Item
1.01 Entry into a Material Definitive Agreement.
On
April 18, 2024, Cadiz Inc. (the “Company” or “Cadiz”) and Fenner Gap Mutual Water Company entered into a
water supply agreement with Solstra Communities California LLC (“Solstra”), a California limited liability company and the
owner of private land in southern California pursuing the development of up to 4,000 workforce housing units and ancillary commercial
infrastructure (“Solomon Hills”) that would serve the Vandenburg Air Force Base community (“Solstra Agreement”).
Solstra will be responsible for providing retail water service to customers at Solomon Hills through its own legal entity or partnering
with a public water system.
The
Solstra Agreement provides that Solstra will purchase 1,275 acre-feet per year (“AFY”) of water from the Company’s
Water Conservation, Supply and Storage project (the “Project”) for service to Solomon Hills with conveyance through the Company’s
30-inch diameter, 220-mile, existing steel pipeline originating at the Company’s Cadiz property with a terminus at Wheeler Ridge
(the “Northern Pipeline”). Water supply will be made available to Solstra via the Coastal Branch of the State Water Project
through an exchange with one or more contractors under the California State Water Project, a state water management project under the
supervision of the California Department of Water Resources.
Under
the terms of the Solstra Agreement, Solstra will pay a maximum of $1,750 per acre-foot in 2024 dollars as the “as delivered”
price for Project water. The cost per acre-foot will be subject to an agreed upon annual adjustment pegged to an agreed upon index (e.g.,
CPI Water and Sewer Index).
In
addition, Solstra will make an initial payment to the Company of $150,000, upon notification of service for Solomon Hills from a local
water provider. Solstra will also make a $20,000 payment to Cadiz to support environmental review costs associated with delivery to Northern
Pipeline delivery points to exchange water to Solomon Hills.
Under
the Solstra Agreement, Solstra may seek to deliver water via a public water system that could pursue federal, state, and local grant
funding to offset the capital costs for development of conveyance and appurtenant facilities required to deliver water to Solomon Hills.
Any grant funding received by public water systems will be credited against the “as delivered” price for water paid by Solstra.
Under
the Solstra Agreement, Cadiz expects to receive net revenue of approximately $16 million over 15 years or $850 per AFY in 2024 dollars, subject
to annual inflation adjustments, for producing conserved water to be conveyed through the Northern Pipeline to Solstra.
The
Company’s Northern Pipeline has a delivery capacity of 25,000 AFY. Following execution of the Solstra Agreement, approximately
65% of the delivery capacity of the Northern Pipeline has been reserved under supply agreements. In addition to the Solstra Agreement,
the Company holds option agreements with several public water systems and is in negotiations with those public water systems to exercise
and/or amend those option agreements to take delivery of water from the Northern Pipeline via direct delivery or by exchange with State
Water Project contractors.
Annual
payments for water supply made available from the Project under the Solstra Agreement would begin when conditions precedent are met,
construction is complete, and water deliveries begin. Should Solstra elect to exit from the Solstra Agreement following commencement
of construction of improvements to the Northern Pipeline, it may be required to make an exit payment to the Company up to $2.25 million,
subject to annual inflation adjustments, depending on the date of exit.
The
foregoing description of the Solstra Agreement does not purport to be complete and is qualified in its entirety by the full text of such
document which is filed as Exhibit 10.1 to this Current Report and is incorporated by reference herein.