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Item
1.01
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Entry
into a Material Definitive Agreement.
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Entry
into Credit Agreement
On
May 1, 2017 (the “Signing Date”), Cadiz Inc. (the “Company”) and its wholly-owned subsidiary Cadiz Real
Estate LLC (collectively, the “Borrowers”), entered into a $60,000,000 Credit Agreement (the “Credit Agreement”)
with Apollo Special Situations Fund, L.P. (“Apollo”, and together with the other lenders from time to time party to
the Credit Agreement, the “Lenders”), and Wells Fargo Bank, National Association, as agent for the Lenders (the “Agent”),
pursuant to which the Lenders will make secured term loans to the Borrowers (the “Loans”) in an aggregate principal
amount of $60,000,000 (the “Loan Transaction”) on a closing date scheduled to occur no later than 34 business days
from the Signing Date unless another date is agreed to in writing by the parties to the Credit Agreement (the “Closing Date”).
Interest
on the Loans will be 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 Loans will (i) accrete to the outstanding principal amount of the Loans at a rate
per annum equal to 6% (the “PIK Rate”) compounded quarterly on each Interest Date from and including the Closing Date
through but excluding the date of payment or prepayment and (ii) accrue on the outstanding principal amount of the Loans at a
rate per annum equal to 2% (the “Cash Rate”) from and including the Closing Date through but excluding the date of
payment or prepayment. The Borrowers, in their 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 of the Loans at the PIK Rate.
The
Loans will mature on the earliest of (a) the four year anniversary of the Closing Date, and (b) the “Springing Maturity
Date”, which is defined as the date which is 91 days prior to the maturity date of the 7.00% Convertible Senior Notes of
Cadiz due 2020 (the “New Convertible Notes”) that were issued on or around December 10, 2015 and April 28, 2016 pursuant
to the New Convertible Notes Indenture, as defined in the Credit Agreement, if on the 91
st
day preceding the maturity
date of the New Convertible Notes, the 5-Day VWAP, as defined in the Credit Agreement, is less than 120% of the then applicable
Conversion Rate, as defined in the New Convertible Notes Indenture, and at least $10,000,000 in original principal amount of the
New Convertible Notes is outstanding ((a) or (b), as applicable, the “Maturity Date”).
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 Loans (a) the Accreted Loan Value of the Loans being prepaid or repaid, as applicable, multiplied
by (b) 3.00%.
The
Borrowers may prepay the Loans, 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 Borrowers may not prepay the Loans, without the prior
written consent of the holders of more than 50% of the aggregate unpaid principal amount of the Loans, during the period commencing
on the date that is 91 days prior to the maturity date of the New Convertible Notes and ending on the maturity date of the New
Convertible Notes.
If
all or a portion of the principal of or interest on any Loan or any fee or other amount payable by the Borrowers is not paid when
due (whether at the stated maturity, by acceleration or otherwise, after the expiration of any applicable grace period), all outstanding
amounts (whether or not overdue) will bear interest at a rate per annum equal to the sum of the PIK Rate and the Cash Rate plus
2.00%.
Subject
to an exception for the sale of certain designated property (the “Approved Property”), in the event of any Asset Sale,
as defined in the Credit Agreement, the Borrowers must, within five business days after the receipt of Net Cash Proceeds, as defined
in the Credit Agreement, apply the Net Cash Proceeds of the Asset Sale first to prepay all amounts due under the Loans and the
Applicable Prepayment Premium thereon. Notwithstanding the foregoing and subject to certain requirements set forth in the Credit
Agreement, the Borrowers may (i) retain up to 50% of the first $10,000,000 of Net Cash Proceeds from the sale of the Approved
Property for working capital and general corporate purposes and (ii) retain any additional Net Cash Proceeds from the sale of
the Approved Property provided that the Borrowers deposit such additional Net Cash Proceeds in an account under the control of
the Lenders and such additional Net Cash Proceeds are used to pay cash interest on the Loans on each Interest Date or otherwise
prepay the Loans to the extent not used to pay interest.
Any
prepayment made by the Borrowers and any payment made in the event of the Asset Sale will be applied (i) first, to pay all outstanding
fees and other amounts owed to the Agent and (ii) second, on a pro rata basis, to all amounts due under the Loans and the Prepayment
Premium thereon.
The
Borrowers will pay to the Agent on the Closing Date for the ratable benefit of the Lenders an upfront fee of 2.00% of the aggregate
principal amount of the Loans funded on the Closing Date. The Borrowers also agreed to pay the Agent all fees specified in the
agency fee letter which will be dated as of the Closing Date in the amounts and at the times specified therein.
The
Borrowers must use the proceeds of the Loans as follows: (i) approximately $45,000,000 to fund the refinancing of the Amended
and Restated Credit Agreement, dated as of October 30, 2013 (as amended prior to the Signing Date), among the Borrowers, the lenders
party thereto and the Agent, and (ii) approximately $15,000,000 for the purpose of financing, in part, the cost of construction
or improvement of the Qualified Water Project, as defined in Item 8.01 below, including out-of-pocket costs and expenses incurred
by the Borrowers or any of their subsidiaries in connection with such construction or improvement.
The
Credit Agreement includes customary representations and warranties and affirmative and negative covenants made by the Borrowers.
The Credit Agreement also includes standard and customary events of default that include, but are not limited to, failure to pay
the Loans as required by the Credit Agreement; a material inaccuracy of one or more of the Borrowers’ representations or
warranties; certain events of default in other of the Borrowers’ material agreements or commitments; the entry of a judgment
against the Borrowers involving in the aggregate a liability (not paid or fully covered by insurance as to which the relevant
insurance company has acknowledged coverage) of $500,000 or more; any of the documents securing the Loans cease, for any reason,
to be in full force and effect or any lien created by any of the documents securing the Loans ceases to be enforceable and of
the same effect and priority purported to be created thereby; or a Change of Control as defined in the Credit Agreement.
Issuance
of Warrants
In connection with entering into the Credit Agreement, on the Closing Date the Company will issue to the Lenders,
in accordance with their respective pro rata interests of the Loans, warrants to purchase an aggregate 357,500 shares of its common
stock (that may, subject to agreement by the parties, be increased to warrants for the purchase of an aggregate 362,500 shares
of its common stock). The warrants will be offered to the Lenders pursuant to an effective registration statement on Form S-3 (File
No. 333-214318). The shares of common stock underlying the warrants will be offered under such foregoing or similar registration
statement, as available at exercise, as applicable.
The
warrants will have 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. The exercise price
of the warrants will be reduced based on a weighted average formula in the following instances:
(i) if,
at any time after the warrants are issued, the Company issues any shares of common stock, options to purchase or rights to subscribe
for common stock, securities by their terms convertible into or exchangeable for common stock, or options to purchase or rights
to subscribe for such convertible or exchangeable securities without consideration or for consideration per share less than the
greater of (x) the exercise price in effect immediately prior to the issuance of such common stock or securities and (y) the Fair
Market Value (as defined in the warrants) per share of common stock immediately prior to such issuance, or
(ii) if
the Company directly or indirectly redeems, purchases or otherwise acquires any shares of its common stock, options to purchase
or rights to subscribe for its common stock, securities by their terms convertible into or exchangeable for shares of its common
stock, or options to purchase or rights to subscribe for such convertible or exchangeable securities, for a consideration per
share (plus, in the case of such options, rights, or securities, the additional consideration required to be paid to the Company
upon exercise, conversion or exchange) greater than the Fair Market Value per share of common stock immediately prior to the earlier
of (x) the announcement of such event or (y) such event.
The
exercise price may be paid (i) with cash, (ii) by instructing the Company to withhold a number of shares of common stock then
issuable upon exercise of the warrant with an aggregate Fair Market Value equal to the exercise price, (iii) by surrendering to
us shares of common stock previously acquired by the warrant holder with an aggregate Fair Market Value equal to the exercise
price, or (iv) any combination of the foregoing.
A
warrant holder generally will not receive shares of our common stock upon exercise of a warrant to the extent that such exercise
or receipt would cause the warrant holder (or the “Holder Group”, as defined in the warrants) to, directly or indirectly,
beneficially own a number of shares of common stock that exceeds 4.99% of the outstanding shares of our common stock, which percentage
may be increased or decreased by the warrant holder. In no event, however, may the warrant holder increase the beneficial ownership
limitation in excess of 19.99% as of any date from the date of the warrant through the expiration date of the warrant.
The
Security Agreement
On
the Closing Date, the Borrowers will enter into a Security Agreement and Mortgage in the forms attached as exhibits to the Credit
Agreement whereby the Borrowers will grant, for the benefit and security of the Lenders, a security interest in all of the property
owned or at any time acquired by the Borrowers as collateral security for the prompt and complete payment and performance when
due (whether at the stated maturity, by acceleration or otherwise) of the Borrower Obligations and each Loan Party’s Obligations,
each as defined in the form of Security Agreement. The form of Security Agreement also includes customary representations and
warranties, covenants and remedial provisions.
The
discussion above does not purport to be a complete description of the Credit Agreement, the warrants, the Security Agreement or
deed of trust described in this Current Report and discussion of each is qualified in its entirety by reference to the full text
of such document, each of which is attached as an exhibit to this Current Report (or as an exhibit to the Credit Agreement) and
is incorporated herein by reference.