Securities and Exchange Commission
Washington, D.C. 20549

Form 8-K

Current Report

Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934

Date of Report (Date of earliest event reported):
June 23, 2010


Cadiz Inc.
(Exact name of Registrant as specified in its charter)

Delaware
(State or other jurisdiction of incorporation)

0-12114
77-0313235
(Commission File Number)
(IRS Employer Identification No.)

550 South Hope Street, Suite 2850, Los Angeles, California
90071
(Address of principal executive offices)
(Zip Code)

Registrant's telephone number, including area code: (213) 271-1600

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

[  ]  Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
[  ]  Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
[  ]  Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
[  ]  Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
 
 
 
 
 
Item 1.01     Entry into a Material Definitive Agreement
 
The Boards of Directors of Santa Margarita Water District (“Santa Margarita”) and Three Valleys Municipal Water District have both authorized option and environmental cost sharing agreements with Cadiz Inc. (the “Company”) to proceed with the Cadiz Water Conservation & Storage Project (“Project”).  The agreements approved by these two Southern California water agencies commit funds to the environmental review and also provide the agencies with options to acquire both a firm annual supply of water conserved by the Project and storage rights in the Project once the environmental review is complete.  Pursuant to the agreements, each agency has the right to acquire 5,000 acre-feet of water and Santa Margarita has a further option for an additional 10,000 acre-feet of water all at a pre-determined price formula.  The pricing for storage, also set out in the agreements, is based on volume and class of delivery acquired. Copies of the agreements are attached hereto as Exhibits 10.1, 10.2 and 10.3, and are hereby incorporated by reference.


Item 8.01     Other Events

On June 24, 2010, Cadiz Inc. issued a press release announcing that the Company has entered into option and environmental cost sharing agreements with Santa Margarita Water District and Three Valleys Municipal Water District, as described above in Item 1.01 of this Form 8-K.  A copy of the press release is attached hereto as Exhibit 99.1.


Item 9.01     Financial Statement and Exhibits
 
     (d)  Exhibits
 
     10.1     Form of Option Agreement with Santa Margarita Water District
 
     10.2     Form of Environmental Processing and Cost Sharing Agreement with Santa Margarita Water District
 
     10.3     Form of Environmental Processing and Cost Sharing Agreement with Three Valleys Municipal Water District
 
     99.1     Press Release dated June 24, 2010
 
 
 
 
SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
 
Cadiz Inc.
 
 
By:  /s/ Timothy J. Shaheen
  Timothy J. Shaheen 
  Chief Financial Officer 

 
Dated:  June 24, 2010
 
EXHIBIT 10.1
 
OPTION AGREEMENT

This Option Agreement (“ Agreement ”) is made and entered into as of the ___ day of _________ 2010, by and between CADIZ INC., and FENNER MUTUAL WATER COMPANY, on the one hand (collectively, “ CADIZ ”), and SANTA MARGARITA WATER DISTRICT (referred to herein as either “ SMWD ” or “ Optionee ”), on the other hand, with reference to the following facts and intentions:
 
 
RECITALS
 
A.            CADIZ owns and controls approximately 35,000 acres of land located in the Cadiz and Fenner valleys of San Bernardino County (the “ Property ”).
 
B.            Substantial quantities of percolating groundwater exist within the aquifer system underlying the Property that naturally migrates to the Bristol and Cadiz dry lakes and then is lost to evaporation, such that water that would otherwise be wasted can be conserved and made available for reasonable and beneficial use in accordance with modern sustainable groundwater management practices.
 
C.            Existing and potential aquifer capacity exists within the underlying aquifers that can be prudently used to store conserved and imported water for subsequent beneficial use.
 
D.            The County of San Bernardino has previously approved a Conditional Use Permit in 1993 authorizing the withdrawal of water for agricultural uses on the overlying land and CADIZ has made substantial investments in continuing its agricultural concern on up to 9,600 acres.
 
E.            CADIZ has acquired a 99-year right of way along an active railroad line from the Arizona & California Railroad to construct a pipeline and power line to convey water to and from the Property to the Colorado River Aqueduct (“ CRA ”).
 
F.            The Parties acknowledge and agree that other public water purveyors within six Southern California counties (Ventura, Los Angeles, Orange, Riverside, San Bernardino and San Diego) are evaluating their potential participation in the Program (as defined below) as potential purchasers of conserved water.
 
G.            The Parties intend to conserve groundwater and manage the available groundwater supply in accordance with the directives stated by the California Supreme Court in City of Los Angeles v. City of San Fernando (1975) 14 Cal.3d 199 thereby withdrawing any temporary surplus required to obtain optimal groundwater water levels and to manage extractions within the long-term safe annual yield.
 
H.            CADIZ will operate the Program on a long-term sustainable basis and in a manner consistent with its covenants to the Natural Heritage Institute so as to avoid unreasonable environmental harm as set forth in Exhibit “A” attached hereto.
 
I.            Prior to the initiation of environmental review, CADIZ will cause the preparation of a watershed analysis and technical evaluation of the water supply availability by a qualified national engineering firm which must demonstrate the potential for recovery of conserved water in quantities sufficient to meet the promised deliveries to the purchasers of conserved water.
 
J.            CADIZ is prepared to reserve up to a maximum of 10% of the conserved water and storage developed from the Property for reasonable and beneficial uses by public water purveyors within San Bernardino County.
 
K.            CADIZ desires to grant an option to the Optionee to acquire certain quantities of conserved water and storage capacity rights, and the Optionee desires to acquire such an option, subject to the terms and conditions of this Agreement.
 
L.            The method of delivery of water from CADIZ to the CRA, the potential that the Program may earn Intentionally Created Surplus Credits (“ ICS Credits ”) for MWD under federal law, the eligibility of the Program to receive state and federal grants, CADIZ’ offer to grant a portion of the available Storage to MWD, and the MWD Local Resources Program (“ LRP ”), all create potential opportunities for a direct and dollar-for-dollar reduction in the price of water to be made available by the Program as it is finally delivered to the purchasers of the conserved water.
 
M.            The Parties acknowledge that the final price for water, adjusting for other consideration, cannot be determined until several contingencies to the operation of the Program, including but not limited to the items set forth in Recital L above and as may be learned through environmental review, are satisfied.
 
N.            Notwithstanding the contingencies of environmental review and the availability of third party funding which may impact the as-received price for water to the purchasers of conserved water, CADIZ is willing to grant the rights to the Optionee as set forth in this Agreement.
 
O.            CADIZ intends to facilitate the implementation of this Agreement through the Fenner Mutual Water Company, a private non-profit water company, that will own or control various water, storage, easement and conveyance rights.
 
NOW, THEREFORE, in consideration of the foregoing recitals and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereto agree as follows:
 
ARTICLE 1
THE PROGRAM
 
1.1   Program Summary .   The “ Program ” is defined and summarized in the attached Exhibit “B” and incorporated by this reference.
 
1.2   Definitions .   The following definitions shall apply.
 
(a)           “ Annual Quantity ” means the quantity of water that is made available by CADIZ through its intended water conservation program.
 
(b)           “ Carry-Over Storage ” means the use of unsaturated soils that provide available subsurface storage capacity to store water from year to year for subsequent withdrawal and delivery to Optionee.  Carry-Over Storage may be used to store imported or foreign water, provided that sufficient pipeline capacity exists to convey water from the CRA to the Property.
 
(c)           “ Supplemental Storage ” means the use of available subsurface capacity to store Conserved Water in the event that CADIZ is unable to or prevented from delivering Conserved Water to the CRA because there is insufficient capacity in the CRA, and is further defined in Section 2.2(d).
 
ARTICLE 2
 
OPTION
 
2.1   Option Consideration .   As consideration for the Option and as a condition precedent to the exercise of the Option, the Optionee must have first executed and be bound by mutually agreed terms whereby it will pay a fair portion of an expected environmental review costs (the “ Environmental   Cost Sharing Agreement ”).  Optionee’s share of environmental review costs under the Environmental Cost Sharing Agreement attached hereto as Exhibit “A” will not exceed $125,000 without further written agreement between the Parties.
 
2.2   Grant of Option and Exercise Price .   Subject to the Optionee’s performance of its obligations hereunder and the execution of the Environmental Cost Sharing Agreement, CADIZ hereby grants to Optionee an option to acquire Conserved Water along with the following interests as set forth in Exhibit “C” (the “ Price Schedule ”) (collectively, the “ Option ”):
 
(a)             Conserved Water .   The Optionee shall have the option, but not the obligation to acquire up to 5,000 acre-feet per year of conserved water as an Annual Quantity Right (the “ Initial 5K AF ”).  The exercise price for the acquisition of the Initial 5K AF and the timing of such payments are set forth on the Price Schedule. Further, the Optionee shall have the option, but not the obligation, to acquire up to an additional 10,000 acre-feet per year of conserved water at the exercise price set forth on the Price Schedule (the “ Additional 10K AF ”) (collectively, the water acquired pursuant to this Section 2.2(a) being the “ Conserved Water ”).
 
(b)             First Fill Storage and Fill Water .   Upon Optionee’s exercise of its option for the Initial 5K AF, Optionee shall be entitled to 15,000 acre-feet of First Fill Storage and 15,000 acre-feet of Fill Water on a Space Available capacity through the Pipeline that delivers water to the CRA.  Optionee may re-fill any available First Fill Storage capacity with Carry-Over and Imported Water on the same terms as applicable to Carry-Over storage.  However, Optionee’s entire cost for the First Fill Storage and Fill Water shall be equal to $20 (in April 2010 dollars) per acre-foot per year (“ Annual Management Obligation ”) for 15,000 acre-feet unless Optionee, in its discretion, waives its re-fill right to First Fill Storage, in which case the Annual Management Obligation shall be assessed only on that quantity of water actually held in First Fill Storage.  If Optionee waives its rights to First Fill Storage, then it shall have no right to store any water other than Fill Water.  No losses will be assessed upon the Fill Water held in First Fill Storage.
 
(c)             Carry-Over Storage .   Upon Optionee’s exercise of its option for the Initial 5K AF, Optionee shall have the additional option, but not the obligation, to acquire additional Carry-Over Storage in accordance with the terms hereof:
 
(i)            Class A Carry-Over Storage .  Upon purchase of Class B Carry-Over Storage (as described below), Optionee shall be entitled to 5,000 acre-feet of Class A Carry-Over Storage on a Firm capacity and an additional 5,000 acre-feet of Fill Water that may be transported on a Space Available capacity through the Pipeline that delivers water to the CRA, at no charge.  No losses will be assessed upon water held in Class A Carry-Over Storage.
 
(ii)            Class B Carry-Over Storage .  The Optionee shall have the option, but not the obligation, to acquire up to 5,000 acre-feet of Class B Carry-Over Storage at the exercise price set forth on, and payable in accordance with, the Price Schedule.  No losses will be assessed upon water held in Class B Carry-Over Storage.  Upon acquisition of Class B Carry-Over Storage, the Optionee shall elect, in writing to CADIZ, whether it wishes to acquire firm or space-available pipeline capacity, which shall enable the Optionee to utilize the purchased Class B Carry-Over Storage in its discretion.
 
(d)             Illustrative Example .   By way of illustration, if Optionee exercises its Option to acquire the Initial 5K AF, Optionee is entitled to 15,000 acre-feet of First Fill Storage and 15,000 acre-feet of Fill Water at no additional cost with the exception of the Annual Management Obligation fees.  If Optionee further elects to exercise its option to acquire Class B Carry-Over Storage, Optionee will receive 5,000 acre-feet of Class B Carry-Over Storage and 5,000 acre-feet of Class A Carry-Over Storage.
 
(e)             Supplemental Storage .   In the event that CADIZ is unable to deliver or is prevented from delivering Conserved Water to the CRA because there is insufficient capacity to exchange or wheel the Conserved Water for beneficial use within Optionee’s service area, then CADIZ will provide storage capacity in sufficient quantity to retain and store the Conserved Water for the benefit of the Optionee (“ Supplemental Storage ”).  The Supplemental Storage will be made available free of charge to Optionee and for as long as there is insufficient capacity in the CRA for Optionee to receive delivery of the Conserved Water stored within the Supplemental Storage.  No losses will be assessed to Conserved Water held in Supplemental Storage.
 
(f)             Pipeline Capacity .   First Fill Storage shall include the right to transport Fill Water on a Space Available basis.  Class A Carry-Over Storage (if obtained through the purchase of Class B Carry-Over Storage) shall include the right to transport 5,000 acre-feet of any acquired Conserved Water through Class A Firm pipeline capacity to the CRA, at no extra cost to the Optionee.  Upon acquisition of Class B Carry-Over Storage, the Optionee shall elect, in writing to CADIZ, whether it wishes to acquire Class B Firm or Space Available pipeline capacity in accordance with the Price Schedule.
 
(g)             Administrative Fees .   Upon exercise of the Option (in whole or in part), the Optionee shall pay an annual storage administrative fee to CADIZ in accordance with the Price Schedule for the term of the exercised Option.
 
(h)             No Additional Fees .   CADIZ will not impose, and the Optionee will not be responsible for, any additional fees and costs, other than as expressly set forth in this Agreement and the Price Schedule.
 
(i)             Term of Exercised Option .   Upon exercise, the Conserved Water and Carry-Over Storage rights acquired through the Optionee’s exercise of the Option shall be for a term of fifty (50) years from the date construction of the Program is deemed complete and Conserved Water is made available for delivery to the CRA (the “ initial term ”).  In the event CADIZ fails to deliver to the Optionee the acquired Conserved Water as requested by the Optionee during the initial term for any reason (other than as a result of a force majeure), the initial term shall be extended by that number of years necessary to fulfill CADIZ’ obligation to deliver the acquired Conserved Water.  This means if the well-field fails to produce sufficient water to meet Optionee’s scheduled delivery request for Conserved Water, regardless of whether the Conserved Water is Annual Quantity or from Carry-Over Storage, the initial term of the Agreement will be extended for so long as necessary to complete the delivery.  In addition, the initial term of the exercised Option may be mutually extended by CADIZ and the Optionee by the Optionee’s transmittal of written notice (delivered no later than 36 months prior to the expiration of the initial term) of its intent to negotiate an extension of the term of an additional thirty (30) years no later than December 31, 2050.  Upon receipt of the written notice, the Parties will exercise good faith and reasonable best efforts to extend the term under mutually agreeable terms.
 
(j)             Cost Off-Sets.   The final cost of water, as delivered by CADIZ and as received by the Optionee, may be subject to the resolution of state and federal grants applications, contracts for services, exchanges and other consideration that may be obtained from the state and federal government, MWD and other third parties (collectively “ Cost Off-Sets ”).  These Cost Off-Sets may substantially reduce the cost of water as delivered by CADIZ and as received by the Optionee.  The Parties recognize and CADIZ expressly agrees that any Cost-Off Sets will be applied as a dollar-for-dollar credit against some or all of the Program costs as may be requested by the Optionee so as to reduce the actual cost of Conserved Water delivered by CADIZ and as received by the Optionee, as more fully detailed in Exhibit “D” attached hereto.  Further, CADIZ acknowledges that the Optionee may elect in its sole discretion to participate in an alternative public financing of some or all of the capital costs attributable to conveying water to and from the Property to the CRA and that the final cost will be incrementally reduced to reflect this decision.
 
(k)             Effective Cost   The adjusted cost of Conserved Water and Storage to the Optionee after accounting for the application of any Cost Off-Sets is the “ Effective Cost ” and is generally described in Exhibit “D” .  Specifically, following completion of Environmental Review for the Program, Optionee may elect on its own or in coordination with some or all of the other purchasers of conserved water, to assume complete responsibility for the design, financing, construction and operation of the pipeline that conveys water between the CRA and the Property.  The Effective Cost will reflect Optionee’s assumption of these costs.
 
2.3   Exercise Period .   The Option for acquiring the Initial 5K AF shall be exercisable for a period commencing upon the date of execution of this Agreement and continuing until 5:00 p.m. PST on the 60th day following the satisfaction of the condition precedent set forth in Section 2.4(b).  For acquiring the Additional 10K AF, such period shall not extend beyond the 30th day following the satisfaction of the condition precedent set forth in Section 2.4(b) (each and as applicable, the “ Exercise Period ”).  This Option, this Agreement and any rights accrued to the Optionee shall terminate immediately as to the Optionee, without further notice, if the Environmental Cost Sharing Agreement referenced in Section 2.1 terminates as to the Optionee pursuant to the terms thereof.
 
2.4   Conditions Precedent to Exercise of Option .   The obligations of the Parties shall be conditioned as follows:
 
(a)             Option Exercise .   The obligations of CADIZ under this Article 2 are conditioned upon the Optionee’s timely exercise of the Option pursuant to this Article 2 and performance of its obligations under the Environmental Cost Sharing Agreement referenced in Section 2.1.
 
(b)             Environmental Review and Approval .   The obligations of the Parties under this Article 2 are conditioned upon the completion of environmental review, as may be required under federal and state environmental resource protection laws and regulations and compliance with all other applicable law.  In the event litigation is commenced following the completion of the environmental review process, the Parties will meet and confer to determine whether the condition of environmental review and approval has been satisfied and whether to toll any applicable time periods under the Option while the litigation is unresolved.
 
(c)             ICS Credit . CADIZ and Optionee will make application for an ICS Credit, which if obtained, shall be shared equally (50/50) on a per acre-foot basis.  CADIZ and Optionee will coordinate their efforts in support of an application and will exercise good faith and reasonable best efforts to secure ICS Credits.
 
            (d)             LRP Credit .  Optionee may, in its discretion, apply for an LRP Credit from MWD by and through a MWD member agency and the value of the LRP Credit is presently estimated at $250 per acre-foot.  Upon request by Optionee, CADIZ will provide good faith assistance in support of Optionee’s application.
 
(e)             Purchase/Sale Agreement .  If SMWD elects under Article 2 to exercise the Option, the Parties will exercise reasonable best efforts to negotiate a definitive purchase and sale agreement that incorporates the terms of this Option Agreement, taking into account environmental review, the Parties’ collective efforts to secure potential financial off-sets and incentives, and other relevant considerations prior to approval of the Program (“ Purchase and Sale Agreement ”).
 
2.5   Exercise of Option .   Provided the Optionee has satisfied its respective obligations under this Agreement and the Environmental Cost Sharing Agreement to be negotiated concerning a fair apportionment of environmental costs, the Optionee may exercise the Option, in whole or in part as set forth above, in its sole and complete discretion by providing written notice to CADIZ within the Exercise Period.  If any part of the Option is not timely exercised or this Agreement is terminated, then CADIZ, in its sole and complete discretion and without notice to or approval from the Optionee, may allocate the unexercised portion of the Conserved Water, Carry-Over Storage rights, and pipeline (firm or space-available) capacity to any other person or entity.
 
2.6   Reversion .   In the event the Optionee withdraws from participation in the Program, all rights and interests previously held by the Optionee under the Option (exercised or otherwise) shall revert to CADIZ.  For purposes of this Section 2.6, “withdraws”shall mean any of the following:  (i) the Optionee’s failure to timely pay its obligations under the Environmental Cost Sharing Agreement; or (ii) the Optionee’s failure to complete its environmental review.
 
2.7   Other Covenants .   The Parties hereby agree further to the following covenants:
 
(a)             Conveyance and Distribution System .   The Parties intend to coordinate their efforts and to work constructively with Metropolitan Water District (“ MWD ”) and MWD member agencies to determine the most efficient method to achieve their objectives and to obtain access to the MWD conveyance and distribution system.  The Parties may coordinate their proposed conservation efforts with MWD to facilitate the generation of Intentionally Created Surplus Credits for the benefit of MWD.  In addition, in its complete discretion, CADIZ may offer an “in kind” contribution to MWD for the purpose of reducing the cost of conveying and exchanging water or otherwise reducing the cost of water delivered by CADIZ or as received by the Optionee.  If CADIZ makes such an “in kind” offer and MWD accepts, the Parties will exercise best efforts to negotiate equitable remuneration for CADIZ that fairly reflects the benefit that has been conferred by CADIZ on the other Parties.
 
(b)             Cooperation .   The Parties shall cooperate with each other and with other Primary and Secondary Participants for the purpose of obtaining all regulatory approvals, including, without limitation, an environmental review and compliance analysis and other state and federal approvals required to satisfy conditions necessary to implement the Program.
 
(c)             Suppliers and Contractors .   CADIZ will exercise good faith and best efforts to select companies based primarily within the Inland Empire to provide the materials and services that will be required to construct and operate any water related projects on the Property.
 
(d)             Environmental Betterment .   The Parties acknowledge the goal of a general “environmental betterment” whereby the Property and the operation of the groundwater bank will be evaluated for use in connection with providing water to beneficial environmental uses.  The Optionee hereby agrees to meet to-be-determined demand management strategies that will indirectly reduce stress on the San Francisco / San Joaquin Bay-Delta.
 
(e)             Solar Power .   CADIZ agrees to exert reasonable best efforts to provide solar power to operate the Program facilities.  The Program will be evaluated using both solar power and, in the event solar power is not available in sufficient quantity to operate the Program, then traditional forms of energy.
 
(f)             Most Favored Nation .   Notwithstanding any other provision of this Agreement, the Optionee has, in its sole and complete discretion, the right to elect the same price terms offered to any other purchaser of Conserved Water or Storage made available by CADIZ from the date of execution of this Agreement until CADIZ has executed binding definitive agreements for more than fifty (50) percent of the identified Program capacity to deliver Conserved Water.
 
(g)             Environmental Cost Reimbursement or Credit.   Subject to circumstances described in the Environmental Cost Sharing Agreement, Optionee may be eligible for a reimbursement of its costs paid pursuant thereto or a credit against the exercise of the Option hereunder.
 
2.8             Buy-In .   Notwithstanding anything herein, in lieu of exercising the Option,   SMWD may elect in its complete discretion to negotiate with CADIZ for the acquisition of water, water rights, storage, storage rights, well-field capacity, pipeline capacity and real property interests owned or controlled by CADIZ (collectively “ Buy-In ”).  Upon request by SMWD, CADIZ and SMWD will exercise reasonable best efforts to negotiate a mutually agreeable Buy-In prior to completion of the environmental review process and the execution of a definitive Purchase and Sale Agreement.
 
ARTICLE 3
 
REPRESENTATIONS AND WARRANTIES
 
3.1   Representations and Warranties by the Parties .   Each Party hereby makes the following covenants, representations and warranties to each other Party:
 
(a)             Authority .   It has the authority to enter into this Agreement and perform as set forth herein and therein.  This Agreement has been duly authorized by all required action.
 
(b)             No Violations .   The execution of this Agreement and performance of its obligations under this Agreement will not violate any contract, transaction, option, covenant, condition, obligation of undertaking of such Party, nor to the best of its knowledge, will it violate any law, ordinance, statute, order or regulation.
 
(c)             Enforceability .   This Agreement and all documents required hereby to be executed by such Party are and shall be valid, legally binding obligations enforceable against such Party in accordance with their terms.
 
ARTICLE 4
 
GENERAL PROVISIONS
 
4.1   Interpretation .   The provisions of this Agreement should be liberally interpreted to effectuate its purposes.  The language of this Agreement shall be construed simply according to its plain meaning and shall not be construed for or against either Party, as each Party has participated in the drafting of this Agreement and has had the opportunity to have their counsel review it.  Whenever the context and construction so requires, all words used in the singular shall be deemed to be used in the plural, all masculine shall include the feminine and neuter, and vice versa.  The word “including” means without limitation, and the word “or” is not exclusive.  Unless the context otherwise requires, references herein: (i) to Articles, Sections and Exhibits mean the Articles and Section of and the Exhibits attached to this Agreement; (ii) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement; and (iii) to a statute means such statute as amended from time to time and includes any successor legislation thereto.
 
4.2   Notice .   All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be conclusively deemed to have been duly provided: (i) when transmitted via e-mail; (ii) seventy-two (72) hours after the writing is deposited in the mail system of the United States Postal Service prepaid for standard or certified mail return receipt requested; or (iii) at 4:59 p.m. PDST on the Business Day after the writing is deposited with a national overnight delivery service, e.g., Federal Express, DHL Worldwide Express or United Parcel Service, postage prepaid, with next-business-day delivery guaranteed, provided that the sending Party receives a confirmation of delivery from the delivery service provider.  Notices shall be directed as indicated below, or as may be changed or supplemented from time to time by the recipient Party by giving the other Party written notice in the manner stated above.
 
If to CADIZ:
CADIZ, Inc.
550 S. Hope Street, Suite 2850
Los Angeles, CA 90017
(213) 271-1600
(213) 271-1614 (facsimile)
Attn:  Scott Slater
sslater@bhfs.com
 
If to Optionee:
Santa Margarita Water District
26111 Antonio Parkway
Rancho Santa Margarita, CA  92688
(949) 459-6601
(949) 459-6463 (facsimile)
Attn:  John Schatz
Jschatz13@cox.net
 

4.3   Date and Delivery of Agreement .   The Parties intend that this Agreement, upon execution, shall be deemed effective, executed and delivered for all purposes under this Agreement, subject to the conditions precedent set forth in Section 2.4.
 
4.4   Good Faith .   The Parties agree to exercise their commercially reasonable best efforts and good faith to effectuate all the terms and conditions of this Agreement.
 
4.5   Other Instruments .   Each Party shall cause to be executed any further documents reasonably necessary in the opinion of the requesting Party.  The requesting Party shall pay the cost of the further documents, except that each Party shall pay its own attorney fees.
 
4.6   Successors and Assigns .   This Agreement shall be binding on and shall inure to the benefit of the Parties and their respective successors and permitted assigns, except as restricted by this Agreement.  Notwithstanding the foregoing, the Option and SMWD’s rights hereunder shall not be assignable to any other person or entity without the express prior written consent of CADIZ, which shall be exercised in its sole discretion.
 
4.7   No Third-Party Rights .   Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the Parties to this Agreement and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligations or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over or against any party to this Agreement.
 
4.8   Dispute Resolution .   The Parties shall seek to resolve any dispute concerning the interpretation or implementation of this Agreement through good faith negotiation, involving, as and when appropriate, the general manager or chief executive officer of each of the Parties.  Any dispute that remains unresolved thirty (30) days after notice of the dispute is made to the Parties, shall be resolved by a single arbitrator with substantial experience on the matter or matters in dispute, conducted in accordance with JAMS.  If the Parties cannot agree on a single arbitrator within ten (10) days of the written election to submit the matter to arbitration, either Party may request JAMS to appoint a single, neutral arbitrator.  The Parties shall use their reasonable best efforts to have the arbitration proceeding concluded within ninety (90) business days of selection of the arbitrator.  In rendering the award, the arbitrator shall determine the rights and obligations of the Parties according to the substantive and procedural laws of California.  All discovery shall be governed by the CCP with all applicable time periods for notice and scheduling provided therein being reduced by one-half.  The arbitrator may establish other discovery limitations or rules.  The arbitrator shall have the authority to grant provisional remedies and all other remedies at law or in equity, but shall not have the power to award punitive or consequential damages.  The decision of the arbitrator shall be final, conclusive and binding upon the Parties, and either Party shall be entitled to the entry of judgment in a court of competent jurisdiction based upon such decision.  The losing Party shall pay all costs and expenses of the arbitration; provided, however, if neither Party is clearly the losing Party, then the arbitrator shall allocate the arbitration costs between the Parties in an equitable manner, as the arbitrator may determine in his or her sole discretion.
 
4.9   Default .   The failure by either Party to perform its obligations under this Agreement, which continues for more than thirty (30) days after receipt of written notice from the other Party stating the existence and nature of such default (unless the default cannot be cured in said thirty (30) days, and in that event, if the defaulting Party fails to continuously and diligently remedy the default) shall constitute a default, which default shall entitle the other Party to terminate this Agreement at its option by notification to the defaulting Party.  Said termination option shall be in addition, not in lieu of, other rights and remedies of the nondefaulting Party under this Agreement and by law.
 
4.10   Waiver .   No waiver of any provision or consent to any action shall constitute a waiver of any other provision or consent to any other action, whether or not similar.  No waiver or consent shall constitute a continuing waiver or consent or commit a Party to provide a waiver in the future except to the extent specifically stated in writing.  Any waiver given by a Party shall be null and void if the Party requesting such waiver has not provided a full and complete disclosure of all material facts relevant to the waiver requested.  No waiver shall be binding unless executed in writing by the Party making the waiver.
 
4.11   Attorney Fees .   If any legal action or any arbitration or other proceeding is brought for the enforcement of this Agreement, or because of an alleged dispute, breach, default or misrepresentation in connection with any of the provisions of this Agreement, the successful or prevailing Party shall be entitled to recover reasonable attorney fees and other costs incurred in that action or proceeding, in addition to any other relief to which it or they may be entitled.
 
4.12   Entire Agreement .   This Agreement and its exhibits is the entire understanding of the Parties. There are no other promises, representations, agreements or warranties by any of the Parties.  This Agreement may be only be amended or supplemented by a writing signed by all Parties.  Each Party waives its right to assert that this Agreement was affected by oral agreement, course of conduct, waiver or estoppel.
 
4.13   Counterparts .  This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.
 
4.14   Authorizations .   All individuals executing this and other documents on behalf of the respective Parties certify and warrant that they have the capacity and have been duly authorized to so execute the documents on behalf of the entity so indicated.  Each signatory shall also indemnify the other Parties to this Agreement, and hold them harmless, from any and all damages, costs, attorney fees and other expenses, if the signatory is not so authorized.
 
IN WITNESS WHEREOF , the Parties have set forth their signatures as of the date first written above.
 
“OPTIONEE”
SANTA MARGARITA WATER DISTRICT
By: ________________________________
Title:_______________________________
 
“CADIZ”
CADIZ INC.
By: ________________________________
Title:_______________________________
 
FENNER MUTUAL WATER COMPANY
By: ________________________________
Title:_______________________________
   
 
Exhibit A:                      Environmental Cost Sharing Agreement
Exhibit B:                      Program Summary
Exhibit C:                      Price Schedule
Exhibit D:                      Example of Effective Cost Range
 
 
 
 
EXHIBIT A
 
ENVIRONMENTAL COST SHARING AGREEMENT
 

 
[See Attached]
 
 
 
 
 
EXHIBIT B
 
PROGRAM SUMMARY
 
A groundwater banking operation on the Cadiz Property for the purpose of conserving water that is presently lost through evaporation from the Cadiz and Bristol Dry-Lakes and conjunctively managing imported surface water that is spread and stored for recovery.  The proposed project would make new and reliable water available for irrigation, solar, municipal water supply, environmental and other beneficial uses.

This Program may conserve, store and deliver to public water systems: (a) native groundwater water conserved by reducing controllable losses from the aquifer system and implementing prudent groundwater management strategies, and (b) water imported from outside the property (probably from the Colorado River) and percolated to actively recharge the aquifer.  The Program will be conducted consistent with prevailing groundwater management methodology governed by three primary principles: (a) Recharge and extraction of native and imported water within the Property will be conducted in a manner that achieves and then maintains optimal, long-term, safe (sustainable) yield and conjunctive use of water; (b) Management of the groundwater levels will not result in harm to the aquifers, or cause material adverse changes in water quality, differential land subsidence, or impairment of habitats dependent upon near-surface expressions of groundwater (such as phreatophytic vegetation, wetlands or surface stream flows); and (c) The banked water will directly and indirectly result in restoration of unrelated aquatic ecosystems currently impaired by water development.

The Program is intended to achieve environmental restoration benefits through the banking of imported water for active recharge and its use for environmental restoration purposes.

All native and imported water, whether conserved or stored, will be recovered and conveyed between the Cadiz Property and the CRA along an active railroad line right-of-way that Cadiz has acquired from the Arizona & California Railroad.

The proposed well-field and pipeline will be sized to accommodate the expected long-term recoverable yield of conserved water from the Fenner Valley and Orange Blossom Watersheds and foreign water that is stored in wet years and recovered in dry-years.

The initial term of the Program will be 50 years.
 
 
 
 
EXHIBIT C
 
PRICE SCHEDULE
 

 
A.             Conserved Water    For Initial 5K AF -   $775.00 1 per afy 2      
  For Additional 10K AF - $975.00 3 per afy 4      

The per acre-foot per year is the complete and final cost for the delivery of water to the CRA.  There are no added costs for this service.
 
B.             Supplemental Storage $0 

CADIZ will provide Supplemental Storage to Optionee without charge.  Supplemental Storage will be provided for the benefit of Optionee in the event CADIZ is unable to deliver or is prevented from delivering water to the CRA because there is insufficient capacity in the CRA to accept the Conserved Water.

C.           ICS Credits

CADIZ and Optionee will share the benefit of any ICS Credits that are obtained equally (50/50) on a per acre-foot basis.  This means that if an ICS Credit is earned for the 5,000 acre-feet purchased by Optionee, CADIZ and Optionee will equally shared the compensation attributable or fairly apportioned to that 5,000 acre-feet.

D.           Price Reductions

Further reductions in the price of Conserved Water may occur from applications from state and federal grants applications, contracts for services, exchanges of storage, Conserved Water and other consideration that may be obtained from the state and federal governments, MWD and other third parties (collectively, “ Cost Off-Sets ”).  These Cost Off-Sets may reasonably reduce the cost of water as delivered by CADIZ to the CRA as provided in Exhibit “D” as well as further reductions in cost being obtained and applied for the benefit of the Optionee after the delivery of water to the CRA and prior to the Conserved Water being received by the Optionee.  The Parties recognize and CADIZ expressly agrees that any Cost Off-Sets will be applied as a credit against some or all of the Program costs as may be requested by the Optionee so as to reduce the actual cost and the purchase price of Conserved Water delivered by CADIZ and as received by the Optionee.  (See Exhibit “D” ).

E.           Storage
 
  1.           First Fill Storage (1 unit of 15,000 acre-feet)  ** 5  
  2.           Class A Carry-Over Storage (1 unit of 5,000 acre-feet)  ** 6  
  3.           Class B Carry-Over Storage (1 unit of 5,000 acre-feet)  $1,500.00 7 per af  
  4.           Supplemental  No Charge 8  
 
F.           Pipeline Capacity 9
 
  1.           Class A Firm (1 unit of 5,000 acre-feet)  ** 10  
  2.           Class B Firm (per units of 5,000 acre-feet)  $2,400.00 11 per af 12  
  3.           Space Available Use  TBD 13  
  4.           First Fill Space Available  ** 14  
 
G.           Annual Storage Administration Fee
 
 
  1.           First Fill Storage Capacity  $20.00 15 per af (subject to Section 2.2(b))  
  2.           Class A and B Carry-Over Storage Capacity  $20.00 16 per af  
  3.           Supplemental Storage  $0  
 

EXAMPLE

If SMWD exercises its option to purchase 5,000 acre-feet per year of Conserved Water, it will receive 15,000 acre-feet of First Fill Storage and 15,000 acre-feet of Fill Water on a space available pipeline capacity at no additional cost excepting the Annual Management Obligation described in Section 2.2(b).  Further, if SMWD elects to purchase 5,000 acre-feet of Class B Carry-Over Storage, it will receive 5,000 acre-feet of Class A Carry-Over Storage at firm capacity without paying additional compensation.  The Optionee would then make an election as to whether it wished to purchase additional Firm capacity or elect to move a portion of its Conserved Water on a Space Available basis.

Conserved Water – Initial 5K AF
Paid Upon Delivery of Water to Canal or Carry-Over Storage
$775 Per AFY subject to a 5% cap on annualized escalation (see fn 1 and 2) prior to Cost Off-Sets.
Conserved Water – Additional 10K AF
Paid Upon Delivery of Water to Canal or Carry-Over Storage
$975 Per AFY subject to a 5% cap on annualized escalation (see fn 3 and 4) prior to Cost Off-Sets.
Supplemental Storage
No Charge
No Charge
First Fill Storage
Upon Exercise of Initial 5K AF
No Charge, excepting Annual Management Obligation
Class A Carry-Over Storage
No Charge upon acquisition of Class B Carry-Over Storage
$0
Class B Carry-Over Storage
Paid Upon Project Approval 17
$7.5 million 18 for 5,000 af of storage capacity
First Fill Water – 15,000 acre-feet
Dedicated Upon Project Approval
$0
Class A Pipeline Capacity
Paid Upon Project Approval
$0 Firm
Class B “Firm” Pipeline Capacity
Paid Upon Project Approval
$12 million 19 per 5,000 af of storage
Class B “Space Available” Pipeline Capacity
Paid Upon Actual Use of Pipeline Capacity
Buyer pays actual incremental cost to Cadiz plus a share of pro-rated capital to reimburse the costs of those parties holding firm capacity.
 
 
Accordingly, by way of example and without commitment, if SMWD exercised its option for 5,000 acre-feet of the Initial 5K AF and also exercised its option to acquire Class B Carry-Over Storage at Firm Capacity, SMWD would be entitled to 25,000 acre-feet of Storage (i.e., 15,000 First Fill Storage plus 5,000 Class B acquired plus 5,000 Class A) of which 10,000 would be at Firm Capacity and 15,000 at Space Available Capacity, resulting in a total up-front cost of $19.5 million with an annual charge of $775 for the water and an ongoing maintenance charge of $20 per acre-foot.  The decision to purchase Space Available Pipeline Capacity would reduce the upfront costs by $12 million so that a total of $7.5 million would be due and payable for the purchase of Class B Carry-Over Storage.  However, the purchaser would then pay both CADIZ’ incremental cost in transporting the water, if any, and a share of pro-rated capital costs.  Note all dollar amounts are stated in April 2010 dollars.
 

 
1 April 2010 dollars.
 
2 Subject to a 5% cap on average annualized escalation.
 
3 April 2010 dollars.
 
4 Subject to a 5% cap on average annualized escalation.
 
5 Made available
 
6 Made available upon purchase of Class B Carry-Over.
 
7 April 2010 dollars.
 
8 Made available.
 
9 Charges may be subject to Cost Off-Sets as provided in C. and D. above.
 
10 Made available with Class A Carry-Over.
 
11 April 2010 dollars.
 
12 LOI quotes at $12 million per 5,000 af.
 
13 Actual incremental cost plus a reasonable share of pro-rated capital.
 
14 Made available.
 
15 April 2010 dollars.
 
16 April 2010 dollars.
 
17 The approval of the Project by the Lead Agency.
 
18 April 2010 dollars.
 
19 April 2010 dollars.
 
 
 
 
EXHIBIT D
 
EXAMPLE OF EFFECTIVE COST RANGE
 
(in April 2010 dollars)
 
COST OF INITIAL 5K AF  $775 
   
ICS Credits  ($200)
   
Sub Net  $575 
   
LRP Funding  ($250)
   
Net of Combined Credits  $325 
   
COST OF WHEELING  $314 
   
 
RANGE OF AS DELIVERED PRICE TO MWD MEMBER AGENCY: $639-$1089
 
EXHIBIT 10.2
 
ENVIRONMENTAL PROCESSING AND COST SHARING AGREEMENT
 
This Environmental Cost Sharing Agreement (“ Agreement ”) is entered into as of ________________, 2010, by and among CADIZ INC. (“ CADIZ ”) and SANTA MARGARITA WATER DISTRICT ( “ SMWD ”), each a “ Party ” and collectively the “ Parties .”
 
RECITALS
 
A.            CADIZ and SMWD have agreed to the terms of a separate option agreement (the, “ Option Agreement ”), subject to environmental review and other conditions, with this Agreement serving as an exhibit to the Option Agreement.
 
B.            The Parties acknowledge and agree that other public water purveyors within six Southern California counties (Ventura, Los Angeles, Orange, Riverside, San Bernardino and San Diego) are evaluating their potential participation in the Project (as defined in herein and to be more particularly defined in the EIR   (see Recital O)) as potential purchasers of Conserved Water.
 
C.            CADIZ owns and controls approximately 35,000 acres of land located in the Cadiz and Fenner valleys of San Bernardino County (the “ Cadiz Property ”).
 
D.            San Bernardino County prepared an environmental impact report for the extraction of groundwater to provide water to overlying land uses in 1993 and approved an agricultural project for the Cadiz Property.
 
E.            Metropolitan Water District (“ MWD ”)   and CADIZ jointly proposed a conjunctive use project for the Cadiz Property whereby surplus foreign water from the Colorado River would be stored beneath the Cadiz Property and delivered to MWD, and in 2002 the United States Department of Interior (the “ DOI ”) issued a record of decision and granted a right of way over federal lands for the proposed project.  In connection with these efforts, an environmental analysis of the conjunctive use project was prepared but MWD elected not to proceed with such project and the environmental impact report was not certified.
 
F.            In 2005-2006, CADIZ retained the environmental firm, PCR, to update the earlier environmental analysis referenced in Recital E and PCR found that there were no material changes in environmental conditions.
 
G.            In January of 2009, the United States Secretary of Interior opined that the rights of the railroad right of way secured by written agreement between CADIZ and the Arizona/California Railroad could be used to transport water without further action by the DOI.
 
H.            On May 14, 2009, CADIZ entered into a memorandum of understanding with the Natural Heritage Institute, whereby CADIZ pledged to operate any water project on the Cadiz Property on a long-term sustainable basis and to avoid environmental harm.
 
I.            In January of 2010, Professor John Sharp from the University of Texas completed his peer review of the methodologies used in the calculation of hydraulic conductivity for carbonate limestone prevalent in the Fenner Valley.
 
J.            Layne Christensen collected field data through the drilling of three wells in the Fenner Valley to establish the extent of alluvial thickness and hydraulic conductivity and it completed its work in February of 2010.
 
K.            In March of 2010, CH2MHILL completed an evaluation of hydrologic conditions within the Fenner Valley and the Orange Blossom Watersheds that are up-gradient to the Cadiz Property and it has opined that more than 32,000 acre-feet of annual recharge could be safely conserved and extracted from the Cadiz Property.
 
L.            In April of 2010, CH2MHILL completed an evaluation of subsurface conditions up-gradient from the proposed well-field for the Project and prepared and calibrated a computer model that demonstrated it is reasonable to conclude that more than 30,000 acre-feet per year flows through the Fenner Gap.
 
M.            In April of 2010, Geoscience completed its update of its earlier studies undertaken in connection with the MWD/Cadiz proposal in 2002 and further performed an independent evaluation of the subsurface conditions existing within the Fenner Gap and concluded that the CH2MHILL finding that more than 30,000 acre-feet is reasonable and available..
 
N.            In June of 2010, Professor John Sharp peer reviewed the CH2MHILL findings and conclusions regarding the quantity of annual recharge and the reasonableness that more than 30,000 acre-feet per year flows through the Fenner Gap, determining them both to be reasonable.
 
O.            The Parties intend to conserve groundwater and manage the available groundwater supply in accordance with the directives stated by the California Supreme Court in City of Los Angeles v. City of San Fernando (1975) 14 Cal.3d 199 thereby withdrawing any temporary surplus required to obtain optimal groundwater water levels and to manage extractions within the long-term safe annual yield.
 
P.            Pursuant to the Option Agreement, an Environmental Impact Report (“ EIR ”) will be prepared to assess the environmental impacts of the Project (as defined below and to be more particularly defined in the EIR).
 
Q.            The Parties desire to enter into an agreement to fairly and equitably share certain environmental, engineering and other costs related to the environmental review and compliance process and other state and federal approvals required to satisfy conditions necessary to implement the Project as defined herein.
 
AGREEMENT
 
NOW, THEREFORE, in consideration of the above recitals and the mutual promises set forth herein, the Parties hereby agree as follows:
 
ARTICLE 1
DEFINITIONS
 
1.1             Definitions .   The following terms shall have the meaning as set forth below.
 
(a)             Environmental Costs and Eligible Environmental Costs .   “ Environmental Costs ” shall mean all out-of-pocket costs reasonably incurred by any Party for goods or services provided by third parties for any environmental review, process or assessment performed for the purpose of complying with CEQA, NEPA and applicable federal, state and agency regulations implementing those statutes and all costs incurred in obtaining any permit, approval, authorization, opinion, assessment or agreement pursuant to the Endangered Species Act (“ ESA ”), the California Endangered Species Act (“ CESA ”), the public trust doctrine or any other federal or state environmental resource protection law or applicable federal or state regulations implementing same, including the costs of studying or designing any mitigation required to comply with CEQA, NEPA, ESA, CESA or any other federal or state resource protection law or applicable federal or state regulations implementing same, but excluding any Excluded Costs.  “ Eligible Environmental Costs ” shall consist of only those Environmental Costs identified in an approved Budget and those unbudgeted Environmental Costs that are reasonably incurred for pre-approved activities but exceed the approved budget (including approved change orders), provided that budgeted Eligible Environmental Costs shall not exceed $1,000,000.
 
(b)             Environmental Litigation Costs .   “ Environmental Litigation Costs ” shall mean all costs reasonably incurred by any Party to defend any litigation that challenges, in whole or in part, compliance with applicable environmental laws and regulations or applicable federal or state regulation implementing same.
 
(c)             Environmental Mitigation Costs .   “ Environmental Mitigation Costs ” shall mean all costs of mitigation in making the water available for delivery to the Colorado River Aqueduct (“ CRA ”), including but not limited to, costs for goods and/or services provided by third parties and for use of in-house resources, including real or personal property or personnel, to design, construct, build, purchase, finance, administer, manage or operate any mitigation measure as a result of the environmental review process.  “Environmental Mitigation Costs” shall specifically exclude “Service Area Mitigation Costs” as defined in Section 4.2.
 
(d)             Excluded Costs .   Notwithstanding anything to the contrary herein, the following costs shall be excluded from the definitions of Environmental Costs and Eligible Environmental Costs and will not be subject to cost-sharing absent a separate written agreement between the Parties:  Hydrologic studies completed prior to the date of this Agreement, including but not limited to Layne-Christensen, CH2MHILL, Geoscience, Professor Sharp, Environmental Litigation Costs, any costs related to a subject matter that is beyond the scope of this Agreement, each Party’s internal costs, including overhead and review costs, Environmental Mitigation Costs, and Service Area Mitigation Costs.
 
(e)             Project .   For purposes of environmental review, “ Project ” shall have the meaning set forth in Exhibit “A” to this Agreement.
 
1.2             Rules of Construction and Word Usage .   Unless the context clearly requires otherwise, the Recitals to this Agreement are a part of this Agreement to the same extent as the Articles; the Exhibits attached to this Agreement are incorporated by reference and are to be considered part of the terms of this Agreement; the plural and singular numbers include the other; the masculine, feminine, and neuter genders include the others; “shall,” “will,” “must,” and “agrees” are each mandatory; “may” is permissive; “may not” is prohibitory; “or” is not exclusive; “includes” and “including” are not limiting; and “person” includes any natural person or legal entity.
 
ARTICLE 2
MANAGEMENT AND ADMINISTRATION
 
2.1             Lead Agency .   SMWD will act as the lead agency for environmental review of the Project (the “ Lead Agency ”) pursuant to California Resources Code, sections 21002.1 and 21067, and the CEQA Guidelines, section 15051(d).  Responsible agencies pursuant to California Resources Code, section 21069, may include other parties that subsequently elect to acquire Conserved Water from the Project and the County of San Bernardino (“ Responsible Agencies ”).
 
2.2            Responsibility .
 
(a)             Primary Responsibility .   The Lead Agency and each Responsible Agency shall have the discretion to approve or reject the proposed Project and to certify the EIR.
 
(b)             Cooperation .   The Parties will cooperate and consult with each other Party and each Responsible Agency with a view to assuring the timely and proper completion of all environmental reviews and assessments contemplated by the Project.
 
(c)             Preparation of Administrative Draft .   CADIZ will exercise good faith and best efforts in selecting competent professionals and consultants to perform the tasks that are necessary and prudent to implement the environmental review of the Project, such selection to be made with the consent of SMWD which shall not be unreasonably withheld or delayed. CADIZ will assume primary responsibility for causing the retention of a qualified expert to prudently prepare an administrative draft of environmental documents, studies, analyses, and reports sufficient to allow SMWD to exercise its independent judgment in accordance with its statutory duties to evaluate the EIR upon review of the Project in compliance with all applicable laws.
 
(d)             Reservation of Discretion.   SMWD retains its complete and unfettered discretion to review the adequacy of the information presented by CADIZ and its experts and to exercise its complete and unfettered discretion to approve or disapprove the EIR and the Project following the completion of environmental review.
 
2.3             Budget .   Within sixty (60) days from the date of execution of this Agreement, the Parties will develop a budget, retain estimates from qualified consultants to complete the required work and a schedule for completion of environmental review.  The Parties will exercise good faith and best efforts to agree upon the budget.  However, the approved budget of all Eligible Environmental Costs shall not exceed $1,000,000.
 
2.4             Consultants’ Work .   The Parties acknowledge and agree that upon completion of the environmental process: (i) all studies, reports, analyses, and plans shall be the joint property of CADIZ, on the one hand, and the Lead Agency, on the other hand and (ii) without further permission, consent of any Party or additional compensation, CADIZ will be entitled to copies of all such studies, reports, analyses and plans that are prepared or relied upon during environmental review of the Project.
 
2.5            Managers .
 
(a)             Designation of Contract Managers .   In order to facilitate and implement this Agreement, the contract manager designated by each Party herein shall be responsible for managing and implementing that Party’s performance hereunder.  Any Party may change its designated contract manager at any time by prior written notice to the other Parties.  The initial contract managers are:
 
For SMWD:                      ____________________________
 
For CADIZ:                      ____________________________
 
(b)             Communications .   All correspondence, notices or other matters related to this Agreement, including payments, shall be directed to the appropriate contract manager designated above.
 
ARTICLE 3
ENVIRONMENTAL COSTS AND LITIGATION COSTS
 
3.1             Cost Sharing Percentages .   All Eligible Environmental Costs will be allocated and shared among CADIZ and SMWD in accordance with this Section 3.1:
 
(a)            Up to $125,000 of the Eligible Environmental Costs shall be borne by SMWD, subject to the paragraph below.
 
(b)            The remainder of the Eligible Environmental Costs shall be borne by CADIZ, subject to the paragraph below.
 
Each Responsible Agency shall bear its own environmental review and process costs, without limitation, and shall not have any cost-sharing responsibility under this Agreement.  However, the Parties acknowledge that CADIZ may, in its discretion, enter into option agreements and secure revenue that may be contributed towards Environmental Costs.
 
3.2             Payment of Environmental Costs .   All Eligible Environmental Costs will be estimated by CADIZ in advance and invoiced to SMWD by CADIZ.  Payment of the Eligible Environmental Costs, as incurred, shall be made in the following order of priority:
 
(a)            CADIZ shall pay up to $500,000 of the Eligible Environmental Costs by (i) depositing the lesser of $250,000 or 25% of the estimated Eligible Environmental Costs on the effective date of this Agreement, and (ii) paying the balance up to an aggregate of $500,000 of the Eligible Environmental Costs as incurred and as invoiced by CADIZ.
 
(b)            After CADIZ has paid $500,000 of the estimated Eligible Environmental Costs as provided above, then SMWD shall pay twenty-five percent (25%) of the Eligible Environmental Costs by paying such costs as incurred and invoiced by CADIZ (limited, however, to a cumulative maximum of $125,000 for SMWD).
 
(c)            Each Party’s share of Eligible Environmental Costs and payments towards such share shall be maintained and accounted for in order to conduct reconciliations to such accounts time to time as agreed to by the Parties.
 
(d)            Each Party’s share of unexpected Eligible Environmental Costs that are projected to exceed the cap of $1,000,000 will be subject to further written authorization by the Parties but will be funded in accordance with the allocation percentages set forth in Section 3.1 above.
 
3.3             Environmental Litigation Costs .   The Parties agree to cooperate, to proceed with reasonable diligence, and to use reasonable best efforts in evaluating potential proceedings challenging the legality, validity or enforceability of any term of this Agreement.  Each Party shall bear its own Environmental Litigation Costs incurred in connection with any such defense, except as such Party may otherwise agree pursuant to a joint defense agreement between or among one or more of the other Parties.  Moreover, each Party may determine in its own complete discretion that it does not wish to assume the cost of defense.  In such case, CADIZ shall have the unilateral right to fund the declining Party’s portion of the Environmental Litigation Costs in addition to its own and the declining Party shall also participate in the defense.
 
3.4             Credit or Reimbursement of Eligible Environmental Costs .
 
(a)            If SMWD approves the Project and elects to proceed with the Project, CADIZ will provide SMWD with a credit towards its subsequent purchase of water or storage in the Project pursuant to its Option Agreement in an amount equal to the unreimbursed Eligible Environmental Costs paid by SMWD.
 
(b)            If SMWD approves the Project, but CADIZ elects not to proceed with the Project, CADIZ will reimburse SMWD in an amount equal to the unreimbursed Eligible Environmental Costs paid by SMWD.
 
(c)            If SMWD certifies the EIR but does not approve the Project and therefore does not proceed with the Project, CADIZ will reimburse SMWD in an amount equal to the unreimbursed Eligible Environmental Costs paid by SMWD.
 
ARTICLE 4
ENVIRONMENTAL MITIGATION COSTS
 
4.1             Environmental Mitigation Costs .   CADIZ will be responsible for payment of all Environmental Mitigation Costs, subject to CADIZ’ termination rights under Article 6.
 
4.2             Service Area Mitigation Costs .   Notwithstanding anything to the contrary herein, SMWD will be responsible for all costs of mitigation within its water service area (“ Service Area Mitigation Costs ”).
 
ARTICLE 5
DISPUTE RESOLUTION
 
5.1             Disputes .   The Parties or their delegates shall seek to resolve any dispute concerning the interpretation or implementation of this Agreement through good faith negotiation involving, as and when appropriate, the general manager or chief executive officer of each of the Parties.  Any dispute that remains unresolved thirty (30) days after notice of the dispute is made to the Parties, shall be resolved pursuant to Section 5.2.
 
5.2             Arbitration .   Any dispute that remains unresolved thirty (30) days after notice of the dispute is made to the Parties, shall be resolved by a single arbitrator with substantial experience on the matter or matters in dispute, conducted in accordance with JAMS.  If the Parties cannot agree on a single arbitrator within ten (10) days of the written election to submit the matter to arbitration, either Party may request JAMS to appoint a single, neutral arbitrator.  The Parties shall use their reasonable best efforts to have the arbitration proceeding concluded within ninety (90) business days of selection of the arbitrator.  In rendering the award, the arbitrator shall determine the rights and obligations of the Parties according to the substantive and procedural laws of California.  All discovery shall be governed by the CCP with all applicable time periods for notice and scheduling provided therein being reduced by one-half.  The arbitrator may establish other discovery limitations or rules.  The arbitrator shall have the authority to grant provisional remedies and all other remedies at law or in equity, but shall not have the power to award punitive or consequential damages.  The decision of the arbitrator shall be final, conclusive and binding upon the Parties, and either Party shall be entitled to the entry of judgment in a court of competent jurisdiction based upon such decision.  The losing Party shall pay all costs and expenses of the arbitration; provided, however, if neither Party is clearly the losing Party, then the arbitrator shall allocate the arbitration costs between the Parties in an equitable manner, as the arbitrator may determine in his or her sole discretion.
 
ARTICLE 6
TERM AND TERMINATION
 
6.1             Term .   This Agreement shall commence as of the effective date of the Option Agreement, and shall continue until terminated by mutual agreement of all of the Parties, pursuant to Section 6.3, or as to any particular Party, if applicable, pursuant to Section 6.2.
 
6.2            Termination of Participation by SMWD .
 
(a)             Voluntary Termination .   SMWD may elect to terminate its participation in this Agreement, and thus the Project, at any time upon written notice to the other Parties (“ Termination Notice ”).  The Termination Notice will be effective on the date on which CADIZ receives such Termination Notice (“ Termination Date ”).
 
(b)             Other .   This Agreement shall also terminate upon SMWD’s withdrawal of its participation in the Project.  “ Withdrawal ” shall mean, whether voluntary or involuntary, any of the following:  (i) the failure of SMWD to timely pay its share of the Eligible Environmental Costs, (ii) the failure of SMWD to complete its environmental review of the Project, or (iii) the failure of SMWD to approve its participation in the Project.
 
(c)            Effect upon Termination of Participation .
 
(i)            SMWD shall not be responsible for costs subject to the cost-sharing arrangement incurred after the Termination Date, but shall continue to be responsible for costs subject to the cost-sharing arrangement incurred prior to the Termination Date.
 
(ii)            SMWD forfeits all rights accruing under this Agreement as of the Termination Date.
 
6.3             Termination by CADIZ .   CADIZ may terminate this Agreement if it makes a good faith determination that either:
 
(a)           The projected Environmental Mitigation Costs will exceed $10 million, subject to CADIZ providing written notice to the other Party for purposes of exploring potential cost-sharing arrangements between and among the parties for the Environmental Mitigation Costs; or
 
(b)           The Project is infeasible, in which case CADIZ shall provide written notice of termination to all Parties and reimburse the Parties for the amounts paid by them pursuant to Section 3.1 or 3.2 and not otherwise reimbursed or credited pursuant to Section 3.4 hereof, up to the date of termination.
 
ARTICLE 7
GENERAL PROVISIONS
 
7.1             Release .   CADIZ expressly and knowingly fully and forever releases any claims, causes of actions, and remedies CADIZ may have against any Party arising out of this Agreement, except those arising out of or relating to: (i) CADIZ’ right to access to joint documents; (ii) CADIZ’ right to have the Agreement interpreted and rights of the Parties hereto declared; (iii) CADIZ’ right to enforce its right to reimbursement of costs as permitted in this Agreement; and (iv) CADIZ’ right to fund the legal defense of any Certified EIR.
 
7.2             Amendment .   This Agreement may be amended only by a written instrument signed by each of the Parties.
 
7.3             Attorney Fees .   If any Party commences a legal proceeding for any relief against any other Party arising out of this Agreement, the losing Party shall pay the prevailing Party’s legal costs and expenses, including, but not limited to, reasonable attorney fees and court costs, except as may otherwise be specified in the decision or order entered in said proceeding.
 
7.4             Authority .   Each Party represents and warrants that it has the requisite power and authority to enter into and perform its obligations under this Agreement.
 
7.5             Counterparts .   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but both of which, taken together, shall constitute one and the same Agreement after each party has signed such a counterpart.
 
7.6             Interpretation .   The provisions of this Agreement should be liberally interpreted to effectuate its purposes.  The language of this Agreement shall be construed simply according to its plain meaning and shall not be construed for or against either Party, as each Party has participated in the drafting of this Agreement and has had the opportunity to have their counsel review it.  Whenever the context and construction so requires, all words used in the singular shall be deemed to be used in the plural, all masculine shall include the feminine and neuter, and vice versa.  The word “including” means without limitation, and the word “or” is not exclusive.  Unless the context otherwise requires, references herein: (i) to Articles, Sections and Exhibits mean the Articles and Sections of and the Exhibits attached to this Agreement; (ii) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement; and (iii) to a statute means such statute as amended from time to time and includes any successor legislation thereto.
 
7.7             Notice .   All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be conclusively deemed to have been duly provided: (i) when transmitted via e-mail; (ii) seventy-two (72) hours after the writing is deposited in the mail system of the United States Postal Service prepaid for standard or certified mail return receipt requested; or (iii) at 4:59 p.m. PDST on the Business Day after the writing is deposited with a national overnight delivery service, e.g., Federal Express, DHL Worldwide Express or United Parcel Service, postage prepaid, with next-business-day delivery guaranteed, provided that the sending Party receives a confirmation of delivery from the delivery service provider.  Notices shall be directed as indicated below, or as may be changed or supplemented from time to time by the recipient Party by giving the other Party written notice in the manner stated above.
 
If to CADIZ:                          CADIZ, Inc.
550 S. Hope Street, Suite 2850
Los Angeles, CA 90017
(213) 271-1600
(213) 271-1614 (facsimile)
Attn:  Scott Slater
sslater@bhfs.com
 
If to SMWD:                         Santa Margarita Water District
26111 Antonio Parkway
Rancho Santa Margarita, CA  92688
(949) 459-6601
(949) 459-6463 (facsimile)
Attn:  John Schatz
Jschatz13@cox.net
 
7.8             Good Faith .   The Parties agree to exercise their commercially reasonable best efforts and good faith to effectuate all the terms and conditions of this Agreement.
 
7.9             Other Instruments .   Each Party shall cause to be executed any further documents reasonably necessary in the opinion of the requesting Party.  The requesting Party shall pay the cost of the further documents, except that each Party shall pay its own attorney fees.
 
7.10             Successors and Assigns .   This Agreement shall be binding on and shall inure to the benefit of the Parties and their respective successors and permitted assigns, except as restricted by this Agreement.
 
7.11             No Third-Party Rights .   Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the Parties to this Agreement and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligations or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over or against any party to this Agreement.
 
7.12             Waiver .   No waiver of any provision or consent to any action shall constitute a waiver of any other provision or consent to any other action, whether or not similar.  No waiver or consent shall constitute a continuing waiver or consent or commit a Party to provide a waiver in the future except to the extent specifically stated in writing.  Any waiver given by a Party shall be null and void if the Party requesting such waiver has not provided a full and complete disclosure of all material facts relevant to the waiver requested.  No waiver shall be binding unless executed in writing by the Party making the waiver.
 
IN WITNESS WHEREOF , the parties have executed this Agreement effective as of the date first written above.
 
“SMWD”                                           SANTA MARGARITA WATER DISTRICT

By:           ____________________________________
Title:        ____________________________________


“CADIZ”                                           CADIZ, INC.

By:           ____________________________________
Title:        ____________________________________


Exhibit “A”:                      Project Description
 
 
 
 
EXHIBIT A
 
PROJECT DESCRIPTION
 
A groundwater banking operation on the Cadiz Property for the purpose of conserving water that is presently evaporated from the Cadiz and Bristol Dry-Lakes and conjunctively managing imported surface water that is spread and stored for recovery in accordance with principles of prudent groundwater management and the standards established in City of Los Angeles v. City of  San Fernando ..  As articulated by San Fernando, the proposed project would make new and reliable water available for irrigation, solar, municipal water supply, environmental and other beneficial uses by withdrawing temporary surplus and managing groundwater extractions consistent with the long-term safe yield for the groundwater basin.

This Project may conserve, store and deliver to public water systems: (a) native groundwater water conserved by reducing controllable losses from the aquifer system and implementing prudent groundwater management strategies, and (b) water imported from outside the property (probably from the Colorado River) and percolated to actively recharge the aquifer.  The Project will be conducted consistent with prevailing groundwater management methodology governed by three primary principles: (a) Recharge and extraction of native and imported water within the Property will be conducted in a manner that achieves and then maintains optimal, long-term, safe (sustainable) yield and conjunctive use of water; (b) Management of the groundwater levels will not result in harm to the aquifers, or cause material adverse changes in water quality, differential land subsidence, or impairment of habitats dependent upon near-surface expressions of groundwater (such as phreatophytic vegetation, wetlands or surface stream flows); and (c) The banked water will directly and indirectly result in restoration of unrelated aquatic ecosystems currently impaired by water development.

The Project is intended to achieve environmental restoration benefits through the banking of imported water for active recharge and its use for environmental restoration purposes.

Up to 1,000,000 acre-feet of available dewatered storage capacity will be managed and made available for groundwater banking.  Of this amount, 150,000 acre-feet of the dewatered storage capacity will be initially reserved for first priority Carry-Over Storage Accounts (the right to carry over from year to year unproduced groundwater).  These Carry-Over Storage accounts may be acquired by those parties holding Annual Quantity Rights and acquired for the storage of conserved water and for the storage of imported water.  Further, Supplemental Storage will be made available to store Annual Quantity Rights that cannot be delivered by Cadiz due to insufficient capacity in the CRA.

All native and imported water, whether conserved or stored, will be recovered and conveyed between the Cadiz Property and the CRA along an active railroad line that Cadiz has acquired from the Arizona & California Railroad.  The proposed well-field and pipeline will be sized to accommodate the expected long-term recoverable yield of conserved water from the Fenner Valley and Orange Blossom Watersheds and foreign water that is stored in wet years and recovered in dry-years.

The initial term of the Project will be 50 years.
EXHIBIT 10.3
 
ENVIRONMENTAL PROCESSING AND COST SHARING AGREEMENT
 
This Environmental Cost Sharing Agreement (“ Agreement ”) is entered into as of June ___, 2010, by and among CADIZ INC. (“ CADIZ ”) and THREE VALLEYS MUNICIPAL WATER DISTRICT ( “ TVMWD ”), each a “ Party ” and collectively the “ Parties .”
 
RECITALS
 
A.            CADIZ owns and controls approximately 35,000 acres of land located in the Cadiz and Fenner valleys of San Bernardino County (the “ Cadiz Property ”).
 
B.            Substantial quantities of percolating groundwater exist within the aquifer system underlying the Property that naturally migrates to the Bristol and Cadiz dry lakes and then is lost to evaporation, such that water that would otherwise be wasted can be conserved and made available for reasonable and beneficial use in accordance with modern sustainable groundwater management practices.
 
C.            Existing and potential aquifer capacity exists within the underlying aquifers that can be prudently used to store conserved and imported water for subsequent beneficial use.
 
D.            San Bernardino County prepared an environmental impact report for the extraction of groundwater to provide water to overlying land uses in 1993 and approved an agricultural project for the Cadiz Property.
 
E.            Metropolitan Water District (“ MWD ”)   and CADIZ jointly proposed a conjunctive use project for the Cadiz Property whereby surplus foreign water from the Colorado River would be stored beneath the Cadiz Property and delivered to MWD, and in 2002 the United States Department of Interior (the “ DOI ”) issued a record of decision and granted a right of way over federal lands for the proposed project.  In connection with these efforts, an environmental analysis of the conjunctive use project was prepared but MWD elected not to proceed with such project and the environmental impact report was not certified.
 
F.            In 2005-2006, CADIZ retained the environmental firm, PCR, to update the earlier environmental analysis referenced in Recital E and PCR found that there were no material changes in environmental conditions.
 
G.            In January of 2009, the United States Secretary of Interior opined that the rights of the railroad right of way secured by written agreement between CADIZ and the Arizona/California Railroad could be used to transport water without further action by the DOI.
 
H.            On May 14, 2009, CADIZ entered into a memorandum of understanding with the Natural Heritage Institute, whereby CADIZ pledged to operate any water project on the Cadiz Property on a long-term sustainable basis and to avoid environmental harm.
 
I.            In January of 2010, Professor John Sharp from the University of Texas completed his peer review of the methodologies used in the calculation of hydraulic conductivity for carbonate limestone prevalent in the Fenner Valley.
 
J.            Layne Christensen collected field data through the drilling of three wells in the Fenner Valley to establish the extent of alluvial thickness and hydraulic conductivity and it completed its work in February of 2010.
 
K.            In March of 2010, CH2MHILL completed an evaluation of hydrologic conditions within the Fenner Valley and the Orange Blossom Watersheds that are up-gradient to the Cadiz Property and it has concluded that more than 32,000 acre-feet of recoverable yield could be safely conserved and extracted from the Cadiz Property.
 
L.            In April of 2010, Geoscience completed its review of its earlier studies undertaken in connection with the MWD/Cadiz proposal in 2002 and examined the results of recent field work and it concurs with the CH2MHILL findings and further concludes that it is reasonable that more than 30,000 acre-feet of recoverable yield can be conserved and is available for extraction.
 
M.            In April of 2010, Professor John Sharp peer reviewed the CH2MHILL findings and conclusions, determining them to be reasonable.
 
N.            The Parties intend to conserve groundwater and manage the available groundwater supply in accordance with the directives stated by the California Supreme Court in City of Los Angeles v. City of San Fernando (1975) 14 Cal.3d 199 thereby withdrawing any temporary surplus required to obtain optimal groundwater water levels and to manage extractions within the long-term safe annual yield.
 
O.            Pursuant to the requirements of the California Environmental Quality Act and the Guidelines promulgated thereunder (“ CEQA ”), an Environmental Impact Report (“ EIR ”) will be prepared by the Santa Margarita Water District (“ SMWD ”) as Lead Agency to assess the environmental impacts of the Project (as defined below and to be more particularly defined in the EIR).
 
P.            TVMWD is a California Municipal Water District and it distributes water for beneficial uses within Eastern Los Angeles County.  It will act as a Responsible Agency for purposes of evaluating environmental impacts of the Project within its service area.
 
Q.            The Parties desire to enter into an agreement to fairly and equitably share certain environmental, engineering and other costs related to the environmental review and compliance process and other state and federal approvals required to satisfy conditions necessary to implement the Project as defined herein.

AGREEMENT
 
NOW, THEREFORE, in consideration of the above recitals and the mutual promises set forth herein, the Parties hereby agree as follows:
 
ARTICLE 1
DEFINITIONS
 
1.1             Definitions .   The following terms shall have the meaning as set forth below.
 
(a)             Annual Quantity .  “ Annual Quantity ” shall mean the quantity of water that is made available by CADIZ each year during the term of this Agreement through its intended water and groundwater management program that will optimize conservation, maximize reasonable and beneficial use, and  avoid loss of groundwater to evaporation, and is more specifically defined in Section 3.4 hereof.
 
(b)             Approved Budget .  “ Approved Budget ” shall mean that certain budget created, maintained and adopted by CADIZ setting forth the Project’s Eligible Environmental Costs, and subject to the limitations set forth in subclause (d) below.
 
(c)             Conserved Water .  “ Conserved Water ” shall mean indigenous groundwater that is extracted from the Cadiz Property under reasonable and prudent groundwater management practices.
 
(d)             Environmental Costs and Eligible Environmental Costs .   “ Environmental Costs ” shall mean all out-of-pocket costs reasonably incurred by any Party for goods or services provided by third parties for any environmental review, process or assessment performed for the purpose of complying with CEQA, the National Environmental Protection Act (“ NEPA ”). and applicable federal, state and agency regulations implementing those statutes, and all costs incurred in obtaining any permit, approval, authorization, opinion, assessment or agreement pursuant to the Endangered Species Act (“ ESA ”), the California Endangered Species Act (“ CESA ”), the public trust doctrine or any other federal or state environmental resource protection law or applicable federal or state regulations implementing same, including the costs of studying or designing any mitigation required to comply with CEQA, NEPA, ESA, CESA or any other federal or state resource protection law or applicable federal or state regulations implementing same, but excluding any Excluded Costs.  “ Eligible Environmental Costs ” shall consist of only those Environmental Costs identified in the Approved Budget and those unbudgeted Environmental Costs that are reasonably incurred for pre-approved activities but exceed the Approved Budget (including approved change orders), provided that budgeted Eligible Environmental Costs shall not exceed $1,000,000.
 
(e)             Environmental Litigation Costs .   “ Environmental Litigation Costs ” shall mean all costs reasonably incurred by any Party to defend any litigation that challenges, in whole or in part, compliance with applicable environmental laws and regulations or applicable federal or state regulation implementing same.
 
(f)             Environmental Mitigation Costs .   “ Environmental Mitigation Costs ” shall mean all costs of mitigation in making the water available for delivery to the Colorado River Aqueduct (“ CRA ”), including but not limited to, costs for goods and/or services provided by third parties and for use of in-house resources, including real or personal property or personnel, to design, construct, build, purchase, finance, administer, manage or operate any mitigation measure as a result of the environmental review process.  “Environmental Mitigation Costs” shall specifically exclude “Service Area Mitigation Costs” as defined herein.
 
(g)             Excluded Costs .   Notwithstanding anything to the contrary herein, the following costs shall be excluded from the definitions of Environmental Costs and Eligible Environmental Costs and will not be subject to cost-sharing absent a separate written agreement between the Parties:  Hydrologic studies completed prior to the date of this Agreement, including but not limited to Layne-Christensen, CH2MHILL, Geoscience, Professor Sharp, Environmental Litigation Costs, any costs related to a subject matter that is beyond the scope of this Agreement, each Party’s internal costs, including overhead and review costs, Environmental Mitigation Costs, Service Area Mitigation Costs, and Project costs voluntarily incurred by a Party.
 
(h)             Project .   For purposes of environmental review, “ Project ” shall have the meaning set forth in Exhibit “A” to this Agreement.
 
(i)             Storage .  For purposes of this Agreement Supplemental Storage and Carry-Over Storage shall mean as follows:  “ Supplemental Storage ” shall mean the use of unsaturated soils to store Conserved Water in the event that CADIZ is unable to or prevented from delivering Conserved Water to the CRA because there is insufficient capacity in the CRA.  “ Carry-Over Storage ” shall mean the use of unsaturated soils to store Conserved Water from year to year for subsequent withdrawal and delivery to purchaser for beneficial use.  Carry-Over Storage may also be used to store imported or foreign water, provided that sufficient pipeline capacity exists to convey water from the CRA to the Cadiz Property.
 
1.2             Rules of Construction and Word Usage .   Unless the context clearly requires otherwise, the Recitals to this Agreement are a part of this Agreement to the same extent as the Articles; the Exhibits attached to this Agreement are incorporated by reference and are to be considered part of the terms of this Agreement; the plural and singular numbers include the other; the masculine, feminine, and neuter genders include the others; “shall,” “will,” “must,” and “agrees” are each mandatory; “may” is permissive; “may not” is prohibitory; “or” is not exclusive; “includes” and “including” are not limiting; and “person” includes any natural person or legal entity.
 
ARTICLE 2
MANAGEMENT AND ADMINISTRATION
 
2.1             Lead Agency; Responsible Agencies .   SMWD will act as the lead agency for environmental review of the Project (SMWD or a successor being the “ Lead Agency ”) pursuant to California Resources Code, sections 21002.1 and 21067, and the CEQA Guidelines, section 15051(d).  TVMWD will be one of the responsible agencies pursuant to California Resources Code, section 21069, which may include other parties that subsequently elect to acquire Conserved Water from the Project and the County of San Bernardino (each, and including TVMWD, a “ Responsible Agency ” or “ Responsible Agencies ”).
 
2.2            Responsibility .
 
(a)             Primary Responsibility .   The Lead Agency will have the duty to evaluate the potential environmental impacts of the Project and it will have discretion to certify the EIR and to approve or reject the Project.  The Responsible Agency shall have the duty to evaluate potential environmental impacts within its boundaries and it has discretion to approve or reject its participation in the proposed Project.
 
(b)             Cooperation .   The Parties will cooperate and consult with each other Party and each Responsible Agency with a view to assuring the timely and proper completion of all environmental reviews and assessments contemplated by the Project.
 
(c)             Management and Administration .   In coordination and consultation with TVMWD, CADIZ will exercise good faith and best efforts in selecting competent professionals and consultants to perform the tasks that are necessary and prudent to implement the environmental review of the Project, such selection to be made with the consent of the Lead Agency.  CADIZ will assume primary responsibility for causing the retention of a qualified expert to prudently prepare an administrative draft of environmental documents, studies, analyses, and reports.  Further, the Parties acknowledge and agree that upon completion of the environmental process, all studies, reports, analyses, and plans shall be the joint property of CADIZ, on the one hand, and the Lead Agency, on the other.
 
2.3            Managers .
 
(a)             Designation of Contract Managers .   In order to facilitate and implement this Agreement, the contract manager designated by each Party herein shall be responsible for managing and implementing that Party’s performance hereunder.  Any Party may change its designated contract manager at any time by prior written notice to the other Parties.  The initial contract managers are:
 
For TVMWD:     Richard W. Hansen
 
For CADIZ:         Tim Shaheen
 
(b)             Communications .   All correspondence, notices or other matters related to this Agreement, including payments, shall be directed to the appropriate contract manager designated above in the manner set forth in Section 7.7 below.
 
ARTICLE 3
ENVIRONMENTAL COSTS AND LITIGATION COSTS
 
3.1             Environmental Costs .   CADIZ shall pay up to $500,000 of the Eligible Environmental Costs by (i) depositing the lesser of $250,000 or 25% of the estimated Eligible Environmental Costs on the effective date of this Agreement, and (ii) paying the balance up to an aggregate of $500,000 of the Eligible Environmental Costs as incurred and as invoiced by CADIZ.  After CADIZ has paid $500,000 of the estimated Eligible Environmental Costs as provided above, then cost-sharing obligations as between CADIZ and the Lead Agency and/or other third parties shall apply to the extent of such agreements thereto.  Each Responsible Agency shall bear its own environmental review and process costs, without limitation, and shall not have any cost-sharing responsibility under this Agreement.
 
3.2             Environmental Litigation Costs .   The Parties agree to cooperate, to proceed with reasonable diligence, and to use reasonable best efforts in evaluating potential proceedings challenging the legality, validity or enforceability of the Project, the environmental review of the Project, this Agreement, and/or the subject matter hereof.  Each Party shall bear its own Environmental Litigation Costs incurred in connection with any such defense, except as such Party may otherwise agree pursuant to a joint defense agreement between or among one or more of the other Parties.  Moreover, each Party may determine in its own complete discretion that it does not wish to assume the cost of defense.
 
3.3             Consideration .   As consideration for rights granted by CADIZ described herein, TVMWD hereby agrees to pay to CADIZ the sum of one hundred twenty five thousand dollars ($125,000), to cooperate in the completion of the environmental review of the Project, and to designate a representative to serve on a technical committee to develop the Approved Budget and participate in the evaluation and possible implementation of the Project (the “ Consideration ”).  Payment of the Consideration shall be paid within thirty (30) days following TVMWD’s receipt of written notice from CADIZ indicating more than five hundred thousand dollars ($500,000) have been expended by CADIZ in preparing environmental analysis of the Project.
 
3.4             Acquisition of Conserved Water .  In exchange for the Consideration provided hereunder, CADIZ hereby grants TVMWD the unilateral right and irrevocable option to acquire 5,000 acre-feet per year of Conserved Water as an Annual Quantity right in a manner materially consistent with the terms set forth in the Option Agreement between SMWD and CADIZ, executed on June 23, 2010 (a true and correct copy of which is attached hereto as Exhibit B and incorporated herein by this reference), provided that the price for the acquisition of such water and the timing of such payments are set forth on Exhibit C (“ Price Schedule ”) attached hereto, it being the intent of the Parties for the price of the Conserved Water set forth in the Price Schedule to be generally consistent with the price of Conserved Water agreed to by and between CADIZ and SMWD.  Upon TVMWD’s acquisition of the 5,000 acre-feet Annual Quantity, CADIZ will also make available to TVMWD an additional 5,000 acre-feet of Conserved Water as a one-time supply, free of any charges to TVMWD.  The Parties will determine a reasonable schedule for delivery of this additional quantity of Conserved Water.
 
3.5             Most Favored Nation.   Notwithstanding any other provision of this Agreement, TVMWD has, in its sole and complete discretion, the unilateral right and irrevocable option to elect the same price terms offered to any other purchaser of Conserved Water or Storage made available by CADIZ from and after the date of execution of this Agreement, subject to Project capacity.  Notwithstanding the foregoing, this clause shall not apply to the Option Agreement between CADIZ and SMWD (or to subsequent agreements between CADIZ and SMWD) as to the quantity of Fill Water and First Fill Storage SMWD receives at no additional cost, and agreements with public interest environmental groups.
 
3.6             Credit or Reimbursement of Consideration .
 
(a)            If the Lead Agency does not certify the EIR within twenty-four (24) months of the date of this Agreement, CADIZ will reimburse TVMWD in an amount equal to the Consideration within thirty days following the Lead Agency’s decision not to certify the EIR.
 
(b)            If the Lead Agency certifies the EIR but does not approve the Project within twenty-four months of the date of this Agreement, and TVMWD does not subsequently elect in the exercise of its sole and complete discretion to rely upon the EIR and approve the Project, independently or in coordination with other agencies, CADIZ will reimburse TVMWD in an amount equal to the Consideration within thirty (30) days following CADIZ’ receipt of written notice thereof from TVMWD.
 
(c)            If the Lead Agency certifies the EIR and approves the Project, but TVMWD elects in the exercise of its sole and complete discretion to not proceed with the Project, CADIZ will reimburse TVMWD in an amount equal to the Consideration within thirty (30) days following CADIZ’ receipt of written notice thereof from TVMWD.
 
(d)            If the Lead Agency and TVMWD approve the Project, but CADIZ elects not to proceed with the Project, CADIZ will reimburse TVMWD in an amount equal to the Consideration within thirty (30) days following TVMWD’s receipt of written notice thereof from CADIZ.
 
(e)            If the Lead Agency certifies the EIR and approves the Project and TVMWD elects to rely upon the EIR and approve the Project, CADIZ will provide TVMWD with a credit towards its subsequent purchase of water or storage in the Project in an amount equal to the Consideration.
 
(f)            If CADIZ assigns this Agreement, whether contractually or by operation of law, and TVMWD does not approve of the assignee and/or successor, TVMWD may terminate this Agreement in which case CADIZ will reimburse TVMWD in an amount equal to the Consideration not previously credited or reimbursed to TVMWD within thirty (30) days following TVMWD’s receipt of written notice of the assignment or succession from CADIZ.
 
ARTICLE 4
ENVIRONMENTAL MITIGATION COSTS
 
4.1             Environmental Mitigation Costs .   CADIZ will be responsible for payment of all Environmental Mitigation Costs, subject to CADIZ’ termination rights under Article 6.
 
4.2             Service Area Mitigation Costs .   Notwithstanding anything to the contrary herein, CADIZ shall not be responsible for any costs of mitigation within TVMWD’s water service area (“ Service Area Mitigation Costs ”).
 
ARTICLE 5
DISPUTE RESOLUTION
 
5.1             Disputes .   The Parties or their delegates shall seek to resolve any dispute concerning the interpretation or implementation of this Agreement through good faith negotiation involving, as and when appropriate, the general manager or chief executive officer of each of the Parties.
 
ARTICLE 6
TERM AND TERMINATION
 
6.1             Term .   This Agreement shall commence and be in effect as of the date first set forth above, and shall continue until terminated in accordance with the terms hereof.
 
6.2            Termination of Participation by TVMWD .
 
(a)             Voluntary Termination .   TVMWD may elect to terminate its participation in this Agreement, and thus the Project, at any time upon written notice to CADIZ (“ Termination Notice ”).  The Termination Notice will be effective on the date on which CADIZ receives such Termination Notice (“ Termination Date ”).
 
(b)             Other .   This Agreement shall also terminate upon TVMWD’s withdrawal of its participation in the Project.  “ Withdrawal ” shall mean, whether voluntary or involuntary, any of the following:  (i) the failure of TVMWD to timely pay the Consideration, (ii) the failure of TVMWD to complete its environmental review of the Project, or (iii) the failure of TVMWD to approve its participation in the Project.
 
(c)             Effect upon Termination of Participation .   In the event of a termination of this Agreement pursuant to Sections 6.2(a) or 6.2(b) of this Agreement, TVMWD shall receive reimbursement from CADIZ in an amount equal to the Consideration, to the extent not previously reimbursed or credited pursuant to Article 3 hereof, within thirty (30) days of the Termination Date or the date of Withdrawal, and shall forfeit all rights accruing under Sections 3.4 and 3.5 of this Agreement as of the Termination Date.
 
6.3             Termination by CADIZ .   CADIZ may terminate this Agreement if it makes a good faith determination that either:
 
(a)           The projected Environmental Mitigation Costs will exceed $10 million, subject to CADIZ providing written notice to the Lead Agency and any Responsible Agency, including TVMWD, for purposes of exploring potential cost-sharing arrangements between and among the parties for the Environmental Mitigation Costs, in which case CADIZ shall provide written notice of termination to TVMWD and reimburse TVMWD for an amount equal to the Consideration to the extent not previously reimbursed or credited pursuant to Article 3 hereof, within thirty (30) days of the date of such notice of termination; or
 
(b)           The Project is infeasible, in which case CADIZ shall provide written notice of termination to TVMWD and reimburse TVMWD for an amount equal to the Consideration to the extent not previously reimbursed or credited pursuant to Article 3 hereof, within thirty (30) days of such notice of termination.
 
ARTICLE 7
GENERAL PROVISIONS
 
7.1             Release .   CADIZ expressly and knowingly fully and forever releases any claims, causes of actions, and remedies CADIZ may have against any Party arising out of this Agreement, except those arising out of or relating to: (i) CADIZ’ right to access to joint documents; (ii) CADIZ’ right to have the Agreement interpreted and rights of the Parties hereto declared; (iii) CADIZ’ right to enforce its right to reimbursement of costs as permitted in this Agreement; and (iv) CADIZ’ right to fund the legal defense of any Certified EIR.  Notwithstanding the provisions of California Civil Code Section 1542, which provides that “[a] general release does not extend to claims which the creditor does not know or suspect to exist in his or her favor at the time of the executed release which if known by him or her must have materially affected his or her settlement with the debtor,” CADIZ expressly waives and relinquishes all rights and benefits afforded to CADIZ thereunder and under any and all similar laws of any state or territory of the United States with respect to the claims, actions, and/or losses released herein.  This Agreement shall act as a release of future claims that may arise from the aforementioned whether such claims are currently known, unknown, foreseen, or unforeseen.  CADIZ understands and acknowledges the significance and consequences of such specific waiver of Civil Code Section 1542 and hereby assumes full responsibility for any injuries, damages, losses, or liability that may result from the claims identified above.  Additionally, excepting the sole or contributory negligence or willful misconduct of TVMWD and further excepting those claims, actions and/or losses not released hereunder, CADIZ agrees to indemnify and hold TVMWD, and its officers, directors, agents, and employees, harmless from and against all claims and liabilities arising out of, in connection with, or resulting from, any and all acts or omissions on the part of CADIZ and and/or its owners, officers, directors, agents, representatives, contractors, consultants, and employees in connection with the Project, the environmental review thereof, and/or the performance of their obligations under this Agreement, and defend TVMWD and its officers, directors, agents, and employees from any suits or actions at law or in equity and to pay all reasonable court costs and counsel fees incurred in connection therewith.
 
7.2             Amendment .   This Agreement may be amended only by a written instrument signed by each of the Parties.
 
7.3             Attorney Fees .   If any Party commences a legal proceeding for any relief against any other Party arising out of this Agreement, the losing Party shall pay the prevailing Party’s legal costs and expenses, including, but not limited to, reasonable attorney fees and court costs, except as may otherwise be specified in the decision or order entered in said proceeding.
 
7.4             Authority .   Each Party represents and warrants that it has the requisite power and authority to enter into and perform its obligations under this Agreement.
 
7.5             Counterparts .   This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but both of which, taken together, shall constitute one and the same Agreement after each party has signed such a counterpart.
 
7.6             Interpretation .   The provisions of this Agreement should be liberally interpreted to effectuate its purposes.  The language of this Agreement shall be construed simply according to its plain meaning and shall not be construed for or against either Party, as each Party has participated in the drafting of this Agreement and has had the opportunity to have their counsel review it.  Whenever the context and construction so requires, all words used in the singular shall be deemed to be used in the plural, all masculine shall include the feminine and neuter, and vice versa.  The word “including” means without limitation, and the word “or” is not exclusive.  Unless the context otherwise requires, references herein: (i) to Articles, Sections and Exhibits mean the Articles and Sections of and the Exhibits attached to this Agreement; (ii) to an agreement, instrument or other document means such agreement, instrument or other document as amended, supplemented and modified from time to time to the extent permitted by the provisions thereof and by this Agreement; and (iii) to a statute means such statute as amended from time to time and includes any successor legislation thereto.  This Agreement shall be interpreted, enforced, and governed by the laws of the State of California, and venue for any action brought to interpret and/or enforce any provision of this Agreement shall be in a state or federal court located in the County of Los Angeles, State of California.
 
7.7             Notice .   All notices and other communications required or permitted to be given under this Agreement shall be in writing and shall be conclusively deemed to have been duly provided: (i) when transmitted via e-mail; (ii) seventy-two (72) hours after the writing is deposited in the mail system of the United States Postal Service prepaid for standard or certified mail return receipt requested; or (iii) at 4:59 p.m. PDST on the Business Day after the writing is deposited with a national overnight delivery service, e.g., Federal Express, DHL Worldwide Express or United Parcel Service, postage prepaid, with next-business-day delivery guaranteed, provided that the sending Party receives a confirmation of delivery from the delivery service provider.  Notices shall be directed as indicated below, or as may be changed or supplemented from time to time by the recipient Party by giving the other Party written notice in the manner stated above.
 
If to CADIZ:                          CADIZ, Inc.
550 S. Hope Street, Suite 2850
Los Angeles, CA 90017
(213) 271-1600
(213) 271-1614 (facsimile)
Attn:  Scott Slater
sslater@bhfs.com
 
If to TVMWD:                      Three Valleys Municipal Water District
1021 East Miramar Avenue
Claremont, CA  91711
(909) 621-5568
(909) 625-5470 (facsimile)
Attn:  Richard W. Hansen
rhansen@TVMWD.com
 
7.8             Good Faith .   The Parties agree to exercise their commercially reasonable best efforts and good faith to effectuate all the terms and conditions of this Agreement.
 
7.9             Other Instruments .   Each Party shall cause to be executed any further documents reasonably necessary in the opinion of the requesting Party.  The requesting Party shall pay the cost of the further documents, except that each Party shall pay its own attorney fees.
 
7.10             Successors and Assigns .   This Agreement shall be binding on and shall inure to the benefit of the Parties and their respective successors and assigns, except as restricted by this Agreement.
 
7.11             No Third-Party Rights .   Nothing in this Agreement, whether express or implied, is intended to confer any rights or remedies under or by reason of this Agreement on any persons other than the Parties to this Agreement and their respective successors and assigns, nor is anything in this Agreement intended to relieve or discharge the obligations or liability of any third persons to any party to this Agreement, nor shall any provision give any third persons any right of subrogation or action over or against any party to this Agreement.
 
7.12             Waiver .   No waiver of any provision or consent to any action shall constitute a waiver of any other provision or consent to any other action, whether or not similar.  No waiver or consent shall constitute a continuing waiver or consent or commit a Party to provide a waiver in the future except to the extent specifically stated in writing.  Any waiver given by a Party shall be null and void if the Party requesting such waiver has not provided a full and complete disclosure of all material facts relevant to the waiver requested.  No waiver shall be binding unless executed in writing by the Party making the waiver.
 
IN WITNESS WHEREOF , the parties have executed this Agreement effective as of the date first written above.
 
“TVMWD”                                           THREE VALLEYS MUNICIPAL WATER DISTRICT

By:           ____________________________________
Title:        ____________________________________


“CADIZ”                                           CADIZ, INC.

By:           ____________________________________
Title:        ____________________________________


Exhibit “A”:     Project Description
Exhibit “B”:     SMWD Option Agreement
Exhibit “C”:     Price Schedule
Exhibit “D”:     Effective Cost Range
 
 
 
 
EXHIBIT A
 
PROJECT DESCRIPTION
 
A groundwater banking operation on the Cadiz Property for the purpose of conserving water that is presently evaporated from the Cadiz and Bristol Dry-Lakes and conjunctively managing imported surface water that is spread and stored for recovery in accordance with principles of prudent groundwater management and the standards established in City of Los Angeles v. City of  San Fernando ..  As articulated by San Fernando, the proposed project would make new and reliable water available for irrigation, solar, municipal water supply, environmental and other beneficial uses by withdrawing temporary surplus and managing groundwater extractions consistent with the long-term safe yield for the groundwater basin.

This Project may conserve, store and deliver to public water systems: (a) native groundwater water conserved by reducing controllable losses from the aquifer system and implementing prudent groundwater management strategies, and (b) water imported from outside the property (probably from the Colorado River) and percolated to actively recharge the aquifer.  The Project will be conducted consistent with prevailing groundwater management methodology governed by three primary principles: (a) Recharge and extraction of native and imported water within the Property will be conducted in a manner that achieves and then maintains optimal, long-term, safe (sustainable) yield and conjunctive use of water; (b) Management of the groundwater levels will not result in harm to the aquifers, or cause material adverse changes in water quality, differential land subsidence, or impairment of habitats dependent upon near-surface expressions of groundwater (such as phreatophytic vegetation, wetlands or surface stream flows); and (c) The banked water will directly and indirectly result in restoration of unrelated aquatic ecosystems currently impaired by water development.

The Project is intended to achieve environmental restoration benefits through the banking of imported water for active recharge and its use for environmental restoration purposes.

Up to 1,000,000 acre-feet of available dewatered storage capacity will be managed and made available for groundwater banking.  Of this amount, 150,000 acre-feet of the dewatered storage capacity will be initially reserved for first priority Carry-Over Storage Accounts (the right to carry over from year to year unproduced groundwater).  These Carry-Over Storage accounts may be acquired by those parties holding Annual Quantity Rights and acquired for the storage of conserved water and for the storage of imported water.  Further, Supplemental Storage will be made available to store Annual Quantity Rights that cannot be delivered by Cadiz due to insufficient capacity in the CRA.

All native and imported water, whether conserved or stored, will be recovered and conveyed between the Cadiz Property and the CRA along an active railroad line that Cadiz has acquired from the Arizona & California Railroad.  The proposed well-field and pipeline will be sized to accommodate the expected long-term recoverable yield of conserved water from the Fenner Valley and Orange Blossom Watersheds and foreign water that is stored in wet years and recovered in dry-years.

The initial term of the Project will be 50 years.
 
 
 
 
EXHIBIT B
 
[SMWD OPTION AGREEMENT TO BE ATTACHED]
 
 
 
 
EXHIBIT C
 
PRICE SCHEDULE
 
(All dollars are based on April 2010 Dollars and shall be adjusted on a mutually agreeable index to be negotiated in the purchase/sale agreement upon TVMWD’s purchase of the conserved water)
 

 
A.             Conserved Water       $775.00 1 per afy 2     

The per acre-foot per year is the complete and final cost for the delivery of water to the CRA.  There are no added costs for this service.
 

 
B.             Supplemental Storage      $0 
 
CADIZ will provide Supplemental Storage to TVMWD without charge.  Supplemental Storage will be provided for the benefit of TVMWD in the event CADIZ is unable to deliver or is prevented from delivering water to the CRA because there is insufficient capacity in the CRA to accept the acquired conserved water.

C.           ICS Credits

CADIZ and TVMWD will share the benefit of any ICS Credits that are obtained equally (50/50) on a per acre-foot basis.  This means that if an ICS Credit is earned for the 5,000 acre-feet purchased by TVMWD, CADIZ and TVMWD will equally share the compensation attributable or fairly apportioned to that 5,000 acre-feet.

D.           Price Reductions

Further reductions in the price of Conserved Water may occur from applications from state and federal grants applications, contracts for services, exchanges of storage, conserved water and other consideration that may be obtained from the state and federal governments, MWD and other third parties (collectively, “ Cost Off-Sets ”).  These Cost Off-Sets may reasonably reduce the cost of water as delivered by CADIZ to the CRA as provided in Exhibit “D” as well as further reductions in cost being obtained and applied for the benefit of TVMWD after the delivery of water to the CRA and prior to the Conserved Water being received by TVMWD.  The Parties recognize and CADIZ expressly agrees that any Cost Off-Sets will be applied as a credit against some or all of the Project costs as may be requested by TVMWD so as to reduce the actual cost and the purchase price of Conserved Water delivered by CADIZ and as received by TVMWD.  (See Exhibit “D” ).

E.           Carry-Over Storage
 
 
  1.           Class A (5,000 acre-feet)    ** 3  
  2.           Class B (5,000 acre-feet)   $1,500.00 4 per af  
  3.           Supplemental  No Charge 5  
 
F.           Pipeline Capacity 6
 
  1.           Class A Firm (5,000 acre-feet)  ** 7  
  2.           Class B Firm (5,000 acre-feet)  $2,400.00 8 per af 9  
  3.           Space Available Use  TBD 10  
    
G.           Annual Storage Administration Fee
 
  1.           Class A and B Carry-Over Storage Capacity  $20.00 11 per af 
  2.           Supplemental Storage  $0 
 

EXAMPLE

If TVMWD acquires 5,000 acre-feet per year of Conserved Water and elects to purchase 5,000 acre-feet of Class B Carry-Over Storage, it will receive 5,000 acre-feet of Class A Carry-Over Storage without paying additional compensation and an additional 5,000 acre-feet of conserved water as a one-time supply without paying additional compensation.  TVMWD would then make an election as to whether it wished to purchase additional Firm capacity or elect to move a portion of its Conserved Water on a Space Available basis.

Conserved Water – 5,000 AF
Paid Upon Delivery of Water to Canal or Carry-Over Storage
$775 Per AFY subject to a 5% cap on annualized escalation (see fn 1 and 2) prior to Cost Off-Sets.
Supplemental Storage
No Charge
No Charge
Class A Carry-Over Storage
No Charge
$0
Class B Carry-Over Storage
Paid Upon Project Approval 12
$7.5 million 13 per minimum of 5,000 af of storage capacity
Additional One-Time 5,000 AF of Conserved Water
Dedicated upon acquisition of Annual Quantity, one-time supply
$0
Class A Pipeline Capacity
Paid Upon Project Approval
$0
Class B “Firm” Pipeline Capacity
Paid Upon Project Approval
$12 million 14 per 5,000 af of storage
Class B “Space Available” Pipeline Capacity
Paid Upon Actual Use of Pipeline Capacity
TVMWD pays actual incremental cost to Cadiz plus a share of pro-rated capital to reimburse the costs of those parties holding firm capacity.
 
 
Accordingly, by way of example and without commitment, if TVMWD acquired (i) 5,000 acre-feet as an Annual Quantity, (ii) 10,000 acre-feet of Carry-Over Storage (i.e., 5,000 Class B acquired plus 5,000 Class A at no cost) and (iii) 10,000 acre-feet of Firm Capacity (i.e., 5,000 Class A Firm at no cost plus 5,000 Class B Firm acquired), the total up-front cost for the Program would be $19.5 million with an annual charge of $775 for the water and an ongoing maintenance charge of $20 per acre-foot or $200,000 annually.   The decision to have Space Available Pipeline Capacity (rather than Firm Capacity) would reduce the upfront costs by $12 million so that a total of $7.5 million would be due and payable for the purchase of Carry-Over Storage.  However, TVMWD would then pay both CADIZ’ incremental cost in transporting the water, if any, and a share of pro-rated capital costs.
 

 
1 April 2010 dollars.
 
2 Subject to a 5% cap on average annualized escalation.
 
3 Made available upon purchase of Class B Carry-Over Storage.
 
4 April 2010 dollars.
 
5 Made available.
 
6 Charges may be subject to Cost Off-Sets as provided in C. and D. above.
 
7 Made available.
 
8 April 2010 dollars.
 
9 LOI quotes at $12 million per 5,000 af.
 
10 Actual incremental cost plus a reasonable share of pro-rated capital.
 
11 April 2010 dollars.
 
12 The approval of the Project by the Lead Agency.
 
13 April 2010 dollars.
 
14 April 2010 dollars.
 
 
 
 
EXHIBIT D
 
EXAMPLE OF EFFECTIVE COST RANGE
 
(In April 2010 Dollars)
 
 
COST OF INITIAL 5K AF  $775
   
ICS Credits  ($200)
   
Sub Net  $575 
   
LRP Funding  ($250)
   
Net of Combined Credits  $325 
   
COST OF WHEELING  $314 
   
 
RANGE OF AS DELIVERED PRICE TO MWD MEMBER AGENCY: $639-$1089
EXHIBIT 99.1
 
CADIZ LOGO
 
 
 
DATE :
CONTACT :
June 24, 2010
Courtney Degener, Investor Relations Manager
213.271.1603

 
TWO SOUTHERN CALIFORNIA WATER AGENCIES APPROVE AGREEMENTS FOR
CADIZ WATER CONSERVATION PROJECT
Santa Margarita Water District Commits to Lead Environmental Review
 
 
LOS ANGELES – Today Cadiz Inc. [NASDAQ: CDZI] announced that two Southern California water agencies have approved agreements to proceed with the Cadiz Water Conservation & Storage Project (“Cadiz Project”) and participate in the Project’s environmental review. The Boards of Directors of Santa Margarita Water District (“Santa Margarita”) and Three Valleys Municipal Water District (“Three Valleys”), which together serve over 650,000 customers in parts of Orange and Los Angeles Counties, have unanimously approved agreements that commit funds to an environmental review of the Cadiz Project and also grant the agencies the right to acquire a firm annual supply of water once the environmental review is complete.
 
Under the terms of the agreements, filed today by the Company with the Securities and Exchange Commission (“SEC”), upon completion of the environmental review, each agency has the right to acquire an annual supply of 5,000 acre-feet of water at a pre-determined formula competitive with their incremental cost of new water.  Santa Margarita also has the option to purchase an additional 10,000 acre-feet of water per year.  In addition, both agencies have options to acquire storage rights in the Cadiz Project that will allow them to manage this supply to complement their other water resources.   The Company continues to work with additional water providers interested in acquiring rights to the remaining annual supply conserved by the Project and is in discussions with third parties regarding the storage aspect of the Project.
 
The two agencies, which signed Letters of Intent with Cadiz in 2009, approved these agreements following an exhaustive due diligence period.  This included the recent publication of a comprehensive study of the Project’s aquifer system by environmental firm CH2M Hill.  The study, which was peer reviewed and validated by leading groundwater experts, estimates total groundwater in storage in the aquifer system between 17 and 34 million acre-feet, a quantity on par with Lake Mead, the nation’s largest surface reservoir.  The study also confirmed a renewable annual supply of native groundwater in the aquifer system currently being lost to evaporation.
 
“ After several months of   due diligence, we have determined that the Cadiz Project represents a  significant and sustainable new water supply opportunity for Southern California that can be obtained without harming other users or the environment,” said Santa Margarita Water District Board Member Saundra F. Jacobs.  “By moving ahead with the Project, we are working to drought-proof our agency, ensuring both a steady supply and a reliable bank of storage for the long-term in an environmentally responsible way.  We look forward to taking the lead in the environmental review.”
 
"Cadiz has presented us with a unique opportunity; one that Three Valleys is excited to pursue,” added Bob Kuhn, President of the Three Valleys Municipal Water District Board of Directors.  “The Cadiz Project affords us the chance to obtain a completely new, sustainable water supply by saving water otherwise lost to evaporation and at a price competitive with other new sources, enabling us to improve our overall water supply reliability.”
 
As part of its agreement with Cadiz, Santa Margarita will serve as lead agency for the California Environmental Quality Act (“CEQA”) review process. Three Valleys will also participate as a responsible agency.  Both parties have committed funds to the CEQA process and will share in the costs.
 
“We are pleased that the Project is moving ahead on the strength of sound science and we look forward to the CEQA environmental review process,” said Cadiz General Counsel Scott Slater.  “We’ve enjoyed briefing numerous stakeholders and various environmental groups over the past several months about the Project’s new water conservation strategy, and we welcome the chance for a thoughtful, fact-based analysis of the benefits it will bring to Southern California.”
 
About the Project
 
Cadiz owns approximately 35,000 acres of land in the Cadiz and Fenner valleys of San Bernardino County, California. This landholding is underlain by an extensive aquifer system offering storage capacity and natural recharge.  One of the largest water conservation efforts of its kind, the Cadiz Project will capture and utilize billions of gallons of renewable native groundwater that is currently being lost to evaporation through the aquifer system and yield a sustainable annual supply for subscribers.  In addition, the Project offers approximately one million acre feet of storage capacity that can be used to conserve – or “bank” – imported water, virtually eliminating the high rates of evaporative loss suffered by local surface reservoirs.
 
About Santa Margarita
 
Santa Margarita is Orange County’s second-largest water district with a 62,000-acre service area that includes residents and businesses in Mission Viejo, Rancho Santa Margarita, Coto de Caza, Las Flores, Ladera Ranch, and Talega. With limited local water supplies, Santa Margarita currently relies upon imports from the Metropolitan Water District of Southern California (MWD) for much of its water supply, in addition to its groundwater reuse and water recycling supply programs.
 
About Three Valleys
 
Three Valleys serves cities, water agencies and water districts in eastern Los Angeles County including residents and businesses in Azusa, City of Industry, Covina, Claremont, Diamond Bar, Glendora, La Puente, La Verne, Pomona, Walnut, West Covina and Hacienda Heights, Rowland Heights.  Forty percent of its service area receives water from local sources, while the remaining sixty percent is imported from MWD.
 
About Cadiz
 
Founded in 1983, Cadiz is a publicly-held renewable resources company that owns 70 square miles of property with significant water resources and clean energy potential in eastern San Bernardino County, California. The Company is engaged in a combination of water conservation and supply, solar energy, and organic farming projects.  Last year, Cadiz signed a wide-ranging “Green Compact” to promote environmental conservation and sustainable management practices.  Further information can be obtained by visiting www.cadizinc.com.
 
###
 
This release contains forward-looking statements that are subject to significant risks and uncertainties, including statements related to the future operating and financial performance of the Company and the financing activities of the Company. Although the Company believes that the expectations reflected in our forward-looking statements are reasonable, it can give no assurance that such expectations will prove to be correct. Factors that could cause actual results or events to differ materially from those reflected in the Company’s forward-looking statements include the Company’s ability to maximize value for Cadiz land and water resources, the Company’s ability to obtain new financing as needed, and other factors and considerations detailed in the Company’s Securities and Exchange Commission filings.
 
550 SOUTH HOPE STREET
SUITE 2850
LOS ANGELES, CA  90071
TEL  213.271.1600
FAX  213.271.1614