NOTE

– LONG-TERM DEBT

AND LEASE OBLIGATION

December

31,

2016

and

2015,

the carrying amount of the Company’s outstanding debt is summarized as follows (dollars in thousands):

	December 31,
	2016			2015

Senior secured debt due September 28, 2019
Interest accrues at 8% per annum	$	43,550		$	51,815
Convertible note instrument due March 5, 2018
Interest accrues at 7% per annum		2,154			4,018
Convertible note instrument due March 5, 2020
Interest accrues at 7% per annum		66,800			59,804
Lease Obligation		12,755			-
Other loans		144			193
Debt discount and debt issuance costs, net of accumulated accretion		(10,572	)		(7,564	)
		114,831			108,266

Less current portion		170			48

	$	114,661		$	108,218

The carrying value of the Company’s debt approximates fair value. The fair value of the Company’s debt (Level

is determined based on an estimation of discounted future cash flows of the debt at rates currently quoted or offered to the Company by its lenders for similar debt instruments of comparable maturities by its lenders.

Pursuant to the Company’s loan agreements, annual maturities of long-term debt outstanding on

December

31,

2016,

are as follows:

Year Ending December 31	($ in thousands)

2017	$	45
2018		2,195
2019		43,593
2020		66,815
2021+		12,755
Total Debt Outstanding	$	125,403

Credit Agreement

November

2015,

the Company entered into a First Amendment to the Credit Agreement (“First Amendment”) with its senior lenders which granted it the right to extend the maturity date of the

first

tranche of its Senior Secured Debt (“First Mortgage”) from

March

2016

June

2017,

which is concurrent with the existing due date of the

second

tranche of the Senior Secured Debt. In consideration of this right, the Company paid its senior lenders an amendment fee of

$2.25

million in additional debt.

February

2016,

the Company entered into a lease agreement with Fenner Valley Farms LLC (“FVF”) (the “lessee”), a subsidiary of Water Asset Management LLC, a related party, pursuant to which FVF is leasing, for a

-year term,

2,100

acres owned by Cadiz in San Bernardino County, California, to be used to plant, grow and harvest agricultural crops (“FVF Lease Agreement”). As consideration for the lease, FVF paid the Company a

one

-time payment of

$12.0

million upon closing.

Under the FVF Lease Agreement, the Company has a repurchase option to terminate the lease at any time during the

twenty

(20)

year period following the effective date of the lease ("Termination Option Period") upon

(1)

repayment of the

one

-time

$12

million lease payment plus a

ten

percent

(10%)

compounded annual return (provided that the amount of such payment shall be not less than

$14,400,000),

(2)

reimbursement of water-related infrastructure on the leased property plus

per annum as well as the actual costs of any farming-related infrastructure installed on the leased property and

(3)

reimbursement of certain pipeline-related development expenses, working in coordination with Cadiz, not to exceed

$3,000,000

(such payments, the "

Termination Payments

"). If (x) Cadiz does not exercise its termination right within such

-year period or (y) the Agent under Cadiz's credit agreement declares an event of default under Cadiz's Senior Secured Debt and accelerates the indebtedness due and owing thereunder by Cadiz (or such indebtedness automatically accelerates under the terms of Cadiz's Senior Secured Debt), then the lessee

may

purchase the leased property for

$1.00.

The Company has recorded the

one

-time payment of

$12

million, before legal fees, paid by FVF as a long-term lease liability. The Company's consolidated statement of operations reflects a net charge equal to a

10%

finance charge compounding annually over the

-year Termination Option Period. The net charge to the consolidated statement of operations reflects

(1)

rental income associated with the use of the land by FVF over the

-year termination option period and

(2)

interest expense at a market rate reflective of a

-year secured loan transaction. As a result of this transaction, the Company incurred approximately

$490

thousand of legal fees which was recorded as a debt discount and is being amortized over the

-year Termination Option Period.

Also on

February

2016,

the Company entered into a Second Amendment to the Credit Agreement (“Second Amendment”) with its senior lenders to (i) provide for the application of

$10.5

million of a

$12.0

million payment pursuant to the FVF Lease Agreement which satisfied the repayment condition of the First Amendment to extend the maturity date; (ii) to require Cadiz to pay

50%

of all future quarterly interest payments in cash, rather than in accretion to principal, beginning with the quarterly interest payment due

June

2016;

and (iii) to provide for certain related matters. On

February

25,

2016,

the Company exercised its right to extend the maturity date of its First Mortgage and, at that time, incurred an additional extension fee of

$2.25

million. The Second Amendment does not constitute a troubled debt restructuring and was accounted for as a debt extinguishment. The fair value of the credit facility was recorded at face value. The Company recorded a loss on extinguishment in the amount of

$2.25

million which consisted of the additional extension fee. On

March

2016,

the Company entered into a Third Amendment to the Credit Agreement which provided the lenders an additional

days to make the election to receive the extension fee in additional debt or Cadiz common stock in exchange for extending the due date of its Senior Secured Debt from

June

30,

2017

September

28,

2017.

May

2016,

the lenders elected to receive the extension fee in Cadiz common Stock

November

29,

2016,

the Company entered into a Fifth Amendment to the Credit Agreement (“Fifth Amendment) with its senior lenders to (i) extended the maturity date of its Secured Senior Debt from

September

2017

September

2019

and (ii) permit the Company to satisfy the cash interest payment obligations through the issuance of shares of the Company’s common stock. In connection with the Fifth Amendment, the Company issued to its senior lenders an aggregate of

357,500

shares of the Company’s common stock and warrants to purchase an aggregate of

357,500

shares of its common stock. The Company recorded a debt discount in the amount of

$3.4

million which is the fair value of the

357,500

shares issued. Such debt discount is accreted over the remaining term of the loan. The warrants generally have a

five

-year term and an exercise price of

$0.01

per share, and become exercisable on

May

28,

2017.

The warrants will be valued at the time they become exercisable which could trigger extinguishment accounting and result in a loss on extinguishment. Interest on the Senior Secured Debt will continue to accrue at

Convertible Notes

April

26,

2016,

the Company entered into a note purchase agreement with new and existing investors (the "Investors"). On

April

28,

2016,

pursuant to the agreement, the Company issued approximately

$10.0

million of its

7.00%

Convertible Senior Notes due

2020

(“2020

Notes)in aggregate principal and accrued interest. The proceeds from the issuance of the

2020

Notes to the Investors (such

2020

Notes, the "New Notes"), approximately

$8.0

million before fees and expenses, are being used for general working capital purposes.

The

2020

Notes accrue interest at

7.00%

per year, with no principal or interest payments due prior to maturity on

March

2020.

The

2020

Notes, including original principal and accrued interest, are convertible at any time into the Company's common stock at a price of

$6.75

per share, pursuant to the terms of the Indenture dated as of

December

10,

2015,

by and between the Company and U.S. Bank National Association (the "Indenture"), under which the New Notes were issued. As a result of this transaction, the Company recorded a debt discount in the amount of

$2.0

million which is the difference between the proceeds from this transaction and the principal and accrued interest of New Notes on the day of the issuance. In addition, based on the conversion rate of

$6.75

per share, the fair value of the shares receivable on conversion exceed the

$8.0

million in net proceeds; therefore, a beneficial conversion feature was recorded in the amount of

$1.48

million. This amount was recorded as additional debt discount with a corresponding 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. Furthermore, the Company incurred

$400

thousand in placement agent fees which was recorded as additional debt discount and is being amortized over the remaining term of the loan.

In connection with issuing the New Notes, the Company entered into a First Supplemental Indenture to the Indenture, dated as of

April

28,

2016,

by and between the Company and U.S. Bank National Association.

The Senior Secured Debt and the convertible notes contain 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 covenants and no restrictions on the Company's ability to issue additional common stock to fund future working capital needs. At

December

31,

2016,

the Company was in compliance with its debt covenants.