NOTE

– LONG-TERM DEBT

AND LEASE OBLIGATION

December 31, 2018

and

2017,

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

	December 31,
	201 8			201 7

Senior secured debt due May 25, 2021	$	67,401		$	62,701
Interest accrues at 8% per annum
Convertible note instrument due March 5, 2018		-			1,371
Interest accrues at 7% per annum
Convertible note instrument due March 5, 2020		73,158			69,488
Interest accrues at 7% per annum
Lease Obligation		14,831			13,720
Other loans		104			160
Debt discount and debt issuance costs, net of accumulated accretion		(4,778	)		(8,988	)
		150,716			138,452

Less current portion		59			1,408

	$	150,657		$	137,044

The carrying value of the Company’s Senior Secured Debt approximates fair value. The fair value of the Company’s Senior Secured 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.

The fair value of the Company’s convertible debt exceeds its carrying value of approximately

$71.0

million, which includes accreted interest, by approximately

$42.2

million due to the increased value of its conversion feature. The conversion feature’s fair value increases as the Company’s common stock price increases. The fair value of the conversion feature (Level

) is determined using the Black-Scholes model. Significant inputs to the model were the conversion price (

$6.75

), the number of shares of common stock that could be acquired upon conversion as of

December 31, 2018,

the Company’s stock price as of

December 31, 2018

$10.30

and stock volatility of

40%,

which was determined using our publicly-traded stock price over the last

1.2

years.

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

December 31, 2018,

are as follows:

Year Ending December 31	($ in thousands)

2019	$	59
2020		73,189
2021		67,416
2022		-
2023+		14,830
Total	$	155,494

Credit Agreement

May 25, 2017 (

“Closing Date”), the Company entered into a new

$60

million credit agreement with funds affiliated with Apollo that replaced and refinanced the Company’s then existing

$45

million senior secured mortgage debt and provided

$15

million of new senior debt to fund immediate construction related expenditures. The Senior Secured Debt will mature on the earlier of (a)

March 5, 2021,

or (b) the “Springing Maturity Date” that is

days prior to the maturity date of the

7.00%

Convertible Senior Notes of Cadiz due

2020

(the “Convertible Senior Notes”), which is

March 5, 2020.

However, the Company has entered into option agreements with parties holding

95%

of the Convertible Senior Notes that allow the Company, at its sole option, at any time prior to

December 5, 2019

to extend the maturity date of the Convertible Senior Notes to

September 5, 2021. (

see Note

13,

“Subsequent Events”). The Springing Maturity Date is only applicable if at that time (a) there is at least

$10.0

million of original, outstanding principal related to the Convertible Senior Notes, and (b) the

-Day VWAP, as defined in the Credit Agreement, is less than

120%

of the

$6.75

per share conversion rate ((a) or (b), as applicable, the “Maturity Date”).

The proceeds from the Credit Agreement were used to repay the then existing senior secured mortgage debt resulting in a loss on extinguishment of

$3.5

million which consisted of the write-off of unamortized debt discount, unamortized debt issuance costs and fees paid to the former lenders. In addition, the Company incurred

$1.5

million in legal and finders’ fees which was recorded as additional debt discount and is being amortized through

December 2019,

which is the Springing Maturity Date as discussed above.

Interest on the Senior Secured Debt is due quarterly on each

March 31,

June 30,

September 30

and

December 31 (

each an “Interest Date”) beginning on

June 30, 2017.

Interest on the Senior Secured Debt will (i) accrete to the outstanding principal amount at a rate per annum equal to

(the “PIK Rate”) compounded quarterly on each Interest Date and (ii) accrue on the outstanding principal amount at a rate per annum equal to

(the “Cash Rate”). The Company, in its discretion,

may

make any quarterly interest payment in cash on the applicable Interest Date at the PIK Rate, in lieu of accretion of such interest to the principal amount at the PIK Rate.

The Accreted Loan Value plus the Applicable Prepayment Premium will be due and payable on the Maturity Date. “Accreted Loan Value” means, as of the date of determination, the outstanding principal amount of the applicable Loan, plus all accreted interest as of the calendar day immediately prior to such date of determination. “Applicable Prepayment Premium” means with respect to any repayment of the Senior Secured Debt (a) the Accreted Loan Value of the Senior Secured Debt being prepaid or repaid, as applicable, multiplied by (b)

3.00%.

The Company

may

prepay the Senior Secured Debt, in whole or in part, for an amount equal to the Accreted Loan Value plus the Applicable Prepayment Premium; provided that if the Springing Maturity Date has

not

occurred, the Company

may

not

prepay the Senior Secured Debt, without the prior written consent of the holders of more than

50%

of the aggregate unpaid principal amount of the Senior Secured Debt, during the period commencing on the date that is

days prior to the maturity date of the Convertible Senior Notes and ending on the maturity date of the Convertible Senior Notes.

The Company paid Apollo an upfront fee of

2.00%

of the aggregate principal amount of the Senior Secured Debt funded on the Closing Date. This amount was recorded as additional debt discount and is being amortized over the remaining term of the loan.

In conjunction with the closing of the Senior Secured Debt, the Company issued to Apollo a warrant to purchase an aggregate

362,500

shares of its common stock (

“2017

Warrant”). The Company recorded a debt discount at the time of the closing of the Senior Secured Debt in the amount of

$2.9

million which was the fair value of the

2017

Warrant issued. The debt discount is being amortized through

December 2019,

which is the Springing Maturity Date as discussed above. The fair value of the

2017

Warrant derivative liability is remeasured each reporting period, and the change in fair value is recorded as an adjustment to the derivative liability with unrealized gains or losses reflected in interest expense. The warrant has a

five

-year term and an exercise price of

$14.94

per share, subject to adjustment for corporate actions including, but

not

limited to, stock dividends, stock splits, reverse stock splits, corporate reorganizations and mergers.

Total unrealized gains of

$1.5

million for warrant liabilities accounted for as derivatives have been recorded in interest expense in the year ended

December 31, 2018.

Convertible Notes

April 26, 2016,

the Company entered into a note purchase agreement with new and existing investors (the "Investors"), pursuant to which the Company issued approximately

$10.0

million of its

7.00%

Convertible Senior Notes due

2020

(“Convertible Senior Notes”) in aggregate principal and accrued interest. The proceeds from this issuance of the Convertible Senior Notes to the Investors (such Convertible Senior Notes, the "New Notes"), approximately

$8.0

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

The Convertible Senior Notes accrue interest at

7.00%

per year, with

principal or interest payments due prior to maturity on

March 5, 2020.

However, the Company entered into option agreements with parties holding

95%

of its Convertible Senior Notes that allow the Company, at its sole option, at any time prior to

December 5, 2019,

to extend the maturity date of the Convertible Senior Notes to

September 5, 2021 (

see Note

13,

“Subsequent Events”). The Convertible Senior 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 was 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 Company’s Senior Secured Debt and its Convertible Senior 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

financial maintenance covenants and

restrictions on the Company’s ability to issue additional common stock to fund future working capital needs. The debt covenants associated with the Senior Secured Debt were negotiated by the parties with a view towards the Company’s operating and financial condition as it existed at the time the agreements were executed. At

December 31, 2018,

the Company was in compliance with its debt covenants.

Lease Obligation

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

(

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

) 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

), (

) 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 (

) reimbursement of certain pipeline-related development expenses, working in coordination with Cadiz,

not

to exceed

$3,000,000

(such payments, the " Termination Payments "). If (

) 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 (

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

-year termination option period and (

) 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.