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      $775.001 per afy2    

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)   $1,500.004 per af     3.           Supplemental  No Charge5 

 
F.           Pipeline Capacity6
 

  1.           Class A Firm (5,000 acre-feet)  **7    2.           Class B Firm
(5,000 acre-feet)  $2,400.008 per af9    3.           Space Available Use 
TBD10 

    
G.           Annual Storage Administration Fee
 

  1.           Class A and B Carry-Over Storage Capacity  $20.0011 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 Approval12
$7.5 million13 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 million14 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