Note 3 - Long-Term Debt

3 Months Ended

Sep. 30, 2011

NOTE 3 – LONG-TERM DEBT

The carrying value of the Company's debt, before discount, approximates fair value, based on interest rates available to the Company for debt with similar terms.

At September 30, 2011, and December 31, 2010, the carrying amount of the Company’s outstanding debt is summarized as follows (in thousands):

	September 30,			December 31,
	2011			2010

Zero coupon secured convertible term loan due June 29, 2013. Interest accruing at 5% per annum until June 29, 2009 and at 6% thereafter	$	55,817		$	51,412
Other loans		8			20
Debt discount, net of accumulated accretion		(5,300	)		(7,013	)
		50,525			44,419

Less current portion		8			16

	$	50,517		$	44,403

Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on September 30, 2011, are as follows:

12 Months Ending September 30	(in thousands)

2012		8
2013		55,817
2014		-
	$	55,825

In June 2006, the Company entered into a $36.4 million five year zero coupon convertible term loan with Peloton Partners LLP, as administrative agent for the loan, and with an affiliate of Peloton and another investor, as lenders. Certain terms of the loan were subsequently amended pursuant to Amendment #1 to the Credit Agreement, which was effective September 2006. On April 16, 2008, the Company was advised that Peloton had assigned its interest in the loan to an affiliate of Lampe Conway & Company LLC (“Lampe Conway”), and Lampe Conway subsequently replace Peloton as administrative agent of the loan (the “Term Loan”). On June 4, 2009, the Company completed arrangements to amend the Term Loan with Lampe Conway which modified certain of the conversion features and extended the maturity date to June 29, 2013.

On October 19, 2010 (“Closing Date”), the Company entered into a new $10 million working capital facility with Lampe Conway and other participating lenders (“the Lenders”). The Company drew the first $5 million on the Closing Date (“First Tranche”). The Company was also granted the option to draw up to an additional $5 million over the 12 months following the Closing Date (“Second Tranche”), of which $2 million was drawn on June 30, 2011. No further draws were made on this new facility prior to its expiration. All interest on outstanding balances accrue at 6%, with no principal or interest payments required before the new facility’s June 29, 2013 maturity date, consistent with the Company’s existing term debt facility.

The First Tranche (including accrued interest) is convertible at any time into the Company’s common stock at a price of $13.50 per share and the Second Tranche (including accrued interest) is convertible into the Company’s common stock at $12.50 per share.

Also on the Closing Date, the Company’s existing Term Loan with the Lenders was modified as to certain of its conversion features:

·	$20.62 million of the existing convertible debt has been changed to allow for up to $2.5 million of this amount to be converted at any time into the Company’s common stock at the price of $13.50 per share, with the remaining amount becoming non-convertible.

·	If the Second Tranche were to be drawn in full, approximately $20 million of additional existing debt would be changed to allow for up to $5 million of this amount to be converted at any time into the Company’s common stock at $12.50 per share, with the remaining amount becoming non-convertible.

·	The final $4.55 million of the existing debt continues to be convertible at $7 per share.

On June 30, 2011, $2 million of the $5 million available Second Tranche was drawn. As a result of the Second Tranche draw, $4 million of the outstanding loan became convertible into 320,000 shares of Cadiz common stock. Further, approximately $10 million of the loan that was previously convertible into approximately 290,000 shares of Cadiz common stock is no longer convertible.

The Term Loan is collateralized by substantially all of the assets of the Company, and contains representations, warranties and covenants that are typical for agreements of this type, including restrictions that would limit the Company’s ability to incur additional indebtedness, incur liens, pay dividends or make restricted payments, dispose of assets, make investments and merge or consolidate with another person. However, while there are affirmative covenants, there are no financial maintenance covenants and no restrictions on the Company’s ability to issue additional common stock to fund future working capital needs.

As a result of the modifications of the convertible debt arrangements in June 2009 and October 2010, the change in conversion value between the original and modified instrument totaling approximately $3.2 million was recorded as additional debt discount with an offsetting amount recorded as additional paid-in capital. Such debt discount is accreted to the redemption value of the instrument over the remaining term of the loan as additional interest expense. In connection with the modification transaction in October 2010, the Company recorded a derivative liability related to the conversion option. The fair value of the derivative liability was marked-to-market at the end of each reporting period and recorded as other income (expense). On July 25, 2011, the Company entered into an amendment to the facility eliminating the availability to the Company of the unused $3 million portion of the facility. As a result, the conversion option related to the unused portion of the facility no longer exists and a derivative liability is no longer being recorded.