Item 1.01 Entry into a Material Definitive Agreement
On February 28, 2024, Cadiz Inc. (the “Company” or “Cadiz”) entered into (i) an Agreement for the Delivery of Water Made Available by Cadiz Inc. and Fenner Gap Mutual Water Company to Public Water Systems, among Cadiz, Cadiz Real Estate LLC, a wholly-owned subsidiary of Cadiz, Fenner Gap Mutual Water Company (“FGMWC”) and Fontana Water Company (“FWC”), an investor-owned utility serving the City of Fontana, California (the “FWC Agreement”), and (ii) a Term Sheet for the Delivery of Water Made Available by Cadiz Inc. and Fenner Gap Mutual Water Company to Santa Margarita Water District in the Northern Pipeline (the “SMWD Term Sheet,” and collectively with the FWC Agreement, the “Agreements”), among Cadiz, FGMWC and Santa Margarita Water District (“SMWD”).
The Agreements provide for the purchase of a cumulative annual supply of 10,000 acre-feet of water from the Company’s Water Conservation, Supply and Storage project (the “Project”) with conveyance through the Company’s 30-inch diameter, 220-mile, existing steel pipeline originating at Cadiz with a terminus at Wheeler Ridge (the “Northern Pipeline”).
The FWC Agreement provides that FWC will purchase 5,000 acre-feet per year (AFY) of water from the Project made available to FWC via the East Branch of the State Water Project through an exchange with one or more contractors under the California State Water Project, a state water management project under the supervision of the California Department of Water Resources.
The SMWD Term Sheet provides that SMWD will exercise its right to purchase 5,000 AFY pursuant to a Purchase & Sale Agreement entered into by the Company and SMWD in 2012 and that the Company will facilitate delivery to SMWD through the Company’s Northern Pipeline via an exchange of water with a State Water Project contractor.
Under the terms of the Agreements, FWC and SMWD will each pay a maximum of $1,650 per AFY as the “as delivered” price for Project water delivered to designated points of delivery. The payments will be subject to an agreed upon annual adjustment pegged to an agreed upon index (e.g., CPI Water and Sewer Index). In addition, SMWD will reserve the right to acquire specified carry-over storage in the Project for $1,500 per AF and an annual management fee of $20 per AF of acquired storage capacity.
Under both Agreements, the parties have agreed to exercise good faith and reasonable best efforts to jointly pursue federal, state, and local grant funding to offset the capital costs for development of pipeline conveyance and appurtenant facilities. Any grant funding received by public water systems will be credited against the “as delivered” price for water to the purchasers. The target price to public water systems, including incremental capital and operating costs for conveyance, less grant funding, is $1,000 and in any event, will not exceed $1,650 per AFY.
Cadiz expects to receive net revenue of $850 per AFY, subject to annual inflation adjustments, for producing conserved water to be conveyed to each of the parties under the Agreements through the Northern Pipeline.
The Company’s Northern Pipeline has a delivery capacity of 25,000 AFY. The Agreements are anticipated to represent 40% of the delivery capacity of the Northern Pipeline. In addition to the Agreements, the Company holds option agreements with several public water systems and is in negotiations with those public water systems to exercise and/or amend those option agreements to take delivery of water from the Northern Pipeline via direct delivery or by exchange with State Water Project contractors. Annual payments for water supply made available from the Project under the Agreements would begin when conditions precedent are met, construction is complete, and water deliveries begin.
No binding obligations will be created with respect to the transactions contemplated by the SMWD Term Sheet until the execution of written definitive agreements.
The foregoing description of the FWC Agreement and the SMWD Term Sheet does not purport to be complete and is qualified in its entirety by the full text of such documents, each of which is filed as Exhibits 10.1 and 10.2, respectively, to this Current Report and is incorporated by reference herein.
