners, managers, officers, employees and agents (individually, a "TejonReleasing Party" and collectively, the "Tejon Releasing Parties"), hereby releases and discharges (the "Tejon Release") theWithdrawing Member Releasees, from all claims each Tejon Releasing Party has, ever had or may have in the future against anyWithdrawing Member Releasee, by reason of any matter, cause or thing whatsoever accruing or arising from the beginning of time tothe Effective Date with respect to the LLC Agreement, the Company, the Master Project or the Adjacent Property [[NTD: INSERT IFSUBSEQUENT WITHDRAWING DEVELOPER] [or theArticle 10 Lot Purchase Rights]] (collectively, the "Tejon Claims"); provided, however, that this Tejon Release shall not extend to (i)any Tejon Claims against the Withdrawing Member arising out of any breach by the Withdrawing Member of any of its obligations orrepresentations and warranties expressly set forth in the Agreement, the Withdrawal Amendment and/or the other documents deliveredpursuant to Section 6(b) of the Agreement (or any dispute regarding the interpretation or enforceability of this Agreement and/or theWithdrawal Amendment), or(ii) Tejon Claims against the Withdrawing Member that the Tejon Releasing Parties may have in response to or defending against anindemnification claim that is not an Indemnifiable Claim made by the Withdrawing Member Releasees pursuant to Section 16.2 of theLLC Agreement.Tejon hereby represents and warrants that it is the owner of the Tejon Claims and that it has not previously assigned or transferred anyof the Tejon Claims. It is the intention of the Tejon Releasing Parties that the foregoing release with the exception of the CompanyUnreleased Claims, be effective as a bar to each of the Company Claims hereinabove specified. Each Tejon Releasing Partyunderstands, acknowledges, and agrees that no Company Unknown Claims, or any facts, events, circumstances, evidence ortransactions which could now be asserted or which may hereafter be discovered, shall affect the final, absolute and unconditionalnature of the release under this Consent, Ratification and Agreement of the Remaining Members.With respect to any and all Company Claims, each of the Tejon Releasing Parties agrees that upon the Effective Date, each TejonReleasing Party shall be deemed to have, and shall have, knowingly and expressly waived any and all provisions, rights and benefitsconferred by any law of any state or territory of the United States, or any other state, sovereign or jurisdiction, or principle of commonlaw which is similar, comparable, or equivalent to California Civil Code Section 1542 which provides:"A general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor atthe time of executing the release, which if known by him or her must have materially affected his or her settlement withthe debtor."TEJON SPECIFICALLY ACKNOWLEDGES THAT IT HAS CAREFULLY REVIEWED THIS CONSENT, RATIFICATION ANDAGREEMENT OF THE REMAINING MEMBERS AND DISCUSSED ITS IMPORT WITH LEGAL COUNSEL AND THAT THEPROVISIONS OF THIS CONSENT, RATIFICATION AND AGREEMENT OF THE REMAINING MEMBERS ARE A MATERIALPART OF THE AGREEMENT.Exhibit 10.41Tejon's Initials[Signatures appear on next page]Exhibit 10.41REMAINING DEVELOPER:[NTD: INSERT SIGNATURE BLOCK IF APPLICABLE][signatures continue on following page]Exhibit 10.41REMAINING MEMBER:TEJON RANCH CORP,a California corporation_______________________By:____________________Its:____________________[end of signatures]Exhibit 10.41SCHEDULE 1EXHIBIT “F”[attached]033187\8275654[Schedule 1 - Second Amendment to Second Amended and Restated Limited Liability Company Agreement of Centennial Founders, LLC]Exhibit 10.41EXHIBIT F DILUTION CALCULATION DOLLARS IN THOUSANDS CALATLANTIC DILUTION CALCULATION TEJON PARDEEHOMES TOTAL % REDUCTIONTIMES 200 Effective Capital Contributions - A92,250 14,93614,936 122,121 Ownership Percentage Interests83.48% 8.26%8.26% Example One - Capital Call 300 Funding Members Contribution250 00 250 Non-Funding Members' Shares-4.3A and 4.4 Pardee % 25B 25 0.020%C0.04% CalAtlantic %25 25 0.020% 0.04% Total Contribution300 00 300 Effective Capital Contributions92,550 14,93614,936 122,421 Adjusted Percentage Interests83.56% 8.22%8.22%D Example Two - Capital Call 500 Funding Members Contribution418 00 418 Non-Funding Members' Shares-4.3A and 4.4 Pardee % 41 41 0.033% 0.07% CalAtlantic %41 41 0.033% 0.07% Total Contribution500 00 500 Effective Capital Contributions93,050 14,93614,936 122,921 Adjusted Percentage Interests83.69% 8.15%8.15% A - Effective Capital Contributions equal cash capital contributions through November 30, 2016 plus land contribution for Tejon.B - Delinquent Contribution equals Total Capital Call (300) times Ownership Percentage Interest, as adjusted for prior dilutions.C - Dilution equals Delinquent Contribution (25) divided by New Total Effective Capital Contributions (122,421) times 200. D - Adjusted Percentage Interests equals Percentage Interest less dilution as described in section 4.4A(1). LIST OF SUBSIDIARIES OF REGISTRANTEXHIBIT 21 (21) Subsidiaries of Registrant A. Registrant: Tejon Ranch Co. B. Subsidiaries of Registranta.Tejon Ranchcorp, 100% owned by Registrant.b.Laval Agricultural Company, formerly Tejon Farming Company.c.Tejon Ranch Feedlot, Inc.d.White Wolf Corporation.e.Tejon Development Corporation.f.Tejon Industrial Corp.g.RSF 6051 LLC, a Delaware limited liability company.h.Tejon Energy LLC.i.NHSE CA Thrashers LLC.j.Centennial Founders LLC, Delaware limited liability company, 74% owned by Tejon Ranchcorp.k.Tejon Hounds, LLC.l.Tejon Mountain Village, LLC., Delaware limited liability company.m.Tejon Ranch Wine Company, LLC.n.TRCC - West One, LLC.C. Each of the aforesaid subsidiaries is included in Registrant's Consolidated Financial Statements, set forth in answer to Item 15(a)(1) hereof. D. Each of the aforesaid subsidiaries (a) is a corporation unless otherwise stated, (b) was organized and incorporated or filed under the laws of the State ofCalifornia unless otherwise stated, and (c) has 100% of its common stock (if a corporation) or membership interest (if a limited liability company) owned byTejon Ranchcorp unless otherwise stated. E. Each of the aforesaid subsidiaries does business under its name, as shown. Registrant also does business under the name Tejon Ranch Company. TejonRanchcorp also does business under the names Tejon Ranch Company, Tejon Ranch, Grapevine Center, Grapevine Press, High Desert Hunt Club and LavalFarms. Laval Agricultural Company does business also under the names Laval Farms and Tejon Ranch. Tejon Industrial Corp. also does business under thename Tejon Ranch Commerce Center and Tejon Industrial Complex.CONSENT OF ERNST & YOUNG LLPEXHIBIT 23.1Consent of Independent Registered Public Accounting FirmWe consent to the incorporation by reference in the following Registration Statements:(1)Registration Statement (Form S-8 No. 333-152804) pertaining to the Tejon Ranch Co. Amended and Restated 1998 StockIncentive Plan;(2)Registration Statement (Form S-8 No. 333-68869) pertaining to the Tejon Ranch Co. 1998 Stock Incentive Plan and Non-Employee Director Stock Incentive Plan;(3)Registration Statement (Form S-8 No. 333-70128) pertaining to the Tejon Ranch Co. 1998 Stock Incentive Plan;(4)Registration Statement (Form S-8 No. 333-113887) pertaining to the Tejon Ranch Nonqualified Deferred Compensation Plan;(5)Registration Statement (Form S-3 No. 333-115946) and related Prospectus;(6)Registration Statement (Form S-3 No. 333-130482) and related Prospectus;(7)Registration Statement (Form S-3 No. 333-166167) and related Prospectus;(8)Registration Statement (Form S-3 No. 333-184367) and related Prospectus;(9)Registration Statement (Form S-3 No. 333-192824) and related Prospectus; and(10)Registration Statement (Form S-3 No. 333-210875) and related Prospectus;of our reports dated March 10, 2017, with respect to the consolidated financial statements of Tejon Ranch Co. and Subsidiaries, and theeffectiveness of internal control over financial reporting of Tejon Ranch Co. and Subsidiaries, included in this Annual Report (Form 10-K) for the year ended December 31, 2016./s/ Ernst & Young LLPLos Angeles, CaliforniaMarch 10, 2017CONSENT OF RSM US LLPEXHIBIT 23.2Consent of Independent Registered Public Accounting FirmWe hereby consent to the incorporation by reference in the Registration Statements on Form S-8 (Nos. 333-152804, 333-68869, 333-70128, 333-113887, 333-210500) and the Registration Statements and related Prospectuses on Form S-3 (Nos. 333-115946, 333-130482, 333-166167, 333-184367, 333-192824, 333-210875) of Tejon Ranch Co. of our report dated February 28, 2017, relating toour audit of the consolidated financial statements of Petro Travel Plaza Holdings LLC, included in this Annual Report on Form 10-K forthe year ended December 31, 2016./s/ RSM US LLPCleveland, OhioMarch 10, 2017EXHIBIT 31.1Certification of Chief Executive Officer Pursuant toSecurities Exchange Act Rules 13a-14(a) and 15d-14(a)as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Gregory S. Bielli, certify that:1.I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;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 thestatements 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 thefinancial 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 ExchangeAct Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f)) for theregistrant and have:a.Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensurethat 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.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Dated:March 10, 2017/s/ Gregory S. Bielli Gregory S. Bielli Chief Executive OfficerEXHIBIT 31.2Certification of Chief Financial Officer Pursuant toSecurities Exchange Act Rules 13a-14(a) and 15d-14(a)as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Allen E. Lyda, certify that:1.I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;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 thestatements 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 thefinancial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))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 ensurethat 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.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Dated:March 10, 2017/s/ Allen E. Lyda Allen E. Lyda Chief Financial OfficerEXHIBIT 31.3Certification of Chief Accounting Officer Pursuant toSecurities Exchange Act Rules 13a-14(a) and 15d-14(a)as Adopted Pursuant toSection 302 of the Sarbanes-Oxley Act of 2002I, Robert D. Velasquez, certify that:1.I have reviewed this annual report on Form 10-K of Tejon Ranch Co.;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 thestatements 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 thefinancial 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(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined inExchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15(d)-15(f))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 ensurethat 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.Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under oursupervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for externalpurposes in accordance with generally accepted accounting principles;c.Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectivenessof the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; andd.Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscalquarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect,the registrant’s internal control over financial reporting; and5.The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to theregistrant’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 reasonablylikely to adversely affect the registrant’s ability to record, process, summarize and report financial information; andb.Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control overfinancial reporting. Dated:March 10, 2017/s/ Robert D. Velasquez Robert D. Velasquez Vice President of Finance and Chief Accounting OfficerEXHIBIT 32CERTIFICATION PURSUANT TO18 U.S.C. SECTION 1350,AS ADOPTED PURSUANT TOSECTION 906 OF THE SARBANES-OXLEY ACT OF 2002Each of the undersigned hereby certifies, in his capacity as an officer of Tejon Ranch Co. (the “Company”), for purposes of 18 U.S.C. Section 1350, asadopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his own knowledge:•The Annual Report of the Company on Form 10-K for the period ended December 31, 2016 fully complies with the requirements of Section 13(a) ofthe Securities Exchange Act of 1934; and•The information contained in such report fairly presents, in all material respects, the financial condition and results of operation of the Company.A signed original of this written statement required by Section 906 has been provided to Tejon Ranch Co. and will be retained by Tejon Ranch Co., andfurnished to the Securities and Exchange Commission or its staff upon request. Dated:March 10, 2017 /s/ Gregory S. Bielli Gregory S. Bielli Chief Executive Officer /s/ Allen E. Lyda Allen E. Lyda Chief Financial Officer /s/ Robert D. Velasquez Robert D. Velasquez Vice President of Finance and Chief Accounting Officer Exhibit 99.1Petro Travel Plaza Holdings LLCConsolidated Financial StatementsFor the Years EndedDecember 31, 2016, 2015 and 2014REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMTo the MembersPetro Travel Plaza Holdings LLCWe have audited the accompanying consolidated balance sheets of Petro Travel Plaza Holdings LLC as of December 31, 2016 and 2015, and the relatedconsolidated statements of comprehensive income, cash flows and changes in members’ capital for each of the three years in the period ended December 31,2016. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financialstatements based on our audits.We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States) and in accordance withauditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonableassurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, anaudit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designingaudit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internalcontrol over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well asevaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Petro Travel PlazaHoldings LLC as of December 31, 2016 and 2015, and the results of its operations and its cash flows for each of the three years in the period ended December31, 2016, in conformity with U.S. generally accepted accounting principles. /s/ RSM US LLPCleveland, OhioFebruary 28, 20171PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED BALANCE SHEETS(in thousands) December 31, 2016 2015Assets Current assets: Cash$9,015 $9,908Inventory2,179 1,967Due from affiliate1,375 —Other current assets36 138Total current assets12,605 12,013 Property and equipment, net55,883 52,296Other noncurrent assets, net164 175 Total assets$68,652 $64,484 Liabilities and Members' Capital Current liabilities: Current portion of long term debt$— $805Due to affiliate— 47Accrued expenses and other current liabilities1,909 1,839Total current liabilities1,909 2,691 Long term debt, excluding current portion15,275 14,914Other noncurrent liabilities181 169 Total liabilities17,365 17,774 Members' capital51,287 46,710 Total liabilities and members' capital$68,652 $64,484The accompanying notes are an integral part of these consolidated financial statements.2PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(in thousands) Year Ended December 31, 2016 2015 2014Revenues: Fuel$83,149 $86,692 $98,039Nonfuel31,798 29,084 24,545Total revenues114,947 115,776 122,584 Costs and expenses: Cost of goods sold (excluding depreciation): Fuel68,465 73,281 86,130Nonfuel12,815 12,002 10,435 Total cost of goods sold81,280 85,283 96,565 Operating expenses18,743 17,757 15,640Depreciation and amortization2,140 1,653 1,678 Total costs and expenses102,163 104,693 113,883 Operating income12,784 11,083 8,701 Interest expense, net707 454 472 Net income and comprehensive income$12,077 $10,629 $8,229The accompanying notes are an integral part of these consolidated financial statements.3PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF CASH FLOW(in thousands) Year Ended December 31, 2016 2015 2014Cash flows from operating activities: Net income$12,077 $10,629 $8,229Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization2,140 1,653 1,678Debt financing costs138 — —Increase (decrease) from changes in: Inventory(212) 144 249Other current assets102 42 (29)Due to/from affiliate(1,422) (387) 1,577Accrued expenses and other current liabilities70 (35) 246Other, net30 (83) 27Net cash provided by operating activities12,923 11,963 11,977 Cash flows from investing activities: Purchases of property and equipment(5,715) (5,930) (5,739)Proceeds from the sale of property and equipment— — 8Net cash used in investing activities(5,715) (5,930) (5,731) Cash flows from financing activities: Repayments of long term debt(543) (794) (755)Payment of debt issuance costs(58) — —Distributions to members(7,500) (12,000) —Net cash used in financing activities(8,101) (12,794) (755) Net (decrease) increase in cash(893) (6,761) 5,491Cash, beginning of period9,908 16,669 11,178Cash, end of period$9,015 $9,908 $16,669 Supplemental cash flow information: Interest paid during the period$573 $455 $476The accompanying notes are an integral part of these consolidated financial statements.4PETRO TRAVEL PLAZA HOLDINGS LLCCONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' CAPITAL(in thousands) Members' CapitalBalance, December 31, 2013$39,852Net income8,229Balance, December 31, 201448,081Net income10,629Distributions to members(12,000)Balance, December 31, 201546,710Net income12,077Distributions to members(7,500)Balance, December 31, 2016$51,287The accompanying notes are an integral part of these consolidated financial statements.5PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016, 2015 AND 2014(in thousands)(1)Summary of Significant Accounting PoliciesGeneral Information and Basis of PresentationPetro Travel Plaza Holdings LLC (the "Company"), a Delaware limited liability company, was formed on October 8, 2008, by Tejon DevelopmentCorporation, a California corporation ("Tejon"), and TA Operating LLC, a Delaware limited liability company ("TA"). The Company has two wholly ownedsubsidiaries: Petro Travel Plaza LLC ("PTP"), and East Travel Plaza LLC ("ETP"), each of which is a California limited liability company. The Company’sLimited Liability Company Operating Agreement, as amended, ("the Operating Agreement") limits each members’ liability to the fullest extent permitted bylaw. Pursuant to the terms of the Operating Agreement, TA manages the Company's operations and is responsible for the administrative, accounting and taxfunctions of the Company.The Company has two travel centers, three convenience stores with retail gasoline stations and one standalone restaurant in Southern California, whichwe refer to collectively as the locations. One travel center and two convenience stores, owned by PTP, operate under the Petro brand and Minit Mart brand,respectively, and one travel center and convenience store owned by ETP, operate under the TravelCenters of America brand and Minit Mart brand,respectively. The one standalone restaurant, owned by ETP, operates under the Black Bear Diner brand. The travel centers offer a broad range of products,services and amenities, including diesel fuel, gasoline, full service and branded quick service restaurants, or QSRs, truck maintenance and repair facilities,travel stores and truck driver services such as showers, weigh scales, a truck wash and laundry facilities. The convenience stores offer gasoline as well as avariety of nonfuel products, including coffee, groceries, fresh foods and quick service restaurants, or QSRs.The members and their interests in the Company are as follows:Members Tejon60.0%TA40.0%In any fiscal year, the Company’s profits or losses and distributions, if any, shall be allocated 60.0% to Tejon and 40.0% to TA pursuant to the terms ofthe Operating Agreement.The consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries, PTP and ETP, after eliminatingintercompany transactions, profits and balances. The preparation of financial statements in conformity with U.S. generally accepted accounting principles, orU.S. GAAP, requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingentassets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual resultscould differ from those estimates.The Company has evaluated subsequent events through February 28, 2017, which date represents the date the financial statements were available to beissued.Significant Accounting PoliciesInventoryInventory is stated at the lower of cost or market value. The Company determines cost principally on the weighted average cost method.Property and EquipmentProperty and equipment are recorded at historical cost. Depreciation and amortization are provided using the straight-line method over the estimateduseful lives of the respective assets. Repairs and maintenance are charged to expense as incurred and amounted to $848, $789 and $732 for the years endedDecember 31, 2016, 2015 and 2014, respectively. Renewals and betterments are capitalized. The cost and related accumulated depreciation of property andequipment sold, replaced or otherwise disposed is removed from the related accounts. Gains or losses on disposal of property and equipment are credited orcharged to depreciation and amortization in the accompanying consolidated statements of income and comprehensive income.6PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016, 2015 AND 2014(in thousands)Impairment of Long Lived AssetsThe Company reviews definite lived assets for indicators of impairment during each reporting period. The Company recognizes impairment chargeswhen (a) the carrying value of a long lived or indefinite lived asset group to be held and used in the business is not recoverable and exceeds its fair value and(b) when the carrying value of a long lived asset to be disposed of exceeds the estimated fair value of the asset less the estimated cost to sell the asset. TheCompany’s estimates of fair value are based on its estimates of likely market participant assumptions including projected operating results and the discountrate used to measure the present value of projected future cash flows. The Company recognizes such impairment charges in the period during which thecircumstances surrounding an asset to be held and used have changed such that the carrying value is no longer recoverable, or during which a commitment toa plan to dispose of the asset is made. The Company performs an impairment analysis for substantially all property and equipment at the individual locationlevel because that is the lowest level of asset groupings for which the cash flows are largely independent of the cash flows of other assets and liabilities.Environmental Liabilities and ExpendituresThe Company records the expense of remediation charges and penalties when the obligation to remediate is probable and the amount of associated costsis reasonably determinable. The Company includes remediation expenses within operating expenses in the accompanying consolidated statements ofcomprehensive income. Generally, the timing of remediation expense recognized coincides with the completion of a feasibility study or the commitment to aformal plan of action. Accrued liabilities related to environmental matters are recorded on an undiscounted basis because of the uncertainty associated withthe timing of the related future payments.Asset Retirement ObligationsAsset retirement costs are capitalized as part of the cost of the related long lived asset and such costs are allocated to expense using a systematic andrational method. To date, these costs relate to the Company’s obligation to remove underground storage tanks used to store fuel and motor oil. The Companyrecords a liability for the fair value of an asset retirement obligation with a corresponding increase to the carrying value of the related long lived asset at thetime an underground storage tank is installed. The Company amortizes the amount added to property and equipment and recognizes accretion expense inconnection with the discounted liability over the remaining life of the respective underground storage tank. The Company bases the estimated liability on itshistorical experiences in removing these assets, estimated useful lives, external estimates as to the cost to remove the assets in the future and regulatory orcontractual requirements. Revisions to the liability could occur due to changes in estimated removal costs, or asset useful lives or if new regulationsregarding the removal of such tanks are enacted. An asset retirement obligation of $181 and $169 has been recorded as a noncurrent liability as ofDecember 31, 2016 and 2015, respectively.Revenue RecognitionThe Company recognizes revenue from the sale of fuel and nonfuel products and services at the time delivery has occurred and services have beenperformed. The estimated cost to the Company of the redemption by customers of loyalty program points is recorded as a discount against gross sales indetermining net sales presented in the consolidated statements of comprehensive income.Motor Fuel TaxesThe Company collects the cost of certain motor fuel taxes from consumers and remits those amounts to the supplier or the appropriate governmentalagency. Such taxes were $13,726, $12,804 and $11,621, for the years ended December 31, 2016, 2015 and 2014, respectively, and are included in netrevenues and cost of sales in the accompanying consolidated comprehensive income statements.Advertising and PromotionCosts incurred in connection with advertising and promotions are expensed as incurred. Advertising and promotion expenses, which are included inoperating expenses in the accompanying consolidated comprehensive income statements, were $516, $463 and $360 for the years ended December 31, 2016,2015 and 2014, respectively.7PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016, 2015 AND 2014(in thousands)Income TaxesThe Company is not subject to federal or state income taxes. Results of operations are allocated to the members in accordance with the provisions of theOperating Agreement and reported by each member on its federal and state income tax returns. The taxable income or loss allocated to the members in anyone year generally varies substantially from income or loss for financial reporting purposes due to differences between the periods in which such items arereported for financial reporting and income tax purposes.ReclassificationsCertain prior year amounts have been reclassified to be consistent with the current year presentation, including the reclassification in the Company'sconsolidated balance sheets of deferred financing costs of debt issuance costs of $30 from assets to current portion of long term debt and $59 from assets tolong term debt in accordance with Accounting Standards Update 2015-03, Simplifying the Presentation of Debt Issuance Costs.Recently Issued Accounting PronouncementsIn May 2014, the Financial Accounting Standards Board, or FASB, issued Accounting Standards Update 2014-09, Revenue from Contracts withCustomers, or ASU 2014-09, which establishes a standard for comprehensive revenue recognition. The new standard will apply for annual periods beginningafter December 15, 2017, including interim periods therein. Early adoption is prohibited. To address implementing ASU 2014-09 and evaluate its impact onthe Company's consolidated financial statements, the Company has developed a project plan in which it utilized a bottom up approach to evaluate itsrevenue streams and related internal controls. Since many of the Company's revenue streams are point of sale, the Company does not believe theimplementation of this standard will have a material impact on its consolidated financial statements. The Company expects to complete its assessment,including selecting a transition method for adoption, by the end of the third quarter of 2017.In February 2016, the FASB issued Accounting Standards Update 2016-02, Leases, which established a comprehensive lease standard under GAAP forvirtually all industries. The new standard will apply for annual periods beginning after December 15, 2018, including interim periods therein. Early adoptionis permitted. The implementation of this standard is not expected to cause any material changes to the Company's financial statements.In August 2016, the FASB issued Accounting Standards Update 2016-15, Statement of Cash Flows, which simplifies elements of cash flow classificationand reduces diversity in practice across all industries. The new standard will apply for annual periods beginning after December 15, 2017, including interimperiods therein, and requires retrospective application. Early adoption is permitted. The implementation of this standard is not expected to cause any materialchanges to the Company's consolidated statements of cash flows.(2)InventoryInventory at December 31, 2016 and 2015, consisted of the following: 2016 2015Nonfuel products$1,759 $1,660Fuel products420 307Total inventory$2,179 $1,9678PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016, 2015 AND 2014(in thousands)(3)Property and EquipmentProperty and equipment, net, as of December 31, 2016 and 2015, consisted of the following: Estimated UsefulLives (years) 2016 2015Land and improvements $19,068 $19,068Buildings and improvements10-40 45,625 38,997Machinery, equipment and furniture3-10 12,352 10,377Construction in progress 1,893 4,769 78,938 73,211Less: accumulated depreciation and amortization 23,055 20,915Property and equipment, net $55,883 $52,296Depreciation expense for the years ended December 31, 2016, 2015 and 2014 was $2,128, $1,645 and $1,671, respectively.(4)Accrued expenses and other current liabilitiesAccrued expenses and other current liabilities as of December 31, 2016 and 2015, consisted of the following: 2016 2015Taxes payable, other than income taxes$726 $450Self insurance accrual692 646Environmental accrual167 286Other324 457Total accrued expenses and other current liabilities$1,909 $1,839(5)Long Term DebtLong term debt consisted of the following at December 31, 2016 and 2015: 2016 2015Note payable to a bank$15,331 $15,808Less: debt issuance costs56 89Less: current portion— 805Total long term debt$15,275 $14,914In July 2016, the Company amended its credit agreement to, among other things, extend the maturity date, with the first minimum principal payment of$447 due in 2021, and decrease the interest rate on the debt to LIBOR plus 1.95%, payable monthly. The credit agreement includes certain financialcovenants, with which the Company was in compliance at December 31, 2016. At December 31, 2016, the interest rate was 2.72%. The Company’s weightedaverage interest rates for the years ended December 31, 2016, 2015 and 2014 were 2.78%, 2.70% and 2.66%, respectively. The debt is secured by theCompany’s real property.9PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016, 2015 AND 2014(in thousands)Debt Issuance CostsIn amending the Company's debt agreement, we incurred $58 of debt issuance costs that have been capitalized and are being amortized to interestexpense over the term of the amended debt agreement using the effective interest method. The unamortized debt issuance costs that existed prior to amendingthe debt agreement have been written off to interest expense for the year ended December 31, 2016. Debt issuance costs presented on the consolidatedbalance sheets as a reduction of long term debt for the years ended December 31, 2016 and 2015, were $56 and $89, net of accumulated amortization of debtissuance costs were $2 and $125, respectively.(6)Related Party TransactionsPursuant to the terms of the Operating Agreement, TA provides cash management services to PTP, including the collection of accounts receivable.Accounts receivable are periodically transferred to TA for collection and any amounts for which PTP has not received payment from TA are reflected as duefrom affiliate in the accompanying consolidated balance sheets. Amounts due from affiliate as of December 31, 2016 were $1,375 and amounts due toaffiliate as of December 31, 2015, were $47. Pursuant to the terms of the Operating Agreement, TA manages the locations and is responsible for theadministrative, accounting, and tax functions of the Company. TA receives a management fee for providing these services, which may not be commensuratewith the cost of these services were the Company to perform these internally or obtain them from an unrelated third party. The Company paid managementfees to TA in the amount of $1,055, $838 and $800 for the years ended December 31, 2016, 2015 and 2014, respectively, which fees are included inoperating expenses in the accompanying consolidated statements of comprehensive income. In December 2014, the Company amended the OperatingAgreement to (a) provide for the construction of a convenience store, (b) specify a fee for the oversight of the construction of that convenience store, and (c)provide for a management fee for the convenience store upon commencement of operations. In August 2016, the Company amended the OperatingAgreement to include, among other things, construction of a QSR by TA on the property of a travel center. The Company has agreed to pay TA a constructionmanagement fee equal to 2% of hard costs of the construction of the QSR. TA opened the QSR on February 13, 2017. In November 2016, the Companyfurther amended the Operating Agreement to, among other things, (a) increase the annual management fee to $1,300 effective January 1, 2017, with annualincreases equal to the lesser of (i) the increase in the Customer Price Index or (ii) 2.5% and (b) include any additional new builds or significant renovationprojects in the construction management fee. In addition to management services and staffing provided by TA, the Operating Agreement grants the Companythe right to use all of TA’s names, trade names, trademarks and logos to the extent required in the operation of the Company’s travel centers and conveniencestores.The employees operating the Company’s travel centers, convenience stores and standalone restaurant are TA employees. In addition to the managementfees described above, the Company reimbursed TA for wages and benefits related to these employees that aggregated $9,663, $9,153 and $7,800 for the yearsended December 31, 2016, 2015 and 2014, respectively. These reimbursements were recorded in operating expenses in the accompanying consolidatedstatements of comprehensive income.(7)Contingencies The Company is involved from time to time in various legal and administrative proceedings, including tax audits, and threatened legal andadministrative proceedings incidental to the ordinary course of business, none of which is expected, individually or in the aggregate, to have a materialadverse effect on the Company’s business, financial condition, results of operations or cash flows.The Company’s operations and properties are subject to extensive federal and state legislation, regulations, and requirements relating to environmentalmatters. The Company uses underground storage tanks ("USTs") to store petroleum products and motor oil. Statutory and regulatory requirements for USTsystems include requirements for tank construction, integrity testing, leak detection and monitoring, overfill and spill control and mandate corrective actionin case of a release from a UST into the environment. The Company is also subject to regulation relating to vapor recovery and discharges into the water.Management believes that the Company’s USTs are currently in compliance in all material respects with applicable environmental legislation, regulationsand requirements.10PETRO TRAVEL PLAZA HOLDINGS LLCNOTES TO CONSOLIDATED FINANCIAL STATEMENTSDECEMBER 31, 2016, 2015 AND 2014(in thousands)Accruals for environmental matters are recorded in operating expenses when it is probable that a liability has been incurred and the amount of theliability can be reasonably estimated. From time to time the Company has received, and in the future likely will receive, notices of alleged violations ofenvironmental laws or otherwise has become or will become aware of the need to undertake corrective actions to comply with environmental laws at itsproperties. Investigatory and remedial actions were, and regularly are, undertaken with respect to releases of hazardous substances. The Company had anaccrual for environmental matters of $167 and $286, at December 31, 2016 and 2015, respectively, which was presented in the Company's consolidatedbalance sheets in accrued expenses and other current liabilities. Accruals are periodically evaluated and updated as information regarding the nature of theclean up work is obtained. In light of the Company’s business and the quantity of petroleum products that it handles, there can be no assurance that currentlyunidentified hazardous substance contamination does not exist or that liability will not be imposed in the future in materially different amounts than thosethe Company has recorded. See Note 1 for a discussion of its accounting policies relating to environmental matters.In February 2014, TA reached an agreement with the California State Water Resources Control Board, or the State Water Board, to settle certain claimsthe State Water Board had filed against TA in California Superior Court, or the Superior Court, in 2010 relating to alleged violations of underground storagetank laws and regulations. The settlement, which was approved by the Superior Court on February 20, 2014, also included injunctive relief provisionsrequiring that TA comply with certain California environmental laws and regulations applicable to underground storage tank systems. In October 2015, theState Water Board issued a notice of alleged suspended penalty conduct claiming that TA is liable for the full amount of the suspended penalties as a result ofalleged violations of underground storage tank regulations and requesting further information concerning the alleged violations. In November 2015, TA filedits response to the State Water Board's notice and has since met with the State Water Board to attempt to resolve these matters without a court hearing. TAbelieves it has meritorious defenses to these alleged violations, but cannot predict whether any penalties relating to these matters will be assessed by theSuperior Court, which has retained jurisdiction over such matters. The State Water Board also has retained the right to file a separate action relating to theseviolations, but to date has not done so. As of December 31, 2016, the Company had recognized a liability of $167 related to this environmental matter withrespect to a location included in the claim that is owned by the Company, but operated by TA. The Company believes, though can provide no assurance, thatany additional amount of loss that may be realized above that accrued, if any, upon the ultimate resolution of this matter will not be material to the Company.11

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