Exhibit 10.1
 
CADIZ – LIMONEIRA LEASE

1.  Parties
Cadiz Real Estate LLC (“Cadiz”), a wholly-owned subsidiary of Cadiz Inc., is the
owner of approximately 45,000 acres of land and the subsurface strata, inclusive
of the unsaturated soils and appurtenant water rights (the “Cadiz Property”).
 
Limoneira Company (“Limoneira”) is a publicly traded agribusiness and real
estate development company.
 
2.  Leased Property
A minimum of 320 acres to a maximum of 1,280 acres located within 9,600 zoned
agricultural acres within the Cadiz Property, with the exact location(s) to be
mutually agreed to by the parties, on terms set forth in this Lease (“Leased
Property”).  Within thirty (30) days following the Effective Date, Cadiz will
provide Limoneira a title report that identifies any and all liens recorded
against the Leased Property, and a non-disturbance letter with regard to the
Leased Property.
 
Further, as the parties may mutually agree from time to time during the Term,
housing and other dwelling structures located adjacent to or near the Leased
Property may be included within the “Leased Property” for purposes of housing
Limoneira’s agricultural employees working on the Leased Property.  Terms
associated with such temporary housing facilities shall be agreed to in writing
by the parties.
 
3.  Initial Lease; Option to Lease Additional Acreage
 
Cadiz hereby leases to Limoneira, and Limoneira hereby leases from Cadiz, Three
Hundred Twenty (320) acres (the “Initial Acreage”), the location to be mutually
agreed to by the parties, and subject to the planting schedule described in
Section 5 hereof.  Further, Cadiz hereby grants to Limoneira the right to
exercise an option to lease (beyond the Initial Acreage) up to Six Hundred Forty
(640) acres (“Option 1”), and up to Three Hundred Twenty (320) acres (“Option
2”) (the two options together are collectively referred to as the “Option”);
provided that (a) notice of Limoneira’s exercise of the Option must be in
writing and received by Cadiz no later than December 31, 2016 (for Option 1),
and December 31, 2018 (for Option 2), and the physical planting of the lemon
trees has occurred no later than December 31, 2017 (for Option 1) and December
31, 2019 (for Option 2).
 
Excepting any water or soil contamination that may exist on the Leased Property
as of the Effective Date, Limoneira accepts the Leased Property in its “AS-IS”
condition as of the Effective Date, and in respect to the acreage leased under
the timely exercise of the Option, as of the date of the exercise of the
applicable Option.
 
4.  Effective Date; Lease Term
This Lease shall be effective as of last date this Lease is executed by the
parties hereto as set forth on the signature page (the “Effective Date”), and
shall expire with respect to actual planted acreage twenty (20) years following
the initial planting on such acreage, and no later than December 31, 2039, or as
earlier terminated pursuant to this Lease (the “Term”), with no automatic
renewals, provided, however, that the parties may mutually agree (to be
exercised in each party’s sole discretion) to extend the Term.
 
5.  Use of Leased Property
The Leased Property is leased to Limoneira for the following purpose and for no
other purpose except with the prior written consent of Cadiz, which shall be
exercised by Cadiz in its sole and absolute discretion:
 
§ The planting, growing, and harvesting of lemon trees.
 
Cadiz hereby represents that a conditional use permit from the County of San
Bernardino is not required for the above-described use of the Leased Property.
 
The parties agree that the intent of the parties is for Limoneira to plant, grow
and harvest lemon trees on all of the Leased Property (that is, all 1,280 acres)
by 2019.  Although Limoneira is not obligated to exercise all or any part of the
Option, Limoneira agrees that the Initial Acreage shall be planted with lemon
trees no later than December 31, 2014.
 
Limoneira shall carry on all activities permitted herein in accordance with the
best husbandry and best farming practices and sound management in accordance
with sustainable farming practices and in such a manner that does not degrade
the aquifer underlying the Leased Property.  Limoneira shall not use or permit
the use of the Leased Property for any unlawful purpose or in any way that will
interfere with Cadiz’s use of the portion of its property not included in the
Leased Property.
 
6.  Lease Payment
In consideration for the Lease, Limoneira shall pay to Cadiz or its assignee an
annual amount equal to the sum of (a) $200 per acre planted, prorated for
partial acreages planted during the relevant period (“Base Rent”) and (b) 20% of
the “Net Cash Flow” (“Lease Payment”).  The Lease Payment shall be due and
payable semi-annually on June 30 and December 31 of each year, and shall not
exceed $1,200 per acre per year.  For purposes of this Lease, “Net Cash Flow”
shall mean gross revenues from the sale of the harvested lemons less operating
expenses (including Base Rent but excluding depreciation or other non-cash
expenses).  “Operating expenses” shall include, but not be limited to,
expenditures incurred by Limoneira for farming and growing, frost prevention,
soil treatments, irrigation, harvesting, packing and freight.  Further, the
parties may mutually agree (each exercised in its sole discretion) upon a
characterization that extraordinary non-cash expenses be “operating expenses”
for purposes of calculating Net Cash Flow.
 
7.  Water Infrastructure and Supply
In consultation with Limoneira, Cadiz shall design, develop and construct the
necessary infrastructure in order to supply water to Limoneira for its
irrigation purposes on the Leased Property.  Cadiz shall be responsible for well
maintenance and the delivery of water to the planted acreage through all
subsurface infrastructure, including mains and laterals.  Limoneira shall be
responsible for any deep ripping to the land prior to any planting, if
necessary, and the costs associated with the surface distribution of such water
to the trees through selected drip irrigation.
 
The water supply source for the Leased Property shall be from the Cadiz
Property, and shall be provided by Cadiz to Limoneira for use on the Leased
Property consistent with this Lease at a cost equal to $[*] per acre-foot as
increased (but not decreased) by an escalation equal to the percentage change
(year over year) of the Consumer Price Index for All Urban Consumers, Los
Angeles-Riverside-Orange County, CA, All Items, not seasonally adjusted
(1982-1984=100) (“CPI”) (“Water Cost”), which shall be invoiced by Cadiz and
paid by Limoneira to Cadiz on a quarterly basis.  The maximum water supply to
which Limoneira is entitled shall be 5 acre-feet per acre of the Leased Property
(the “Total Water Allowance,” with actual entitlement based on the number of
acres actually planted being “Planted Water Allowance”).  For illustration
purposes only, if Limoneira has the full 1,280 acres planted, its Planted Water
Allowance shall be 6,400 acre-feet, at a total cost of $[*] + CPI.
 
Any and all water rights initiated or preserved as a result of Limoneira’s use
of water on the Leased Property shall accrue to the benefit of Cadiz.  Cadiz
will be responsible to provide water in quantity and suitability for the
purposes set forth in this Lease.
 
8.  Taxes and Assessments
Cadiz shall pay, when due, all real property, personal property and/or any other
type of tax or assessment relating to the Leased Property, except that Limoneira
shall pay any taxes or assessments attributable to any alterations, additions or
improvements made to the Leased Property by Limoneira or attributable to
Limoneira’s personal property or fixtures.
 
9.  Maintenance and Repairs; Utilities
All farming operations on the Leased Property shall be done at the sole cost and
expense of Limoneira, and Limoneira agrees to keep the Leased Property free and
clear of all liens or claims of any kind for labor or material, and agrees to
keep the Leased Property and the crops thereon free of any labor claims of any
kind or nature.
 
Limoneira agrees that it will not commit any waste or suffer any waste to be
committed on the Leased Property and that at all times during the Term, it will
keep and maintain all improvements now on the Leased Property, or that shall be
constructed on the Leased Property during the Term with the approval of Cadiz,
in as good order, condition and repair as reasonable use and wear thereof will
permit, damage by the elements not traceable to the negligence of Limoneira or
its agents or employees excepted.
 
Limoneira will observe, comply and conform to all laws of the State of
California and all ordinance of the County of San Bernardino, affecting the use
or occupation of the Leased Property, including without limitation all laws and
ordinances relating to the transportation and use of fertilizer and other
chemicals.  Limoneira agrees not to apply pesticides, herbicides, insecticides,
fungicides or other chemical treatments on the Leased Property that may have a
residual effect beyond the Term of the Lease.
 
During the Term, Limoneira will keep and maintain in good order, condition and
repair all subsurface irrigation pipelines, valves and headgates, and other
subsurface structures and pipelines on the Leased Property used for the purposes
of controlling the flow of water within the Leased Property.
 
10.  Insurance
Limoneira agrees to obtain and keep in force during the Term workers’
compensation, general liability and such other insurance coverages as deemed
reasonably necessary by Cadiz to protect against any liability for personal
injury or property damage to the public incident to Limoneira’s use of or
resulting from any accident occurring on or about the Leased Property. Such
policies shall insure any contingent liability of Cadiz and shall name Cadiz as
an additional insured.  Such policies shall also provide for at least twenty
(20) days written notice by the insurer to Cadiz prior to any cancellation or
modification thereof.
 
11.  Cadiz’s Right of Entry and Inspection
Cadiz, its agents or attorneys, shall have the right at all times to enter upon
the Leased Property to inspect, to determine if Limoneira is complying with the
terms of this Lease, and for any other purpose.
 
12.  Cadiz Buy-Out Right
At any time during the Term, Cadiz shall have the right, exercised at any time
and in its sole and absolute discretion, to divert the Total Water Allowance (or
any portion thereof) by paying to Limoneira an amount equal to the sum of (a)
all unamortized capital costs incurred by Limoneira pursuant to its permitted
use of the Leased Property (based on a 20- year amortization schedule) and (b)
30% of such unamortized capital costs (“Cadiz Buy-Out Right”).  In the event
Cadiz exercises the Cadiz Buy-Out Right, Cadiz agrees that it shall not,
directly or allow any third party to, harvest the then-planted lemon trees for
profit on such portion of the Leased Property associated with the Total Water
Allowance (or portion thereof) diverted.
 
13.  Limoneira Tag Right
During the Term, Limoneira shall have the right to convert up to 500 acre-feet
of the Total Water Allowance (proportionately reduced if the Planted Water
Allowance is less than the Total Water Allowance) (the “Tag Right”) to obtain
rights within the permitted 50,000 acre feet of that certain Cadiz Valley Water
Conservation, Recovery, and Storage Project located on the Cadiz Property
overlying the Fenner Valley Aquifer System (the “Project”).
 
Cadiz shall provide Limoneira written notice of any “firm contract” (that is, a
non-contingent contract to sell Project water) within seven (7) days of the
execution of the firm contract.  Limoneira shall have sixty (60) days to
exercise its Tag Right by providing written notice to Cadiz.  See Exhibit A
attached hereto and incorporated herein for an illustration of the Tag Right.
 
Limoneira agrees that if it exercises its Tag Right pursuant to this Section 13,
it shall curtail use of any of the Total Water Allowance on one-fourth (1/4th)
of the acres planted.  For illustration purposes, if 320 acres are planted,
Limoneira’s Tag Right is 125 acre-feet, and if exercised, it is precluded from
using any of the Total Water Allowance on 80 acres, unless other water is deemed
available by Cadiz through the implementation of its Project and an agreement is
reached between Cadiz and Limoneira as to the source and cost of such new water
supply.
 
14.  Default
The occurrence of any one or more of the following events shall constitute a
material default and breach of this Lease by Limoneira (each, a “Limoneira
Default”):
 
§ The failure by Limoneira to make any Lease Payment or any other payment,
including the Water Cost, required to be made by Limoneira under this Lease as
and when due, where such failure shall continue for a period of ten (10) days
after written notice of such failure from Cadiz to Limoneira;
 
§ The failure by Limoneira to observe any of the material covenants, conditions
or provisions of this Lease, other than the payment of money, where such failure
shall continue for a period of twenty (20) days after written notice of such
failure from Cadiz to Limoneira, provided, however, that if the nature of
Limoneira’s default is such that more than twenty (20) days are reasonably
required for its cure, Limoneira continually and diligently prosecutes such cure
to completion.
 
The failure by Cadiz to observe any of the material covenants, conditions or
provisions of this Lease, where such failure shall continue for a period of
twenty (20) days after written notice of such failure from Limoneira to Cadiz,
provided, however, that if the nature of Cadiz’s default is such that more than
twenty (20) days are reasonably required for its cure, Cadiz continually and
diligently prosecutes such cure to completion (“Cadiz Default”).
 
15.  Termination
This Lease shall terminate upon the earliest of the following:
 
§ The expiration of the Term (as to the particular acreage then expiring);
 
§ Upon mutual agreement of the parties for any reason, including, but not
limited to, a determination that the intended use of the Leased Property (that
is, to plant, grow and harvest lemon trees for profit) is or becomes
“economically unviable,” which shall include, without limitation, market or
weather conditions that render the lemon operation unprofitable, the existence
or occurrence of water or soil contamination or pollution, pest infestation,
litigation and injunctions prohibiting or precluding the intended use of the
Leased Property.
 
§ At the option of Cadiz, the occurrence of a Limoneira Default;
 
§ At the option of Limoneira, the occurrence of a Cadiz Default;
 
§ At the option of either party, the occurrence of a “Force Majeure” event,
which for purposes of this Lease shall be defined as the failure of a party to
perform its obligations hereunder by reason of any fire, earthquake, flood,
epidemic, explosion, riot, civil disturbance, act of public enemy or terrorism,
war, act of God or similar event beyond such party’s control, and specifically
with respect to Cadiz’s supply of water pursuant to the terms of this Lease, any
governmental or judicial order to reduce the water volume or flow rate to the
Leased Property;
 
§ Exercise by Cadiz of the Cadiz Buy-Out Right.
 
Upon termination of this Lease, Limoneira shall quit and surrender the Leased
Property to Cadiz in at least as good order, condition and repair as when
received, reasonable use, damage by act of God or by natural causes excepted,
remove all of Limoneira’s personal property and fixtures from the Leased
Property (excepting planted lemon trees), and repair any damage caused by such
removal.  Limoneira shall promptly execute, acknowledge and deliver to Cadiz
such instruments of further assurance as in the reasonable opinion of Cadiz are
necessary or desirable to confirm or perfect Cadiz’s rights, title and interest
in and to the Leased Property.  The provisions of this paragraph shall survive
the expiration or termination of this Lease.  Upon termination, Limoneira shall
have no further right or interest in or to the Leased Property or any part
thereof.
 
In the event the Lease is terminated due to Cadiz’s exercise of the Cadiz
Buy-Out Right or the occurrence of a Cadiz Default, Cadiz hereby agrees that it
shall not, directly or allow any third party to, harvest the then-planted lemon
trees for profit.
 
16.  Indemnification
Cadiz shall not be liable in any manner for any loss, damage or injury to any
person or the property of Limoneira or that of its agents or employees, or to
any other person(s) or the property of such person(s) invited or permitted by
Limoneira to come upon or about the Leased Property, or to any other person(s)
who enters upon or about the Leased Property whether invitees, by trespass or
otherwise, by reason of anything done, permitted to be done or suffered or
admitted to be done, by Limoneira or its agents or employees or
otherwise.  Limoneira agrees to indemnify and save harmless Cadiz, its officers,
directors, agents, employees, successors and assigns from any and all such
liability, damage, cost and expense, to protect Cadiz against any claim that may
be made, or action that may be brought against Cadiz, and pay all reasonable
costs and expenses of such protection and defense.
 
Cadiz agrees to indemnify and save harmless Limoneira, its officers, directors,
agents, employees, successors and assigns from any and all liability, damage,
cost and expense suffered by Limoneira directly resulting from contamination of
the Leased Property or the water supplied by Cadiz hereunder, provided that such
contamination is caused by an agent or employee of Cadiz.  Cadiz further agrees
to indemnify and save harmless Limoneira, its officers, directors, agents,
employees, successors and assigns from any and all liability, damage, cost and
expense suffered by Limoneira (including reasonable attorneys’ fees and costs)
directly resulting from actions or causes of actions against Cadiz and Limoneira
that seek to prevent, enjoin or otherwise prohibit Limoneira from its intended
use of the Leased Property.
 
17.  Attorneys’ Fees
If either Limoneira or Cadiz has to institute legal proceedings of any kind or
character to compel performance of any of the covenants or conditions to be
paid, kept or performed under this Lease, the party recovering judgment shall
have and recover all attorneys’ fees and costs incurred in connection with any
such legal proceedings.
 
18.  Binding Nature; General Provisions
 
The provisions of this Lease shall be binding upon the parties and their
successors and permitted assigns commencing on the date last set forth the
parties’ signatures.  Limoneira shall not assign this Lease or sublet the Leased
Property without the prior written consent of Cadiz which shall be exercised in
Cadiz’s sole and absolute discretion.
 
The validity and interpretation of this Lease shall be governed by the laws of
the State of California.
 
All individuals executing this Lease on behalf of the respective parties
represent and warrant that they have the capacity and have been duly authorized
to so execute the same.  Each signatory shall indemnify each other party, and
hold them harmless, from all damages, costs, attorneys’ fees and other expenses
if not so authorized.
 
Any and all notices shall be given by a party to the other party in writing by
delivery of such notice to such party personally or by certified or registered
mail addressed to the party as set forth on the signature page of this Lease or
such other address as delivered to the other party pursuant to this
paragraph.  In the case of notices by mail, notice shall be deemed to have been
received forty-eight (48) hours after the date of deposit in the United States
mail.
 
No waiver of any breach of any of the covenants, agreements, restrictions and
conditions of this Lease shall be construed to be a waiver of any succeeding
breach of the same or other covenants, agreements, restrictions or conditions.
 
No remedy shall be exclusive but shall, wherever possible, be deemed cumulative
with all other remedies at law or in equity.
 
Time is of the essence in respect to the terms and provisions of this Lease.
 
Neither party will issue any public statement with respect to the existence of
this Lease or its contemplated transactions, nor will either party use the other
party’s names or trademarks, without the other party’s prior written consent.
 
Each party agrees to cooperate in the performance of this Lease and to execute
and deliver any and all documents and perform any and all acts necessary to
carry out its purpose and intent.
 
Nothing contained in this Lease shall create a partnership, joint venture or
employment relationship between Cadiz and Limoneira.  Neither party shall be
liable, except as otherwise expressly provided for in this Lease, for any
obligations or liabilities incurred by the other party.
 

 
 

 

Dated:  July 1, 2013  CADIZ REAL ESTATE LLC            By:  /s/  Courtney
Degener for Tim Shaheen     Its:  Chief Financial Officer              Address: 
550 South Hope Street        Suite 2850        Los Angeles, CA  90071         
Dated: July 1, 2013 LIMONEIRA COMPANY             By:  /s/ Harold Edwards    
Its:  Chief Executive Officer              Address:  1141 Cummings Road       
Santa Paula, CA  93060 

 

Exhibit A
 
Sample Calculation of Tag-A-Long Price Provision

Valuation: $10,962,398 (2015)
Assumptions
·  
Price in 2013: $500 per acre foot

·  
Annual rate of increase of MWD’s Untreated Full Service Tier 1 Water Rate: 6.2%
(based on cumulative annual increase from 2003-2012)

·  
Interest Rate: 6.5%

o  
Yield on 10-Year Treasury Note: 4.5% (long-term real interest rate of 2% plus
expected inflation of 2.5% based on differential between nominal yield on
10-Year Treasury Note and yield on 10-Year Treasury Inflation Protected
Securities, “TIPS”)

o  
Risk premium: 2.0% (expected life 50 years)

50-Year Projections
Year
 
Price
   
Quantity
   
Revenues
   
Year
   
Price
   
Quantity
   
Revenues
 
2015
  $ 500.00       500     $ 250,000       2040     $ 2,249.48       500     $
1,124,740  
2016
  $ 531.00       500     $ 265,500       2041     $ 2,388.95       500     $
1,194,475  
2017
  $ 563.92       500     $ 281,960       2042     $ 2,537.07       500     $
1,268,535  
2018
  $ 598.89       500     $ 299,445       2043     $ 2,694.37       500     $
1,347,185  
2019
  $ 636.02       500     $ 318,010       2044     $ 2,861.42       500     $
1,430,710  
2020
  $ 675.45       500     $ 337,725       2045     $ 3,038.82       500     $
1,519,410  
2021
  $ 717.33       500     $ 358,665       2046     $ 3,227.23       500     $
1,613,615  
2022
  $ 761.80       500     $ 380,900       2047     $ 3,427.32       500     $
1,713,660  
2023
  $ 809.03       500     $ 404,515       2048     $ 3,639.81       500     $
1,819,905  
2024
  $ 859.19       500     $ 429,595       2049     $ 3,865.48       500     $
1,932,740  
2025
  $ 912.46       500     $ 456,230       2050     $ 4,105.14       500     $
2,052,570  
2026
  $ 969.04       500     $ 484,520       2051     $ 4,359.66       500     $
2,179,830  
2027
  $ 1,029.12       500     $ 514,560       2052     $ 4,629.96       500     $
2,314,980  
2028
  $ 1,092.92       500     $ 546,460       2053     $ 4,917.02       500     $
2,458,510  
2029
  $ 1,160.68       500     $ 580,340       2054     $ 5,221.87       500     $
2,610,935  
2030
  $ 1,232.64       500     $ 616,320       2055     $ 5,545.63       500     $
2,772,815  
2031
  $ 1,309.07       500     $ 654,535       2056     $ 5,889.46       500     $
2,944,730  
2032
  $ 1,390.23       500     $ 695,115       2057     $ 6,254.60       500     $
3,127,300  
2033
  $ 1,476.42       500     $ 738,210       2058     $ 6,642.39       500     $
3,321,195  
2034
  $ 1,567.96       500     $ 783,980       2059     $ 7,054.22       500     $
3,527,110  
2035
  $ 1,665.18       500     $ 832,590       2060     $ 7,491.58       500     $
3,745,790  
2036
  $ 1,768.42       500     $ 884,210       2061     $ 7,956.05       500     $
3,978,025  
2037
  $ 1,878.06       500     $ 939,030       2062     $ 8,449.33       500     $
4,224,665  
2038
  $ 1,994.50       500     $ 997,250       2063     $ 8,973.19       500     $
4,486,595  
2039
  $ 2,118.16       500     $ 1,059,080       2064     $ 9,529.53       500     $
4,764,765