SETTLEMENT AGREEMENT
This settlement agreement ("Agreement"), dated as of
August 11, 2005, is entered into by and between (a) Sun World
International, Inc. ("Sun World International"), Sun Desert, Inc.,
a Delaware corporation, Coachella Growers, a California
agricultural cooperative, and Sun World/Rayo, a California
corporation (the preceding entities sometimes collectively
referred to as "Sun World"), on the one hand, and (b) Cadiz Inc.,
a Delaware corporation ("Cadiz") (Cadiz and Sun World sometimes
collectively referred to as "Parties" or individually as a
"Party"), on the other hand, with reference to the following
Recitals:
RECITALS
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A. Sun World commenced petitions for relief under chapter
11, title 11 of the United States Code on January 30, 2003 and are
debtors and debtors in possession in joint administration case No.
RS 03-11370 before the United States Bankruptcy Court for the
Central District of California (Riverside Division) ("Bankruptcy
Court").
B. Sun World has filed and solicited consents to the
"Debtor's First Amended Joint Plan of Reorganization Dated May 6,
2005, as Amended" ("Plan"). The hearing on confirmation of the
Plan presently is scheduled for August 26, 2005. Terms defined in
the Plan are incorporated herein by this reference as though more
fully set forth herein.
C. The Plan classifies all Cadiz's Interests in Class 5,
and provides that such Interests shall neither receive nor retain
any distribution nor retain any property under the Plan and that
all such Interests shall be deemed cancelled or extinguished on the
Effective Date.
D. As discussed in the Disclosure Statement Describing
Debtors' First Amended Joint Plan of Reorganization Dated May 6,
2005, as Amended ("Disclosure Statement"), the Debtors believe that,
after determining Sun World's federal income tax for calendar year
2005 and reducing tax attributes by the amount of any cancellation
of indebtedness income resulting under the Plan, Sun World may have
substantial remaining separate federal net operating loss
carryovers and tax attributes (collectively, "NOLs"). Sun World
believes that under applicable law, any federal NOLs that are
attributable to Sun World which remain after the determination of
Sun World's federal income tax for 2005 would not survive the
change of ownership provided for under the Plan, even if Sun
World's creditors received that ownership interest. These
remaining losses, therefore, are of no utility to Sun World's
creditors.
X. Xxxxx has advised Sun World that, absent the resolution
set forth in this Agreement, Cadiz intends to file an Administrative
Claim ("Cadiz's Administrative Claim") in the amount of $2,093,000
based upon Sun World's use of Cadiz's tax attributes to shelter
state and federal income taxes that Cadiz maintains Sun World
would have incurred and been required to pay on account of the
taxable years 2004 and 2005 had an ownership change occurred upon
implementation of the Cadiz/Sun World Settlement in December 2003.
F. Sun World disputes the Cadiz Administrative Claim.
G. Subject to the terms set forth herein, Sun World and
Cadiz desire to address and resolve their differences concerning
the Cadiz Administrative Claim and various other matters.
NOW, THEREFORE, FOR GOOD AND VALUABLE CONSIDERATION, THE
RECEIPT AND ADEQUACY OF WHICH THE PARTIES EXPRESSLY ACKNOWLEDGE,
AND BASED UPON THE PRECEDING RECITALS, SUN WORLD AND CADIZ AGREE
AS FOLLOWS:
1. Within five (5) business days following the Effective
Time, Cadiz shall pay the Continuing Estates cash in the amount of
$25,000.
2. As of the Effective Time, Cadiz shall be deemed to
withdraw with prejudice and shall not thereafter assert the Cadiz
Administrative Claim.
3. Sun World shall move the Court to approve this Agreement
and to modify the Plan as follows:
(a) Article 4, Section 4.5 of the Plan will be changed
as follows:
4.5.2 TREATMENT. Class 5 Interests are
impaired. Cadiz will be treated in accordance with
the Cadiz Settlement Agreement described in Section
7.6 of the Plan. By virtue of the Cadiz Settlement
Agreement and in consideration thereof, Cadiz will
retain its Interests in the Debtors and receive the
rights accorded in Section 7.6 of the Plan free and
clear of all Claims, liens, charges, encumbrances
and other interests, but otherwise will not receive
or retain any value from the Estates or the
Continuing Estates under the Plan.
(b) Article 7, Section 7.5.1 of the Plan will be changed
as follows:
7.5.1. The Continuing Estates shall terminate
on the Case Closure Date as the same may be
extended in accordance with the Plan. Notwithstanding
anything to the contrary contained in the Plan, the
Continuing Estate Representative may proceed to close
the Reorganization Cases but make arrangements, as
approved by the Bankruptcy Court, for the Continuing
Estate Representative or a successor to remit any
consideration payable in accordance with Section 7.6
of the Plan to the holders entitled to such
consideration under the Plan and to reserve an amount
from distribution to cover the anticipated expenses
associated therewith. Notwithstanding the occurrence
of the Effective Date, the Debtors shall continue as
the Post-Effective Date Debtors.
(c) Article 7, Section 7 of the Plan shall contain the following
new Section 7.6:
7.6 CADIZ SETTLEMENT AGREEMENT; CONTINUATION OF
DEBTORS
7.6.1 The "Settlement Agreement" dated as of
August 11, 2005, between the Debtors and Cadiz, a
copy of which is attached to this Plan as an
exhibit ("Cadiz Settlement Agreement"), shall be
implemented pursuant to this Plan in full
settlement of the disputed claims described
therein. In accordance therewith, Cadiz shall
continue to own Sun World International, and Sun
World International, in turn, shall continue to own
the other Debtors notwithstanding the occurrence of
the Effective Date, free and clear of all Claims,
liens, charges, encumbrances, and other interests
but subject to the obligations imposed in this
Section 7.6 of the Plan. Subject to Section 7.6.1
of the Plan, the Continuing Estates shall not be
liable for any liabilities incurred by the Post-
Effective Date Debtors or Cadiz, and Cadiz and the
Post-Effective Date Debtors shall not be liable for
any liabilities incurred by the Continuing Estates;
provided, however, that the Continuing Estates
shall reimburse the Post-Effective Date Debtors or
Cadiz (or pay directly to the taxing authorities)
for any taxes incurred by the Estates or the
Continuing Estates which the Post-Effective Debtors
or Cadiz is required to pay under applicable law.
In determining the amount by which the Continuing
Estates shall be required to reimburse the Post-
Effective Date Debtors or Cadiz, tax liability for
income incurred by the Estates or the Continuing
Estates shall be computed as follows: (i) to the
extent for any period the Estates or the Continuing
Estates file or previously filed a federal
consolidated income tax return or a combined
California income tax return with Cadiz, as the
case may be, or are deemed by a taxing authority to
be members of the Cadiz affiliated group or
combined group, such amount shall be after giving
effect to any NOLs available in the consolidated
group, and (ii) to the extent for any period the
Estates or the Continuing Estates file a separate
federal income tax return or a separate California
income tax return, as the case may be, or are
deemed by a taxing authority not to be members of
the Cadiz affiliated group or combined group, such
amount shall be calculated as if the Plan had
provided for the elimination of Cadiz's Class 5
Interests on the Effective Date. In other words,
in connection with (ii) above, the Continuing
Estates shall not be placed in a worse position
from a tax perspective than they would have been if
the Plan had not provided for Cadiz to retain its
Interests in Sun World International. Without
limitation of any of the foregoing obligations, on
or before the Effective Date, Sun World shall fully
fund (by means of estimated payments to the
applicable taxing authorities and/or payments
accompanying returns or a reserve from distribution
of sufficient cash in a segregated account to be
established solely for purposes of satisfying such
obligations) all federal and state taxes reasonably
projected to be payable on account of the tax years
ending December 31, 2004 and December 31, 2005.
7.6.2 Following the Effective Date, to the
extent permitted under applicable law, Cadiz may
elect, in its sole discretion, to continue to file
a consolidated federal income tax return and/or
California combined return with Cadiz and any Post-
Effective Date Debtors. Any period for which any
Post-Effective Date Debtors are included in a
consolidated federal income tax return or a
combined state tax return is referred to herein as
a "Consolidated Return Year." If for any
Consolidated Return Year beginning, with the year
ending December 31, 2005 through the year ending
December 31, 2011 (but, as to the Consolidated
Return Year ending December 31, 2005, solely with
respect to any taxable income and gains that are
recognized by Cadiz after the Effective Date though
December 31, 2005), the application of any net
operating losses, loss carryovers or tax attributes
of the Debtors remaining after determining the
Estates' federal income tax for calendar year 2005
and utilizing any NOLs in connection therewith
("Remaining Pre-Effective Date Losses") reduces the
consolidated tax liability of Cadiz below the
amount that would have been payable by Cadiz with
respect to taxable income and gains recognized by
Cadiz if any such Remaining Pre-Effective Date
Losses were not available, then Cadiz shall, within
thirty days after the date Cadiz's tax return is
filed (as the same may be extended in accordance
with law), pay the Continuing Estates cash in an
amount equal to twenty-five percent (25%) of the
amount of the reduction so computed to the
Continuing Estate Representative for distribution
under the Plan. Nothing in this Agreement shall
obligate Cadiz to utilize any Remaining Pre-
Effective Date Losses before exhausting any losses
incurred by Cadiz or any Post-Effective Date
Debtor, nor relieve Cadiz of any obligation imposed
under law concerning the order in which any losses
must be utilized.
7.6.3 Subject to Section 7.6.1, Cadiz shall be
responsible for and shall satisfy, without any
right of reimbursement or compensation from the
Continuing Estates (or reduction in any payments
previously made), any audit adjustments and
resulting demands, judgments or orders made by the
Internal Revenue Service or the California
Franchise Tax Board or any court implementing any
such orders (or otherwise agreed or consented to by
Cadiz or imposed upon Cadiz) occurring after the
date of this Agreement with respect to any federal
consolidated income tax return or combined
California income tax return to which (i) Cadiz and
the Estates, (ii) Cadiz and the Continuing Estates
or (iii) Cadiz and the Post-Effective Date Debtors
are parties or are deemed by a taxing authority to
be members of the Cadiz affiliated group or
combined group (but not with respect to any
separate federal income tax return or any separate
California income tax return to which the
Continuing Estates are parties and are not deemed
by a taxing authority to be members of the Cadiz
affiliated group or combined group), including
without limitation, any interest, costs and
penalties associated therewith (collectively,
"Audit Adjustments"), and shall, subject to section
7.6.1, fully indemnify and hold harmless the
Continuing Estates in connection therewith;
provided, that Cadiz shall not be responsible for,
and shall have no obligation to indemnify the
Continuing Estates against, any Audit Adjustments
to the extent they are attributable to taxable
income or gains recognized by the Continuing
Estates. For purposes of this Section 7.6.3, to
the extent that as of the date of this Agreement,
the Internal Revenue Service or California
Franchise Tax Board has filed any proof of claim or
administrative expense claim asserting liabilities
that would otherwise fit within the definition of
"Audit Adjustments," or has otherwise advised Sun
World that such entity believes that any such
liabilities may exist, any such proofs of claim,
administrative claims or matters as to which such
entity has advised Sun World shall not be deemed
"Audit Adjustments." Notwithstanding anything
contained in this Section 7.6.3, to the extent that
Audit Adjustments for any Consolidated Return Year
would have resulted in a smaller payment by Cadiz
to the Continuing Estates under Section 7.6.2 for
such year, Cadiz's prospective payment obligations
under Section 7.6.2 shall be reduced on a dollar
for dollar basis, without interest, to the same
extent for future years.
7.6.4 Cadiz shall maintain books, accounts and
records so as to disclose clearly and accurately
the precise nature and details of the operations of
the terms set forth herein, and the Continuing
Estate Representative (or any accountant employed
by the Continuing Estate Representative) shall have
reasonable access on a confidential basis to such
books, accounts and records, but only to the extent
reasonably necessary to verify Cadiz's compliance
with the terms set forth herein. Subject to a Sun
World prepetition creditor's execution of a
confidentiality agreement in a form and substance
reasonably acceptable to Cadiz and the Continuing
Estate Representative, the Continuing Estate
Representative may report to such creditor
concerning the results of Cadiz's compliance as a
result of any such review, but shall disclose
confidential information regarding Cadiz only to
the extent reasonably necessary for the evaluation
of Cadiz's compliance with Section 7.6 of the Plan.
In the event of any litigation concerning Cadiz's
performance under this Agreement, the Continuing
Estate Representative shall exercise commercially
reasonable efforts to file any documents or
information identified by Cadiz as confidential
under protective seal.
7.6.5 Subject to the preceding, (a) Cadiz and
the Post-Effective Date Debtors shall be entitled
to utilize all Remaining Pre-Effective Date Losses,
without furnishing any further compensation or
reimbursement to the Estates or the Continuing
Estates, and free and clear of all Claims, liens,
charges, encumbrances, and other interests; and (b)
to the extent, after the Effective Date, the Post-
Effective Date Debtors acquire new property (i.e.
not in exchange for, or proceeds from, the
Estates), utilize any Remaining Pre-Effective Date
Losses, or engage in any business transaction or
activity, such property and proceeds or profits
generated in connection therewith shall be free
and clear of all Claims, liens, charges,
encumbrances, and other interests.
4. Except for (i) the obligations set forth in this
Agreement and (ii) the obligations set forth in the Cadiz/Sun World
Settlement (as defined in the Plan), Sun World and Cadiz shall, as
of the Effective Time, be deemed to forever and fully release,
relieve, waive, relinquish and discharge one another with respect
to any and all actual or potential demands, claims, actions,
causes of action (including derivative causes of action), suits,
assessments, liabilities, losses, costs, damages, penalties, fees,
charges, expenses and all other forms of liability whatsoever, in
law or equity, whether asserted or unasserted, known or unknown,
foreseen or unforeseen, arising under the Bankruptcy Code, state
law or otherwise now existing or hereafter arising that either
party ever had, now has, or hereafter may have based in whole or
in part upon any agreement, act, omission, or other occurrence
through the Effective Time. The release contained in this
paragraph shall apply to all claims, whether known or unknown. As
to each and every claim released hereunder, each Party also waives
the benefit of the provisions of section 1542 of the Civil Code of
California (and any similar statutes or principles) which provides
as follows:
A GENERAL RELEASE DOES NOT EXTEND TO CLAIMS
WHICH A CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST
IN HIS FAVOR AT THE TIME OF EXECUTING THE RELEASE,
WHICH IF KNOWN BY HIM, MUST HAVE MATERIALLY
AFFECTED HIS SETTLEMENT WITH THE DEBTOR.
5. This effectiveness of this Agreement is conditioned upon
the Effective Time (as defined below). Absent the occurrence of the
Effective Time, this Agreement shall be of no force and effect,
and Cadiz and Sun World reserve their respective rights.
6. The Effective Time shall mean the latest of (i) entry of
an order of the Bankruptcy Court approving Sun World's motion to
approve this Agreement and the modifications to the Plan set forth
herein and finding, among other things, that the modifications set
forth herein do not adversely change the treatment of the claim of
any creditor or the interest of any equity security holder who has
not accepted in writing the modification, are and shall be deemed
accepted by all creditors and equity security holders who have
previously accepted the Plan, and shall not entitle any creditor
to change or withdraw any acceptances to the Plan, and further
finding and decreeing that the Plan is modified as set forth in
this Agreement, (ii) the passage of eleven (11) calendar days
following entry of such order without a stay pending appeal or
other stay on enforcement of such order, and (iii) the occurrence
of the Effective Date of the Plan as so modified.
7. This Agreement shall be binding upon the Parties'
respective successors and assigns.
8. Each Party individually represents to the other Party
that such Party has authority to enter into and perform under this
Agreement.
9. The Bankruptcy Court shall retain jurisdiction over any
dispute concerning this Agreement to the fullest extent permitted
by law.
10. In the event of a dispute involving this Agreement, the
prevailing Party shall be entitled to recover its reasonable
professional fees from the non-prevailing Party.
11. Sun World makes no representations and warranties
concerning the existence or availability of the Remaining Post-
Effective Date Losses, and Cadiz makes no representations and
warranties regarding the ability to use any Remaining Post-
Effective Date Losses.
12. This Agreement shall be governed by the internal laws
of the State of California, without regard to any principles of
conflicts of laws.
13. This Agreement and the Cadiz/Sun World Settlement
represent the entire agreement of the Parties with respect to the
subject matter hereof. No representations, warranties, inducements
or oral agreements have been made by any of the Parties except as
expressly set forth herein. This Agreement may not be changed,
modified or rescinded except in writing, signed by all Parties
hereto, and any attempt at oral modification of this Agreement
shall be void and of no effect.
SUN WORLD INTERNATIONAL, INC.
By: /s/ Xxxxxxx X. Xxxxx
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Its CFO
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Dated: August 12, 2005
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SUN DESERT, INC., a Delaware Corporation
By: /s/ Xxxxxxx X. Xxxxx
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Its CFO
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Dated: August 12, 2005
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COACHELLA GROWERS, a California
Agricultural Cooperative
By: /s/ Xxxxxxx X. Xxxxx
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Its CFO
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Dated: August 12, 2005
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SUN WORLD/RAYO, a California Corporation
By: /s/ Xxxxxxx X. Xxxxx
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Its CFO
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Dated: August 12, 2005
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CADIZ INC., a Delaware Corporation
By: /s/ Xxxxx Xxxxxxxxx
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Its CEO
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Dated: August 12, 2005
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